Nick feeling unsatisfied and unconfident in being able to get a fair price by selling his shares to the existing shareholders is legitimate but his conduct of not attempting to sell the shares to his partners or internal shareholders is not advisable. Before attempting to sell it to existing shareholders Nick trying to sell it directly to external shareholders and bringing an outsider is a violation of the Articles of Association which requires him to sell it to existing shareholders, failing which he can approach an outsider and sell his shares. Nick has violated the Articles, following which David and George can appeal in the court against the conduct of Nick trying to sell his shares to an outsider without informing them.
Articles of Association are a necessary legislation required to be followed by all company which are registered. Scottish Holdings Ltd also comes under the prevue of the Articles of Association and they need to follow it strictly. The Articles states that the resolution can be amended by passing a special resolution (Companies Act 2006, 2014). This part of the legislation was not utilised by the company when it was required to repay the debts and the directors outvoted Nick while David and George retained the decision making position. They could have used a special resolution when Nick wanted to sell his shares and without attempting to sell it to the existing shareholders went to sell it to an outsider. The Articles contain the powers of directors, meeting procedures, member’s rights, winding up a company, paying dividends to shareholders, etc. In this scenario there seems to be a lack of procedural details which enforced Nick to opt out of the share sale and later indulge in violated practices of mortgaging the company’s property and using the raised money to purchase another property with his wife through a different company unknown to David and George. The purchase of a property in Scotland by Nick with his wife by mortgaging one property belonging to Scottish Holdings Ltd is a violation of the Articles of Association as one property being owned by a company if mortgaged, the money raised from it must be used for the development of the same company and not in any other company completely not connected to Scottish Holdings ltd.