QUESTION 1
Fairbridge Ltd has three directors and does not have a constitution. The three directors are Chelsea the managing director, Charlie the non-executive Chairperson and Rodney, a non-executive director. Smalls Pty Ltd is emerging to takeover Fairbridge Ltd and the directors have concerns.
At the next directors’ meeting the board is considering to issue 1,000,000 ordinary shares to Jordan, Chelsea’s husband in order to ensure that the company can expand into other markets and shield itself from being potentially taken over by Smalls Pty Ltd, a current shareholder of the company.
REQUIRED:
With reference to the relevant provisions in the Corporations Act 2001 (Cth) and case law, discuss whether Smalls Pty Ltd would be able to challenge the directors of Fairbridge Ltd for breaching their duty by issuing 1,000,000 shares to Jordan.
Note: disregard laws pertaining to takeovers when answering this question.
Note: You are required to use the 4-step process in answering this question. The marks allocated for the steps are as follows:
Steps 1 and 2: 6 marks
Steps 3 and 4: 9 marks
[15 MARKS]
Type your answer to Question 1 below:
QUESTION 2
Mailand Pty Ltd is a company importing furniture from Sweden. The directors are Carmen, Martin and Rachel and they are also the shareholders of Mailand Pty ltd. Martin owns 65% of the shares, Carmen 20% of the shares and Rachel has 15% of the shares.
Although Rachel is a director Martin and Chelsea have held directors meetings and making decisions without informing Rachel. It has further come to Rachel’s notice that Martin is diverting monies from Mailand Pty Ltd to Spartan Pty Ltd of which Martin is the main shareholder. Rachel believes the monies have been transferred to Spartan Pty Ltd for no apparent reason and asks Martin about it. Martin, however, refuses to reply to this allegation and denies Rachel access to the books of account of Mailand Pty Ltd.
REQUIRED:
With reference to the relevant provisions in the Corporations Act 2001 (Cth) and case law, discuss any remedies available to Rachel as a minority shareholder in the above circumstances.
Note: You are required to use the 4-step process in answering this question. The marks allocated for the steps are as follows:
Steps 1 and 2: 6 marks
Steps 3 and 4: 9 marks
[15 MARKS]
Type your answer to Question 2 below:
QUESTION 3
Chamberlin Ltd is an unlisted company with three directors: Seraphina, Brad and Kyle. At a recent board meeting the directors passed a resolution that Chamberlin Ltd would purchase $1,000,000 worth of stock from Alpha Pty Ltd. Alpha Pty Ltd’s sole director and shareholder is Jonathon, Seraphina’s husband. The majority of Chamberlin Ltd’s shareholders are not happy with the directors’ decision and they wish to insert a clause into Chamberlin Ltd’s constitution that all stock must be purchased from Red Cabbage Ltd.
REQUIRED:
With reference to the provisions of the Corporations Act 2001 (Cth), advise Seraphina, Brad and Kyle the other directors of Chamberlin Ltd of the procedures they are required to follow when considering the contract with Alpha Pty Ltd.
Note: You are required to use the 4-step process in answering this question. The marks allocated for the steps are as follows:
Steps 1 and 2: 5 marks
Steps 3 and 4: 7 marks
[12 MARKS]
Type your answer to Question 3 below:
QUESTION 4
Peter and Debbie are the only directors and equal shareholders of South West Winery Pty Ltd. The business has been very successful and it has even received a few awards for its wines. In 2017 the directors decided to expand the winery. The production room was extended and a new wine tasting room and cellar were built. However, over the past few years the business has been struggling. With the oversupply of wines on the market, the company has not been able to reach its sales target. This has meant that South West Winery has not been able to pay its bills.
The company has the following debts that are due:
Despite the debts owing, Peter and Debbie decide that they could possibly save the company by embarking on a strong marketing campaign to sell the company’s award winning wines. The company enters into a contract with Smart Advertising Ltd to produce a TV advertisement for $30,000.
In the meantime, ABC Bank has notified South West Winery Pty Ltd that the interest payment has not been paid for the last two months and if they don’t pay within two weeks then they will honour the clause in the contract.
REQUIRED:
With reference to the Corporations Act 2001 (Cth) discuss whether ABC Bank Ltd can appoint enforce the clause in the contract against South West Pty Ltd.
Note: You are required to use the 4-step process in answering this question. The marks allocated for the steps are as follows:
Steps 1 and 2: 3 marks
Steps 3 and 4: 5 marks
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