To: Mr.

John James

The Chairman of Construct It Limited

From: Ms. Sue Chin

Corporate Secretary

Date: January 23rd, 2017

RE: Legal Opinion issues on the agenda by the Chairman for the board meeting
dated January 30th, 2017.

This opinion to the Chairman is consistent with the bye-laws and articles of incorporation of
Construct It Limited. It outlines the law and recommended procedure the Chairman and
other company fiduciaries should follow.

ISSUE A:

The Companies Act Chapter 81:01 (hereinafter called CATT), s.4 states that an officer of a
body corporate includes the chairman. Every director and officer of a company shall exercise
his powers and discharge his duties with care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances: (CATT, s.99(1)(b)).

An officer of a company with a material interest in a body who is a party to a proposed

contract with the company, shall disclose this interest in writing to the companys board of
directors (by general notice The Act, s.94) or request that said interest be entered in the
minutes: (CATT, s.93 (1)(b)).

Material contracts include contracts between the company and a person who shares a close
personal relationship with one of its directors: (Exide Canada Inc v Hilts (2005)11 BLR(4 th)
311 Ont SCJ). Full disclosure of the nature and extent of the interest must be made by
interested officers to the board of directors, considering the circumstances it arises: (Gray v
New Augarita Porcupine Mines [1952] 3 DLR 1 PC).

Forthwith disclosure to the board is required by an officer, who knows the contract is under
the companys consideration: (The Act, s.93(3)(a)). The material contract is neither void or
voidable due to his relationship, once officer discloses his material interest, where the
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STUDENT IDENTIFICATION NUMBER: 15236
contract was approved and was fair and reasonable to the company, when it was approved:
(The Act, s.95).

The chairman, as an officer of the company, in exercising his due diligence and care under
s.99 (1)(b) must disclose the material conflict of interest in the award of the proposed twenty-
five-million-dollar contract, as he is related to the supplier. The extent and nature of the
interest must be detailed as he intends to by-pass the tendering processes and contract with
the relative supplier notwithstanding the previous business relationship, quick supply of
materials and competitive prices the relative supplier offers. This disclosure should be made
at the next board meeting where it must be recorded in the minutes or forthwith through a
general notice to the board of the directors. The chairman should recuse himself from this
board decision.

(Word count: 325)

ISSUE B:

The Chief Executive Officer (CEO) also falls into the definition of an officer: (CATT, s.4) and
law above regarding issue A applies. Where a director or officer of a company fails to
disclose interest in a material contract made by the company, the court may upon the
application of the company or its shareholder/s set aside the contract on such terms as the
court thinks fit: (CATT, s.96).

The CEO is an ex-officio member of the board of directors and is a non-voting member of the
Tenders Committee. He owes the same duties to the company as the chairman as state above.
If it is found his wife is the director of the company retained by Construct It Ltd, he will be in
breach of his duty: per s. 99(1)(b) above and must disclose his material conflict of interest.
The CEO plays an important role in the companys operation so the chairman should
carefully approach this issue. Initially the Chairman should:

1. Examine the board meetings and tendering committee minutes to determine if the
CEO disclosed this relationship.

2. Know if the disclosure was made the CEO complied with his duty and the contract
would be valid.

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 3. Where no disclosure is found, investigate the validity of spousal relationship by
searching the contracted companys website and for a marriage certificate of the
named parties. If the relationship exists, the CEO failure to disclose is a breach of that
duty.

4. Inform the CEO of the issue before the next board meeting, allowing him opportunity
to seek legal advice.

At the board meeting the chairman should:

1. Inform the directors of the issue and its ensuing investigations, giving the CEO the
right to be heard. The CEO should leave and the board should decide the appropriate
course.

5. Advise that the concluded contract could be set aside by the company or its
shareholder/s, not the unsuccessful bidder. The software saves the company
substantial money, such application maybe inconsistent with its best interest.

6. Propose contacting the chairman of the unsuccessful bidder company and arrange a
meeting. The chairman can assure, without prejudice, the unsuccessful bidder
company that they will be given first preference in the companys next contract and
CEO will recuse himself from that tendering process, which may preserve the
companies relationship.

(Word count 335)

ISSUE C

Every director and officer of a company in the exercise of his duties and powers shall act
honestly and in good faith with the view of the best interest of the company and exercise the
care, diligence and skill that a reasonably prudent person would exercise in comparable
circumstances: (CATT, s.99(1)).

Directors shall have regard to the interest of its employees and shareholders when
determining what is in the companys best interest: (CATT, s.99(2)). Directors are under a
subjective duty to act bona fide in what they, not the court, consider to be in the companys
best interest: (Re Smith &Fawcett Ltd [1942] 340 Eng CA).

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Before the board meeting the Chairman should:

1. Examine the financial reports and organisational structure over the last two years to
determine the profitability of the companys current operation;

2. Request a report from the CEO on the new softwares purpose and its impact on
retrenchment; and

3. Obtain legal opinions from internal and external counsel regarding this decision.

At the meeting the Chairman should:

1. Furnish each director with reports obtained;

2. Propose immediate contact with the Union Leader through written notice and
commence negotiations with the Union aimed at strike prevention.

3. Ensure this board meeting is exhaustively minuted, recording the decisions made by
him and the board of directors as guided by management reports and experts opinion.

Acting in the best interest of the company may mean the best financial interest of the
company. After considering reports and talks with the union the bona fide decision of the
board should safeguard its duty owed to the company. The companys revenue at the end of
2016 was in the billions, signalling its profitability. If the decision is made to retrench the 200
workers, at once or in batches, it must be justified and the directors must ensure the
remaining workers are sufficient to complete its ongoing contracts. This will reduce risks of
companys exposure to liquidation claims and help protect its reputation.

(Word count: 328)

ISSUE D

Shareholders are empowered to remove a director whose term exceeds one-year and who was
not put up for re-election at an annual meeting, by ordinary resolution: (CATT, s.75(b)). Once
he/she possesses more than five percent of the voting shares in the company he/she may
submit to the company, a proposal including his/her director nominations: (CATT, s.118).

A director of a company is entitled to receive notice of, and be heard at, every meeting of
shareholders. A director who learns of a meeting: of shareholders called for his removal from
office; or of directors or shareholders at which a person will be appointed or elected to fill his
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officer due to his removal, may submit to the company a written statement explaining his
opposition to the proposed action: (CATT, s.76(1) and s.76(2)(b) & (c)).

Assuming the majority shareholder made the require proposal, the chairman is advised that
the majority shareholder has right to remove the two incumbent directors and propose his
nominees. In performing his s.99 duty to act in the best interest of the company, the chairman
should:

1. Investigate the background of the nominees;

2. Bring his findings to attention of the board of directors on the next meeting to prevent
the directors being surprised by the majority shareholders actions;

3. Discuss with the board of directors the appropriate courses of action such as:

a. calling a special meeting with the shareholders prior to the annual general
meeting (CATT, s.109) where the directors as fiduciaries of the company can
discuss with all shareholder the proposal of the majority shareholder; and/or

b. bringing an oppression action against the majority shareholder through its

minority shareholders or the directors of the company as complainants:
(CATT, s.239) since his actions are unfairly prejudicial, unfairly disregards the
interest of a shareholder, creditor, directors or officer of the company: (CATT,
s.242(2)).

As the political affiliation of any nominee can negatively impact the reputation of the
company in the publics eyes and the other nominees links with a competitor can
cause insider trading or conflict of interest issues; these can negatively impact the
financial interest of the company, its shareholders, directors and creditors.

(Word count: 340)

Sue Chin
Corporate Secretary

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