Blo 2205: Waldmart Ltd Assessment Answer

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The board of Waldmart Ltd proposes to issue bonus shares to existing shareholders as well as increasing the dividend to shareholders to $1.25 cents a share which is a rise of 25% on last year’s dividend. It appears that the reason for this generosity to shareholders is that shareholders overwhelmingly rejected the Remuneration Report at last year’s AGM and the company received a first strike. The constitution of Waldmart Ltd gives the board the power to issue bonus shares and the board is confident that what they are offering to shareholders by way of the shares and the dividend should please shareholders enough to make the first strike a non-issue at the next AGM.  In a separate letter to shareholders the board have set out their views on the justification for the report and the importance of shareholders approving the remuneration report and the reasons for arguing that it was not excessive.

Jim Smith is the manager of Better Super Ltd which holds 4% of the shares in Waldmart Ltd. Jim and a number other shareholders are unhappy with the proposal put by the Waldmart Ltd. Better Super Ltd and the other investors are of the view that the bonus share issue is unnecessary and the increased dividend is most unwise in these unstable financial times.

Required:

Better Super Ltd and the other shareholder seek your advice as to the following:

1. Does the board of Waldmart have the power to issue bonus shares and can the shareholders at the upcoming AGM legally compel the board not to issue the share?

2. Can the shareholders stop the directors from increasing and paying the proposed dividend because it is commercially unwise to do so?

3. If shareholders vote against the remuneration report and a second strike is achieved, what will be the consequence of Waldmart Ltd and its director?