Question

Colour Paints Ltd (‘Paints’) is a public company of which Black, White and Brown are the directors. Each of these directors controls a 10% shareholding in Paints. No other single shareholder holds more than a 5% shareholding in the company. Paints was established some time ago in order to improve the buying power of a number of smaller retailers of paints so that they might meet the competition of larger retail chains. For 6 years the company has actively pursued the object of purchasing paint from manufacturers on behalf of members at a price comparable to that paid by the large retail chains. However, in the last year, the present directors, who are among the largest of the small retailer members of Paints, have considered introducing scaled benefits for members according to the volume of purchases that they make. They say that the smaller members of Paints will still remain better off than if they were to purchase alone, and that to meet increasing administrative costs, some recognition should be paid to the fact that a small number of Paints' larger members have really been responsible for the benefits received by all members. At various meetings over the past year the directors have continually raised these points. Last week, the board passed a resolution establishing a new members' buying list, by which the larger members of Paints will continue to buy at prices comparable to those paid by the retail chains and the smaller purchasing members will pay 15% more. George Brush, a member holding a 2% shareholding wishes to challenge the directors' actions. REQUIRED: On what legal grounds might George Brush proceed to challenge the actions of the directors and what legal remedies might be available to him?

Answer 1

Ans. George Bush (Minority Shareholder) wishes to challenge against Directors’ action.

In this case, George Bush can oppress the other shareholders action as a ‘right enforced against other shareholders’ under the statutory and common law of the state in which the company is incorporated (Delaware General Corporation Law -DGCL). DGCL and Court helps the minority shareholders to enforce their right and also helps to protect them.

In this case, George Bush may give petition for resolution which passed to establishing a new members' buying list. This is an oppressive conduct and the breach of duties by the Major shareholders.

As Legal remedies, Delaware law provides minority shareholders with remedies against controlling shareholders for breaches of fiduciary duty like an oppression claim or fiduciary duty claim.