Legal Opinion regarding the changing of shareholding structure and direters; A/C Company 1 (COMPANY 1).

Mr. Z

Address….

Dear Madam/Sir,

Re: Legal Opinion regarding the changing of shareholding structure and direters; A/C Company 1 (COMPANY 1).

We refer to your letter dated January 28, 2007 on the above subject.

From perusal of your letter, it appears that Company 1 (“COMPANY 1”) vide their letter dated 9 August 2006 have informed Company 2 (“COMPANY 2”) that the board of directors of COMPANY 1 has decided to change the shareholding structure of COMPANY 1 – i.e. introduce a new director in the board in order to replace the outgoing director Ms. A. The details given by COMPANY 1 of their shareholding structure is as follows:

Name Existing Proposed
Shareholding Percentage Designation Shareholding Percentage Designation
Mr. E 30% Director 60% Director
Ms. A 70% Director 5% Shareholder
Mrs. B – – 5% Director
Mr. C – – 15% Shareholder
Mr. D – – 15% Shareholder
Total 100% 100%

In these circumstances, you have sought our legal opinion as to the impact the change of the shareholding structure will have on COMPANY 2 and whether the interests of COMPANY 2 will be protected by the replacement of the personal guarantee Mrs. A with the personal guarantee of Mrs. B, the proposed new director and personal guarantees from the proposed minor shareholders – Mr. C and Mr. D.

OUR OPINION:

Clause 11.1.19 of the Facility Agreement states as follows:

“The Borrower covenants with the Lenders that, from the date hereof until all its liabilities under this Agreement have been discharged, the Borrower undertakes not to change the capital structure or management without informing the Lenders and Agent.”

In accordance with Clause 11.1.19, COMPANY 1 is entitled to change its capital structure or management, as long as COMPANY 1 informs the Lenders and Agent of such changes. COMPANY 1 vide their letter dated 9 August 2006 has informed COMPANY 2, the agent and the lenders of the change in the shareholding structure of COMPANY 1. Hence, COMPANY 1 is in compliance with Clause 11.1.19 of the Agreement. However, please check the Articles of Association of COMPANY 1 to see whether there is any restriction forbidding the transfer of shares to a minor.

Also note that section 27 A of the Bank Companies Act 1991 also applies in this present scenario. According to this section, the resignation of a Director of a debtor-company shall not be effective and she cannot transfer or sell her shares without the consent of the Board of Directors of the loan giving bank or financial institution. As such, the resignation of Mrs. A and the transfer of shares by her shall not be effective until the Board of Directors of COMPANY 2 and the other syndicated lender(s) have given their consent.

COMPANY 2 seeks to replace the personal guarantee of Mrs. A with the personal guarantee of Mrs. B, the proposed new director and personal guarantees from the proposed minor shareholders – Mr. C and Mr. D.

There is no legal prohibition or restriction for the replacement of the personal guarantee Mrs. A with the personal guarantee of Mrs. B. The decision of which is a commercial issue.

Regarding the giving of personal guarantees by the minor shareholders – Mr. C and Mr. D, please note that according to Section 11 of the Contract act 1872:

“Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.”

According to the Majority Act 1875, a person is deemed to attain his majority when he has completed his age of 18 years not before.

Therefore, any contract entered into by a minor, i.e. a person below the age of 18 years, is void.

Although the ages of Mr. C and Mr. D has not been provided to us, we assume that both are below the age of 18 and as such they are not competent to give personal guarantees.

If you have any further query, please do not hesitate to contact the undersigned.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

Disclaimer:

The information contains in this web-site is prepared for educational purpose. This site may be used by the students, faculties, independent learners and the learned advocates of all over the world. Researchers all over the world have the access to upload their writes up in this site. In consideration of the people’s participation in the Web Page, the individual, group, organization, business, spectator, or other, does hereby release and forever discharge the Lawyers & Jurists, and its officers, board, and employees, jointly and severally from any and all actions, causes of actions, claims and demands for, upon or by reason of any damage, loss or injury, which hereafter may be sustained by participating their work in the Web Page. This release extends and applies to, and also covers and includes, all unknown, unforeseen, unanticipated and unsuspected injuries, damages, loss and liability and the consequences thereof, as well as those now disclosed and known to exist.  The provisions of any state’s law providing substance that releases shall not extend to claims, demands, injuries, or damages which are known or unsuspected to exist at this time, to the person executing such release, are hereby expressly waived. However the Lawyers & Jurists makes no warranty expressed or implied or assumes any legal liability or responsibility for the accuracy, completeness or usefulness of any information, apparatus, product or process disclosed or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product process or service by trade name, trade mark, manufacturer or otherwise, does not necessarily constitute or imply its endorsement, recommendation or favouring by the Lawyers & Jurists. The views and opinions of the authors expressed in the Web site do not necessarily state or reflect those of the Lawyers & Jurists. Above all, if there is any complaint drop by any independent user to the admin for any contents of this site, the Lawyers & Jurists would remove this immediately from its site.