Jupiter Publications Ltd was formed in 1998. The directors are May, Belinda, Harry
and Tim. Each director holds 15% of the shares of the Company. The rest of the
shares belong to five other investors who have largely remained passive.
Tim, who had inherited all his shares in the Company, was recently appointed to the
Board of Directors. Being young and inexperienced, Tim finds himself unable to cope
with the pressure of running the company and is extremely stressed.
In February 2016, Peter Higgins approached the Board. He wanted to sign a
publishing agreement with Jupiter Publications Ltd for a political thriller which he
was writing. Peter’s book featured interns in the White House being brain washed
into becoming political assassins. Peter wanted an advance fee for the book.
The Board rejected Peter’s proposal as they mistakenly believed that Peter had no
track record in publishing saleable stories. Belinda honestly felt that the market was
saturated with such novels and this would be an unprofitable move for the company.
May, however, knew that Peter had successfully published a few stories using
different pen names. She was convinced that Peter’s book would be a big hit but
kept all these facts to herself. Tim was simply happy to follow May’s advice.
May subsequently contacted Peter and persuaded him to sign a publishing
agreement with her instead. Peter’s book is now a major best seller resulting in
massive profits for Peter and May.
Harry, in the meantime, faced financial difficulties and was close to having to declare
himself bankrupt. To avoid potential problems for the company, the Board
unanimously agreed for the company to loan Harry £20,000. Harry was present but
did not vote when this Board resolution was approved.
Last week the printing press belonging to Jupiter Publications Ltd was burgled. Six
months earlier, Tim had been put in charge of insuring the Company’s assets.
Unfortunately, he had signed the insurance form without checking the content of the
policy. The insurance company claimed that the insurance policy did not cover
burglary and therefore refused to pay. As a result, the company suffered a loss of
Harry and Tim have now found out about May’s involvement with Peter. They
nonetheless decided against legal action after May produced evidence to show that
Peter would not have signed the publishing agreement with Jupiter Publications Ltd
once he discovered that Jupiter Publications Ltd had ending lawsuits over copyright
infringements. At the same time, the Board passed a resolution that no proceedings
should be taken against Tim. They also called a shareholders’ meeting, which
passed a resolution ratifying any breaches of duty on May and Tim’s part. May and
Tim voted in favour of the resolution.
In the context of UK company law, advise May, Tim, Belinda and Harry whether
they have breached any of their administrative or fiduciary duties as
directors of Jupiter Publications Ltd.
Advise Mark, a minority shareholder, of possible action against the directors.