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1 ASHESI UNIVERSITY BUSA 403 – COMPANY AND COMMERCIAL LAW SPRING SEMESTER 2022 FINAL PROJECT WEEK 12 FOR SUBMISSION IN WEEK 15 GENERAL INSTRUCTIONS • This final project is to be submitted by Monday, 2 May 2022, 11.59pm. • The Final Project is the final assessment for this course and counts for 40% of the total assessment weighting for this course. • All questions are to be answered jointly by the group. The group answer represents 75 nominal marks. • Each group member is to submit a personal reflective report on the Corporate Governance process. This report represents 25 nominal marks. 2 CASE SCENARIO David and Kofi were very good friends back in business school. In January 2015, David met Kofi at the VIP Lounge of the Kotoka International Airport on his way to Abuja. Kofi was also on his way to Kampala, Uganda for business. The two friends shared good memories of their time in business school. David and Kofi are businessmen with wide ranging business interests. Kofi informed David that he (Kofi) was in a business partnership with Edna one of their old classmates. They decided to meet again in Accra to discuss business after three weeks. In February 2015, Edna, David and Kofi met at the plush Kempinski Hotel Gold Coast City for several hours and decided to go into business together. At first, the friends turned business partners decided to consider a partnership together in textile manufacturing. After much disagreement, David and Kofi pressured Edna that a limited liability company was the best business form to use. All three friends agreed to invest a minimum of a million Ghana Cedis each into the business. At the end of February 2015, David had contributed GHS 2,500,000 cash as his share of the initial capital. Kofi also contributed GHS 1,000,000 cash towards the business. It was agreed that Edna would pay to the company GHS 1,000,000 by the end of April 2015. It was also agreed at the Kempinski meeting that Edna would transfer to the future company her plush East Legon home valued at GHS 1,000,000 if she failed to contribute her sum by the end of April 2015. In the light of these agreements, Progressive Textiles Company Limited was incorporated as a private limited liability company in March 2015 with authorized shares of 10,000 shares of no-par value. The nature of the company’s authorised business was the design, spinning and printing of textiles. In the light of the previously agreed contributions, David, Kofi and Edna were issued with 2500, 1000 and 1000 Ordinary Shares of the company respectively. All three business partners were then appointed to the Board. David took position as Board Chair and CEO of Progressive Textiles. Because of his other 3 qualification as a Chartered Accountant, Kofi was appointed as Chief Financial Officer of the company. Edna opted to become a non-executive director due to her other business interests out of Ghana. Progressive Textiles started business in June 2015 and under the able leadership of David quickly flourished. After an initial slow start in 2015, the company made a profit GHS 440,000 after tax in 2016. In February 2016, the company secretary Ms. Mooney, resigned her position due to ill-health. The Board was unhappy to see her go and out of respect for her decided to only employ another company secretary in January 2017 after Ms. Mooney was paid all her remuneration and benefits. In January 2017, a respected senior lawyer Yayra was appointed as the new Company Secretary of Progressive Limited. With a taste for good things, Yayra, only four weeks after her appointment and without informing David and Kofi proceeded to lease a Mercedes Benz C300 Brabus trim car from Silver Star Auto Limited as a company car for her use as company secretary. After some time, Edna realised that Kofi was instigating David for them to take company decisions without her. Her business in Nigeria was at the time facing problems for which reason she could not attend all the Board Meetings of Progressive Textiles held quarterly at Akosombo in Ghana. After May 2017, Edna failed to attend the Board meetings altogether and did not concern herself much with the running of Progressive. The year 2017 proved another successful year for Progressive. Meanwhile, Edna’s business in Nigeria had collapsed and she had decided to relocate to Accra to help run Progressive. By the time of Edna’s return to Accra in January 2018, she had still not paid her share of the capital as agreed in 2015. David and Kofi therefore declined to allow her to participate in the Board and Shareholder Meetings. Yayra, the company secretary caused Progressive’s solicitors, Messrs Jamaldeen, Asimah & Co to write to Edna indicating that she was ‘only an allottee’ and not a member of the company. Edna’s East Legon home had still not been transferred to the company as was discussed before Progressive’s incorporation. Kofi wrote a rude private letter to Edna indicating amongst 4 other things that if she wanted to be a part of the company again she had to pay “GHS 3,000,000 upfront since the company in