- 20 Marks
MLP – JUL 2020 – L4 – Q1 – Legal Position of Bank in Company Diversification Loan
Advise Agyakrom Bank on its legal position regarding a negotiated loan to Ayensu Books plc for investing in a cinema and leisure complex, considering the company's objects clause, authorization requirements, and potential ultra vires issues.
Question
The main business of Ayensu Books plc is the running of a publishing company in Accra. The objects clause of the company’s regulations includes a power to borrow money as authorized by a general resolution of members. It further states that the directors may do all things that are conducive or incidental to the general business of the company and concludes with a paragraph stating that all the objects are to be regarded as distinct and separate.
The directors decided that the company should invest in a cinema and leisure complex on the Motorway Extension as a means of diversifying and offsetting its risks.
The finance director, acting on behalf of Ayensu Books, negotiated with the manager of Agyakrom Bank plc, the company’s bankers, for the borrowing of GH¢5 million to finance the development. The money is due to reach Addick’s Books bank account next month. In turn, the managing director contracted with Power Construction plc for the construction of the complex, which Power Construction has started to build, but for which it has yet to receive any payment.
Advise Agyakrom Bank on its legal position.
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