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Molea v Molea [2016] SBCA 13; SICOA-CAC 13 of 2015 (22 April 2016)

IN THE SOLOMON ISLANDS COURT OF APPEAL

JUDGMENT OF THE COURT

1. The claimant below appeals against the decision of Faukona J dated the 13^th of May 2015 dismissing all relief.

Background

2. The second respondent was incorporated on the 26^th of August 1995 under the Company’s Act Cap 175.
3. There were 10,000 one dollar shares, said to be fully paid, and one share each was issued to the appellant and the first respondents. They were also the directors of the company.
4. At some stage Mr. Leslie Molea appears to have been allotted one share as well. It is unclear exactly when and how this occurred, but it certainly appears in the company documents filed with the Registrar as early as 2002. For unexplained reasons he plays no part in these proceedings.
   
5. At a board meeting dated the 8^th of July 2010 there was a discussion about increasing the share capital to $100,000.
   
6. At the next board meeting on the 26^th October 2010 a majority of the directors purported to increase the capital to that sum and allocated shares as follows: - Toata Molea 50 shares; Kaukui Molea 10 shares; Kaluae Molea 10 shares; Trevor Molea 10 shares; Selson Molea 5 shares; Kabe Molea 5 shares; Hellen Molea 5 shares; Doreen Max 5 shares. The value of each share was fixed at $1000 and demand was made. The appellant abstained.
   
7. It is alleged by the appellant that the shares of Kaukui, Kaluae, Trevor, Hellen and Toata Molea were paid from the funds of the second respondent. Demand was made on the appellant but he was either unable or declined to pay.
   
8. Thes clearly been a falling out between the appellant and at l at least Toata Molea, if not the rest of the family. As a consequence of what occurred the appellant initiated these proceedings, essentially maintaining that the actions of the directors were ultra vires and amounted to oppression of a minority shareholder.
   
9. For the sake of completeness it is to be noted that the new Solomon Islands Companies Act of 2009 required all companies registered under the earlier Act to be re-registered within a set time period. This was done on the 23^rd of March 2011 where it shows 80 shares allocated as follows: - Toata Molea 50; Philip Kaukui Molea 10; Trevor Mole Kaluae Molea 10 :- tot- totaling 80 of the 100 shares that had been agreed to by the majority of directors. This allocation ofes, of course, does not align with the purported resolution of the majority of the directorectors.
   
10. We will return to the matter of re-registration.
    

The judgment

11. It appears the judge viewed this very much as a family dispute. While recognizing that increases of capital were governed by the Articles and Memorandum of Association, he held this made no difference. His reason was that the same three shareholders and directors (the appellant and the first respondents) would have attended any General Meeting so thcome would havd have been the same. He appears not to be concerned that the proper process under the Articles and the Memorandum of Association were not followli>
12. He stressed that this was a family dispute and that the family should endeavor to resolve it amongst themselves. We do endorse the sentiments of the judge in that regard.

Decision

13. There is no dispute that the affairs of the Second Respo, before re-registratitration, were governed by the Articles of Association dated the 10^th of August 1995.
    
14. In the Athe Articles alteration of capital is dealt with in a special section 8 to 10.
    
15. Article 9 states :

“The company in General Meeting may from time to time increase the capital by the creation of new shares of such amount as maybe deemed expedient and all the provisions of these Articles shall apply to the shares in the new capital in the same manner in all respects as to shares in the original capital of the company.”

16. There then follows a section dealing with General Meetings that sets out that a General Meeting must be held once in a calendar year. It goes on to state that such a general meeting shall be called the Annual General Meeting and all other general meetings of shareholders shall be called “Extraordinary General Meetings”. This clearly envisages the right to call additional meetings to deal with matters of business that require a General Meeting. This obviates the need to await an AGM.
    
17. There is a requirement to give notice of General Meetings specifying the place, day and hour and the general nature of the business to be determined. There is a saving clause so that where there is an accidental omission to give the requisite notice that shall not invalidate any resolution passed.
    
18. In this case it is clear that no General Meeting was called. The resolution to increase the capital and to allocate shares was made by a majority vote of directors at a director’s meeting. That is clear from the minutes at page 55 of the Appeal Book. The failure to call the requisite General Meeting as required by the Articles is a fatal flaw which means this appeal must be allowed. In this case that flaw is reinforced because those entitled to attend any General Meeting were different from those entitled to attend a director’s meeting. Leslie Molea, the holder of one share, was entitled to be served with notice of any General Meeting and to attend. It means that the purported increase of capital and allocation of shares must be ultra vires.
    
19. Given that the shareholders of this company are family members and the decision of the judge dealt with it essentially as a family dispute in what he considered to be a just way it is appropriate we make some additional comments.
    
20. An informed decision was made to incorporate the Second Respondent by TMolea. IncorIncorporation carries with it not inconsiderable benefits. The chief benefit is that the liability of shareholders is limited.
    
21. It may be that the Appellant has had little input into the affairs of the company. Toata Molea and other family members may have made a far greater contribution including financial advances to the company. But if such was done this could be reflected in the accounts of the company if they were properly documented.
    
22. Given the benefits of incorporation, whether a company is a family one or not, there is an obligation to comply with the relevant legislation, with any Articles and Memoranda of Association or other applicable rules. That is the obligation of all those who incorporate companies in the Solomon Islands. This company is no exception.
    
23. Here, as we have noted, the increase of capital and the issue of shares was fatally flawed. The Appellant does not challenge in any way the re-registration or the election to apply the model rules in Schedule 2 of the 2009 Act to this company. We must take this into account.
    
24. It follows from our decision that the increase of capital and allocation of shares is declared to be null and void. Therefore, as at the date of re-registration the company had 10,000 shares with one each allocated to the appellant, the first respondents and Leslie MolTa. To correct the situation we direct the Registrar of Companies to correct the register to record the company as having 10,000 shares, the 4 shareholders mend above and that the directors remain the appellant and fird first respondents given there is no proof of legitimate change of directors.
    
25. It follows that the issuing of any of the unallocated shares needs to be in accordance with the 2009 Act and the model rules adopted by this company. Any increase in capital and issuing of shares must also be in accordance with the provisions of the Act and the model rules in Schedule 2. It is not for this Court to advise how this should be done but we urge all of the parties to consider carefully the judge’s comments about resolving family issues, and also to take proper legal advice to inform the decisions they make.
    
26. There will be costs in this court and below to the appellant.
    

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Goldsbrough P

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Ward, JA

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Hansen JA