Reference no: EM133295103

Question:- Mandy and Jennifer formed a company, Nature Only Ltd, whose business was to manufacture and market cosmetics made entirely from natural products. The objects clause of the company's memorandum of association provided that:

(i) The company was formed with the purpose of manufacturing and retailing cosmetics made entirely from natural source material. The directors are expressly prohibited from using any non-natural substance at any stage during the manufacture, processing or retailing of the products manufactured or sold by the company.

(ii) The company could make provision for pensions and other retirement benefits for its ex-employees and their dependants up to £8000 with directorial decision only.

During a period when prices for naturally sourced perfumes were exceptionally high, Mandy and Jennifer, who were the company's only directors, purchased scent products manufactured from artificial sources from Laboratories Gurney. The cost of this transaction was entirely financed from a loan from the Westnat Bank plc. The bank knew the purpose of the loan. The directors have also agreed to pay £10,000 to Kate, the widow of the company's former chief salesman. Lily, a shareholder, who holds 30% of the issued capital of Nature Only Ltd and who is an ardent believer in natural products, has found out about these transactions. Advise Lily as to the validity of the transactions and as to any steps she may take to call the directors to account for their decisions.