your lazy absence and under our very able management has increased in so much value than we initially invested in it. You cannot come like a thief to enjoy what you have not contributed to”. Edna became aggrieved by this and contacted Naana, a well-known lawyer, to bring an action against David, Kofi and the company for a declaration that she was a member of the company and that she was fully paid-up. Edna insists that Progressive Limited should accept the house as full payment for her shares as was agreed at the Kempinski meeting. The house is now dilapidated from neglect and is worth far less than the original GHS1,000,000. Naana has promised to teach David and Kofi a lesson for trying to cheat her client. Naana intends to compel Progressive to pay his client, GHS 100,000 for every year of business since 2016 as dividend. Sometime after that, David ran into Edna at Shoprite in the Accra Mall and urged her to pay her GHS 3,000,000 and rejoin the company peacefully. David however has information that Edna has agreed to share Progressive’s business secrets with a competitor of Progressive, Baah Textiles Limited and that is why she is anxious to attend the Board meetings. Matters came to a head in June 2018, when Yayra, the company secretary purported to write to the Registrar of companies to remove Edna’s name as a shareholder and director of the company for ‘non-payment of shares’. At the Board meeting of July 2018 for which no notices were sent, it was agreed that new 1000 ordinary shares will be issued. These were to be equally split between David’s son Emmanuel and Kofi’s daughter Afia. It was agreed by the Board that no payment was to be made by Emmanuel and Afia for their shares. Emmanuel and Afia were then appointed as Project Manager and Business Development Manager of Progressive Textiles respectively. Two new Board members, Winston and Sarah were also appointed to replace Edna. One of the new board members, Winston has business interests in the railway business. He managed to convince David, Kofi and Sarah to commit GHS 4,000,000 of Progressive’s funds to building a new railway to link Progressive’s factory in Tema to its warehouse in Accra. It was projected that Progressive could also use the railway line to transport busy professionals between the 5 Accra-Tema metropolitan areas and make fantastic profits as a result. Half of the initial investment of GHS 4,000,000 was secured by a debenture made between Progressive Limited and David personally. In the course of time, the initial GHS 4,000,000 amount was found to be wholly inadequate and the project’s total cost rose to GHS10,000,000. The Board of Directors of Progressive decided to take a loan of GHS 6,000,000 from Berekuso Bank to meet the shortfall. As a form of security, Berekuso Bank entered into an agreement with Progressive to create a specific charge over all the book debts and warehouse equipment of Progressive. Progressive was however allowed to pay all the receivables under its book debts into a current account held with Berekuso Bank. Berekuso Bank had power to restrict Progressive’s dealings with the funds received. The management of Progressive however regularly drew on this account to satisfy their day-to-day business expenses and the account was often in the red. A very well-known railway services company, Too Smart Construction Limited, a company co-owned by Winston through a nominee and a foreign business partner were contracted as lead contractors for the railway project. None of the other board members of Progressive are aware of Winston’s indirect involvement with Too Smart and Winston failed to disclose this fact. The project stalled and the money spent came to naught. Winston in the meantime received a payment of GHS1,500,000 from Too Smart Construction Limited as ‘facilitation’ fees for bringing the business to that company. It was also discovered that Kenneth, an accountant of Progressive Textiles had entered into a grand scheme over the course of financial years 2016, 2017 and 2018 with some of Progressive customers to steal over GHS 1,256,300 of the company’s funds. David is perplexed and is considering personally suing the Auditors of Progressive Textiles Ltd, Sekyi-Cann & Partners for failing to discover the misfeasance. The collapse of the railway venture and the thefts by Kenneth has put a serious strain on Progressive’s finances. The company has missed payments for the loan after repeated requests from the Bank. Berekuso Bank has therefore proceeded to block the GHS 1,400,000 in Progressive’s current account held 6 with it and to sell off the Accra Warehouse equipment of Progressive in satisfaction of the loan. The company is on the verge of imminent collapse and is now the subject of involuntary liquidation. Rebecca, a no-nonsense professional, has been appointed as liquidator. Rebecca has declined to pay the sums secured by the debenture entered between David and Progressive Textiles Limited. It is her position that David is no different from Progressive Textiles Limited and that Progressive’s unsecured creditors should be paid first. She