Two cousins, Sean and Rochelle, decided to transfer their partnership business,

Question

Two cousins, Sean and Rochelle, decided to transfer their partnership business, which supplies commercial cookware to restaurants, to a newly formed company. They registered Cookwell Ltd as a limited liability company and arranged for it to purchase the partnership business. Shares in Cookwell Ltd were allotted equally to Sean and Rochelle. Both were also appointed as the company’s directors. Neither was appointed managing director although in practice, day-to-day decisions on running the business are left to Sean. Sean’s ex-wife, Delilah, was appointed as the company’s accountant.

Recently, Sean saw an acrylic painting by a well-known New Zealand artist for sale for $150,000. He thought the painting was particularly suitable for the board room and that the price being asked was a bargain. There was no time to contact Rochelle so Sean decided to go ahead with the purchase without informing him. The vendor insisted that Sean sign a written agreement. Rochelle, on learning of the purchase, is upset and seeks your legal advice.

Advise Rochelle whether Cookwell Ltd can refuse go ahead with the purchase IF

Sean signed the agreement as ‘director of Cookwell Ltd’ with Cookwell Ltd stated to be the purchaser; and

Cookwell Ltd’s constitution contains no special provisions dealing with corporate capacity.                                                                  (10 Marks)

Explanation / Answer

As per the information provided in above questions, Cookwell Ltd does not have any special provisions dealing with corporate capacity. When the constitution a formal document does not set out the rules governing a company then any director can enters into contract without consent with the other members of a company.

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