Legal Advice for Shareholder Deadlock and Director Dispute in EJ Company Law Case Study

Cre Hypothetical 3

Marcus and Priya are engineering graduates who connected through a hackathon competition. In 2018, inspired by their shared passion for technology and sustainable tourism, they incorporated EcoJourney Pte Ltd (“EJ”) in Singapore – a platform connecting eco-conscious travellers with sustainable adventure experiences. As equal partners, they each held 50% of the shares and served as the only two directors and senior executives. EJ’s Constitution largely followed the Model Constitution, but with these significant amendments:

51A. For as long as Marcus and Priya are shareholders, any shareholders' meeting requires both Marcus and Priya to be present for a valid quorum.

84. All questions arising at any meeting of directors must be decided unanimously by Marcus and Priya.

86. For a directors meeting to have a valid quorum, both Marcus and Priya must be present.

During the drafting of EJ’s Constitution, Marcus and Priya explicitly negotiated and included provisions 51A, 84, and 86 as fundamental protections. They specifically documented their mutual agreement that these provisions were designed to ensure that neither could make important decisions without the other’s consent, creating reciprocal veto rights that formed the cornerstone of their business arrangement. Both understood that these provisions were essential safeguards to their equal partnership.

Within its first year, EJ became Singapore’s breakthrough app in the sustainable tourism sector, generating substantial profits. In 2019, recognizing the need for additional expertise, Marcus and Priya appointed Vikram to EJ’s board as a third director. Vikram, a renowned tech investor, provided critical guidance as a non-executive director, helping EJ increase its profits by over 250%.

In late 2019, during a conference in Seoul that Vikram attended in his capacity, he met developers with a new concept for augmented reality virtual tourism – a direction completely different from EJ’s physical adventure travel business model. After careful consideration, Vikram properly resigned from EJ’s board. In early 2020, as the pandemic hit Singapore, Vikram incorporated ARExplore Pte Ltd (“ARE”) in Singapore, where he serves as CEO, Board Chair, and sole shareholder. ARE’s business model focused on virtual tourism experiences using augmented reality technology, requiring completely different expertise and resources than EJ’s physical adventure platform. Vikram developed ARE without using any of EJ’s confidential information, business plans, or resources. The pandemic devastated EJ’s business model, while ARE thrived as its virtual tourism model perfectly suited pandemic restrictions.

As EJ’s financial situation deteriorated, Marcus and Priya’s working relationship collapsed. They stopped communicating and refused to attend any meetings together. Despite having over one hundred employees, EJ could not make crucial decisions due to this deadlock.

Priya recently received emergency permission to travel to Switzerland for an urgent medical procedure using a new robotic technology and cannot return to Singapore for 21 days due to health protocols. Driven by a desire to make necessary decisions for EJ, Marcus sent a notice with 15 days’ notice for an Extraordinary General Meeting in Singapore. The EGM agenda proposes to (1) remove Regulations 51A, 84, and 86 from EJ’s Constitution and adopt all provisions in the Model Constitution; (2) remove Priya from the board and appoint Marcus’s university roommate, Sophia, as a director. Marcus claimed, “The EGM is essential for EJ’s survival – decisions must be made promptly to protect the company and its employees.” He added that immediately following the EGM, he plans to convene a board meeting so “EJ can initiate legal proceedings against Vikram to recover substantial losses resulting from his breach of directors’ duties.”

After receiving the notice for the EGM, Priya engaged you as her legal counsel. She cannot physically attend the EGM due to her medical situation. She opposes any legal action against Vikram, believing he committed no wrongdoing and that litigation would waste EJ’s limited resources. She has expressed that she sees “no future for the company in its current state” and believes “the fairest solution would be for the business to be completely dissolved, and assets distributed.” She has indicated she has “no interest in continuing this broken partnership” and wants a “clean and final break from the business.”

Based on these facts and laws covered in the course, advise Priya about all the possible legal issues in this case, what steps she may take, her chances of success, and what would be her best course of action.