Reference no: EM132349903

Shambolic Ltd is a listed company, that specialises in property investment. It was founded by two sisters, Venus and Serena. At different times Venus and Serena have issued shares to bring funds into the company, and together they now own 35 per cent of the issued shares. The other major shareholder is Olympia, who owns 40 per cent, and who is also a director. The rest of the shareholding is held by a range of other shareholders.

There has been a lot of disagreement between Olympia and Venus concerning the direction of the company. Serena always supports her sister. At a board meeting, a decision is made to allot a substantial number of shares to another property investment company, Tutu Pty Ltd. The reason given at the meeting is that Tutu will be able to bring in more funding for Shambolic's investment deals. As a result, Olympia's voting power is reduced to 10 per cent.

Olympia overhears a conversation between Venus and Serena. She finds out that Tutu Pty Ltd is controlled by Venus and Serena's mother, and the real reason the shares were issued was to dilute Olympia's shareholding and voting power, as the sisters were concerned about a takeover attempt.

Advise the directors about the possibility of a legal challenge to their actions.