The Director's Loan and the Missing Board Minute
Druk Trading Private Limited has two directors, Sonam (60%) and Namgay (40%), and a paid-up capital of Nu. 1 million. In March 2023 Sonam, as sole signatory on the company bank account, transferred Nu. 700,000 to his own proprietorship as an "advance." No board resolution was passed, no interest was agreed, and no repayment has been made. Namgay discovered the transfer in the 2024 audit. He also learns that Sonam had, without board approval, sold the company's delivery truck to his brother-in-law for Nu. 250,000 when its book value was Nu. 600,000. Namgay calls a general meeting; Sonam refuses to convene it and refuses to table the audited accounts. Namgay sues in the company's name and also seeks relief for himself. Sonam argues that as 60% shareholder he controls the company and that Namgay has no standing to complain about transactions he approved as director.
1. Can Namgay bring proceedings in respect of wrongs done to the company? Analyse standing.
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Ordinarily a wrong to a company is remedied by the company, and a shareholder cannot sue for a reflective loss. Namgay's primary route is therefore a derivative action on behalf of Druk Trading, brought with the leave of the court on notice to the company. He must show that the company is not pursuing the claim, that he is a member, that he has given reasonable notice to the directors, and that he is acting in good faith. The refusal of Sonam, the controlling director, to convene a meeting or table accounts is precisely the kind of deadlock that justifies leave.
Sonam's argument that majority ownership immunises him is wrong. Directors owe duties to the company, not to the majority shareholder, and shareholder approval does not ratify a misappropriation where the approving party is the beneficiary. Namgay also has a personal claim if his membership rights are oppressed - exclusion from accounts and refusal of meetings can found a petition for relief against unfair prejudice. Both routes should be pleaded, with the derivative claim seeking recovery for the company and the personal claim seeking remedies for Namgay.
2. Assess Sonam's liability for the two transactions and quantify the likely recovery.
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Both transactions breach Sonam's duties of loyalty and care. The Nu. 700,000 transfer to his own proprietorship is a related-party transaction with no board approval, no documented terms and no interest. It is an unauthorised use of company funds and must be repaid with interest at a commercial rate from the date of transfer. The sale of the truck to a connected person at Nu. 250,000 against a book value of Nu. 600,000 is a disposal at an undervalue. The company may either rescind the sale and recover the truck, or affirm it and claim the Nu. 350,000 shortfall, plus interest. Rescission may be unavailable if the brother-in-law has parted with the vehicle or if third-party rights have intervened.
On quantification, the company's recovery is approximately Nu. 700,000 plus interest, plus Nu. 350,000 plus interest, and an account of any profits Sonam made. Sonam may also be liable to compensate for losses caused by his failure to maintain accounts. The court should order that the sums be paid to the company, not to Namgay, and may restrain Sonam from dealing with company assets pending determination.