A general manager of a company manufacturing and marketing construction products discovered that one of the two shareholders (each holding 50% and also acting as a director) is using company business data and trade secrets and hired an attorney to file a claim against him by the company.
The Court held that a general manager is obligated to report to the board of directors on any unusual matter that is material to the company and receive instructions of the board of directors, certainly when the unusual matter is related to one of the shareholders, because the general manager is obligated under law to act within the policy set by the board of directors and is subject to its instructions. In this case, because the board of directors will not be able to make a decision to file a claim because of the equality of powers in it, the second director is required to submit a request to the Court to file a derivative claim on behalf of the company and there is no need to first approach the board of directors.