Barbell Ptd Ltd (“Barbell”) is a company that manufactures gym and home fitness equipment. It was started by two brothers, Rocky and Ham. Both of them invested $50,000 each in the business for an equal number of shares and became Directors of the business. They wanted to have an equal say in the running of the business. The business began to experience an improvement during the COVID-19 pandemic as many people began to take an interest in home fitness.

To further expand the business, Barbell decided to bring in more investors, some of them being friends of Rocky. Due to the issuance of new shares in the company, and Ham’s inability to invest further in the company, Ham’s shareholding was diluted, and he ultimately held only 30% of the total shares in the company, the other 70% being owned by Rocky and the other investors. Two more directors were added to the Board of Directors, also friends of Rocky, to which Ham and the other shareholders were in agreement (assume there were no irregularities in the appointment of these directors and all relevant provisions under the Companies Act and other regulations were complied with).

As the business was doing well, Rocky wanted to expand into the fitness nutrition area, manufacturing and supplying low-calorie snacks and food. As more capital was needed to be injected into the company, Rocky had to find more investors. As such, Rocky ‘persuaded’ the company’s in-house accountant to better present the accounts of the firm such that the company would look more attractive to a potential investor.

The accountant thus inflated the value of certain assets and took some existing liabilities off the books. This was known only to Rocky and the two directors. Rocky kept Ham in the dark about what was done.

The company’s appointed auditor examined the accounts of the company and certified the accounts of the report as being correct. The directors also signed off on the audited accounts as being true. Armed with these certified accounts, Rocky went to meet a potential investor, Mr Shark, who was an experienced and successful businessman.

Rocky informed him of the wonderful accounts of the company and discussed the firm’s plans for expansion into the fitness nutrition area. Eventually, Mr. Shark made a decision to invest in the Barbell. An agreement was entered into between Barbell and Mr. Shark that Mr. Shark would invest $1 million into Barbell in exchange for 10% of all the total shares in Barbell.

Due to unhappiness between Rocky and Ham, Rocky wanted to remove Ham as a Director and appoint Mr. Shark as a Director. An extraordinary general meeting was convened in accordance with the company’s constitution to get shareholders’ approval to appoint Mr. Shark as a director of the company and to remove Ham as director. However, prior to the meeting, Ham had garnered support from the other shareholders to not support the resolutions to appoint Mr. Shark as a director and to remove him as director, respectively. At the extraordinary general meeting, Ham and Rocky got into a heated exchange due to the attempt to remove him as Director.