From: Supervisor

To: Trainee

We have recently taken on a new client, Dream Productions, which is a well-known film studio responsible for producing high budget feature films. 

Last year, Dream Productions entered into a joint venture with CD Comics, a leading publisher of physical comic books. The joint venture was set up to develop children’s feature films for the US market, based on both CD Comics’ characters and new (jointly developed) characters. 

The joint venture operates through a company called Wonder Films. Dream Productions owns 45% of the shares in Wonder Films (which afford 45% of the voting rights) and has three directors on the board of Wonder Films. CD Comics owns the remaining 55% of the shares (which afford 55% of the voting rights), and has four directors on the board of Wonder Films.

The four Wonder Films directors appointed by CD Comics now want Wonder Films to take the following actions: 

1. Produce a new children’s movie for the Australian market.

2. Launch a new share option scheme to incentivise existing and future employees.

3. Purchase a suite of technology to be used throughout the Wonder Films head office. This technology will cost £150,000.

4. Promote the current production assistant to the role of Head of Production, which would include paying them a salary of £72,500 per year.

5. Grant an exclusive licence to CD Comics allowing it to publish comic books featuring characters that were jointly developed for one of Wonder Films’ latest movies. 

The three directors appointed to the Wonder Films board by Dream Productions want to block these actions, and have asked us to advise on whether they have the power to do so under the joint venture shareholders’ agreement that exists between Dream Productions and CD Comics (see below extract). 

Please let me know your thoughts by 5pm today.

(90 mins, 1,100 words)

Wonder Films 

Extracts from the Joint Venture Shareholders’ Agreement

JV Parties

(1) DREAM PRODUCTIONS LIMITED, a company incorporated and registered in England and Wales with company number 12345678, whose registered office is at 1 London Road, London, L10 ABC (“Dream Productions”).

(2) CD COMICS LIMITED, a company incorporated and registered in England and Wales with company number 87654321, whose registered office is at 1 Manchester Road, Manchester, M10 CBA (“CD Comics”).

(3) WONDER FILMS LIMITED, a company incorporated and registered in England and Wales with company number 24687531, whose registered office is at 1 Yorkshire Road, Yorkshire, Y10 BCA (“Wonder Films”).

1. Definitions 

“Business” means the creation, development and production of feature films aimed principally at children in the US, and such other business as the JV Parties may from time to time agree should be carried on by the Company.

“Company” means Wonder Films.

“CD Directors” means directors of the Company who were appointed by CD Comics.

“DP Directors” means directors of the Company who were appointed by Dream Productions.

“JV Parties” means Dream Productions and CD Comics.

“Material Asset” means:

(a) An asset that has a value in excess of £200,000; or 

(b) A collection of related assets that are purchased within the same financial year, which have a combined value in excess of £200,000.

2. Reserved matters

2.1 Each JV Party shall procure that the Company shall not, without the prior written approval of at least one CD Director and one DP Director, carry out any of the actions set out in Appendix A. 

2.2 Any other decisions may be taken if approved by a majority of the directors of the Company.

Appendix A

The following are the actions referred to in clause 2.1: 

1. Permitting the registration of any new person or organisation as a shareholder of the Company.

2. Altering the name of the Company.

3. Entering into any transaction outside the normal course of the Company's Business, or otherwise than at the best price or on the best terms reasonably obtainable.

4. Entering into any contract of a long-term or unusual nature. 

5. Obtaining debt or equity finance.

6. Establishing or amending any profit-sharing, share option, bonus or other incentive scheme of any nature for directors or employees.

7. Making any loan, granting any credit (other than in the normal course of trading) or giving any guarantee or indemnity.

8. Entering into or varying any contract of employment providing for the payment of remuneration (including pension and other benefits) in excess of a rate of £75,000 per annum

9. Creating or granting any mortgage or other encumbrance over the whole or any part of the Company.

10. Acquiring, transferring, leasing, licensing or disposing of any Material Asset.

11. Acquiring, investing in, or merging with any other company or business undertaking.

12. Substantially changing the general nature of the Company's Business, or commencing any new business by the Company which is not directly related to the Business.

13. Terminating (or giving notice to terminate) any arrangements, contracts or transactions which are material to the Company’s Business.

14. Entering into any transaction, arrangement or agreement with a shareholder (or a person controlled by or connected with any shareholder) of the Company.