What Are the Grounds and Arguments for Directors’ Lack of Personal Interest in Share Forfeiture?

Question from aislin, What Are the Grounds and Arguments for Directors’ Lack of Personal Interest in Share Forfeiture?

Answer from AI:

In the context of the Oasis company, where MLSP is a foreign investor, the issue revolves around the forfeiture of shares due to an unmet EBITDA target. The managing director of Oasis passed a resolution to forfeit MLSP’s shares, claiming a conflict of interest for the other two directors from MLSP. Here, we will explore the grounds and arguments that could demonstrate that the directors from MLSP do not have a personal interest in the matter of share forfeiture.

Understanding Conflict of Interest

A conflict of interest occurs when a director’s personal interests could improperly influence their decisions. In this case, the managing director of Oasis claims that the MLSP directors have a conflict of interest regarding the forfeiture of shares. To counter this claim, it is essential to establish that the MLSP directors do not have a personal interest in the matter.

Legal Framework

The relevant legal provisions include:

• Section 53 of the Company Act of Nepal: This section deals with the forfeiture of shares for non-payment of calls.
• Quorum Requirements: Typically, a quorum of 51% is required for board resolutions, unless otherwise specified in the company’s articles of association.
• Conflict of Interest Provisions: Directors must disclose any personal interest in transactions or decisions involving the company.

Arguments Against Personal Interest

To argue that the MLSP directors do not have a personal interest in the forfeiture of shares, consider the following points:

1. Fiduciary Duty: Directors have a fiduciary duty to act in the best interest of the company and its shareholders. The MLSP directors’ decisions should be evaluated based on whether they were made in good faith and in the best interest of Oasis.
2. Absence of Personal Gain: Demonstrate that the MLSP directors do not stand to gain personally from the decision to forfeit shares. This can be supported by financial records and declarations of interest.
3. Compliance with Conditions: The EBITDA target was nearly met (299.96 million vs. 300 million). The directors could argue that the shortfall was due to extraordinary circumstances (COVID-19), and thus, the forfeiture is not justified.
4. Quorum and Voting Rights: Highlight that the resolution was passed without the required quorum, making it invalid. The managing director’s unilateral decision does not comply with the company’s governance rules.

Relevant Case Law

While specific Nepali case law may not be readily available, similar principles can be drawn from international cases:

• Regal (Hastings) Ltd v Gulliver [1942] UKHL 1: This case established that directors must avoid conflicts of interest and act in the company’s best interest.
• Smith v Van Gorkom, 488 A.2d 858 (Del. 1985): This U.S. case emphasized the importance of directors’ fiduciary duties and the need for informed decision-making.

Steps to Take

If you are involved in this situation, consider the following steps:

1. Consult Legal Counsel: Seek advice from a legal professional to understand your rights and obligations.
2. Review Company Documents: Examine the company’s articles of association and any shareholder agreements for specific provisions on quorum and conflict of interest.
3. Gather Evidence: Collect financial records, meeting minutes, and other documents to support your arguments.
4. Challenge the Resolution: If the resolution was passed without a quorum, it may be invalid. Consider legal action to challenge the decision.

Conclusion

While this overview provides general guidance, it is crucial to consult with a legal professional for personalized advice. Legal issues involving corporate governance and conflicts of interest can be complex, and professional assistance is essential to navigate them effectively.

For more information, you can refer to the [Company Act of Nepal](https://www.lawcommission.gov.np/en/archives/category/documents/prevailing-law/statutes-acts/the-companies-act-2063-2006) and other relevant legal resources.