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Walden University - BTX 9500BTX9500 Exam Sem 2
Question 1:
(a) Financial report disclosure and AGM (5 marks)
Pierce Pty Ltd was formed recently. During Pierce Pty Ltd’s first year of operations it hired
75 employees and was expected to be extremely profitable this year. Its three shareholders
and respective shareholdings are

Burns owns 4% of Pierce Pty Ltd’s shares;

Donovan Ltd owns 76% of Pierce Pty Ltd’s shares; and

McIntyre Pty Ltd owns 20% of Pierce Pty Ltd’s shares.
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Burns was concerned when Pierce Pty Ltd’s directors told him that it would not send him a
financial report. In addition, Burns was also worried that Pierce Pty Ltd would not have an
annual general meeting (AGM) even though Burns asked for one to be called. Burns
particularly wanted to use the AGM to force Pierce Pty Ltd to use less polluting practices in
its production processes.
Explain whether Pierce Pty Ltd must give Burns its current annual financial report and
hold the AGM to vote on the pollution reduction issue Burns was concerned with.
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(b) Altering constitution and Share expropriation (5 marks)
Donovan Ltd operated a successful toy importing business. Its directors recently discovered
that 10% of its shares were owned by Sleazy who was a convicted child molester. Fearing
that Donovan Ltd’s wholesome reputation would suffer if Sleazy’s shareholding became
common knowledge, the directors considered the following proposals
(i) call a shareholders’ meeting to insert a new clause in Donovan Ltd’s constitution forcing
any shareholder with a criminal conviction to sell their shares to the other shareholders.
(ii) call a shareholders’ meeting to pass a resolution reducing the company’s capital by
cancelling Sleazy’s shares and paying him the issue price.
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Explain how case law or the Corporations Act operates in relation to both of the proposals
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(c) Company’s relation with outsiders / s.129 assumptions (5 marks)
A clause in McIntyre Pty Ltd’s constitution requires a resolution of the board of directors
to approve borrowings in excess of $1 million. Andrew, the managing director of McIntyre
Pty Ltd, without consulting the board, borrowed $3 million on the company's behalf from
Eastern Finance Ltd at a very high interest rate. Andrew signed the loan agreement as
director of McIntyre Pty Ltd and forged the signature of the company’s secretary. Eastern
Finance was given a copy of the McIntyre Pty Ltd's constitution, but no one in Eastern
Finance read it.
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Explain whether McIntrye Pty Ltd can argue that they are not bound by the loan from
Eastern Finance Ltd because its directors did not approve the borrowing as required by the
company’s constitution.
2 (a) Company’s relation with outsiders / s.129 assumptions (10 marks)
Downing Enterprises Ltd had 3 directors, Deng, Sufri and Bartlett. Hubert (who is not a
director) was the company’s chief information manager responsible for maintaining the
company’s computer and telecommunications equipment.
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A while ago, Hubert purchased $200,000 worth of computer equipment for Downing
Enterprises Ltd from Amos Computers Pty Ltd. Even though Hubert made the contract
without prior board approval, Deng, Downing Enterprises Ltd’s managing director
arranged for the company to pay the amount due. Deng did this because the directors
didn’t want to upset Chia who controlled Amos Computers Pty Ltd. They wanted Chia to
join Downing Enterprises Ltd’s board as a non-executive director to assist the company
with its computer network. Deng was angry with Hubert and specifically instructed him not
to make further equipment purchases without prior board approval. Not long after this
Chia was appointed as a non-executive director of Downing Enterprises Ltd.
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Several months later, Hubert approached Leonard, Amos Computers Pty Ltd’s chief
salesman, and negotiated a $3 million computer purchase contract for Downing Enterprises
Ltd. Initially, Leonard was surprised that someone in Hubert’s position would have the
authority to place such a large order. Hubert, who had forgotten Deng’s earlier
instructions, convinced Leonard that there would be no problems.
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Explain whether or not Downing Enterprises Ltd is bound by the $3 million computer
purchase contract negotiated on its behalf by Hubert. Would your answer be different if
Deng made the $3 million computer purchase contract for Downing Enterprises Ltd?
(b) Directors duties and related-party transaction (10 marks)
Techno Industries Ltd owned 60% of the shares in Choudhary Marketing Pty Ltd the
remaining shares were owned by a variety of different investors. Techno Industries Ltd
arranged for 3 of its senior managers to be appointed as directors of Choudhary Marketing
Pty Ltd. Gupta Software Pty Ltd, another company in the corporate group controlled by
Techno Industries Ltd, borrowed $20 million from Colossal Bank Ltd to finance Gupta
Software’s expanding business operations.
Acting on instructions from Techno Industries Ltd, the Choudhary Marketing Pty Ltd
directors arranged for that company to guarantee Gupta Software Pty Ltd’s borrowing
from Colossal Bank Ltd. Phillip, a director of Choudhary Marketing Pty Ltd, was in charge
of major computer purchases for his company. He sought quotes from a number of
different suppliers in relation to a $20 million computer purchase. Leonard, Amos
Computers Pty Ltd’s chief salesman approached Phillip and told him that Amos Computers
would deposit $1 million into a Swiss bank account for Phillip if he arranged for
Choudhary Marketing to award the computer contract to Amos Computers. Phillip agreed.
Choudhary Marketing bought the computers but they proved to be an inferior product and
frequently broke down.
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One consequence of this was that Choudhary Marketing’s profitability declined. As a result
of Choudhary Marketing’s falling profits Techno Industries Ltd sold all its shares in
Choudhary Marketing to Wiriana Holdings Ltd which replaced Choudhary Marketing’s
directors with its own nominees. Advise the new directors of Choudhary Marketing
whether its former directors breached their fiduciary duties in relation to the guarantee and
the computer purchase from Amos Computers Pty Ltd.
Question 3 : Eiffel Towers Ltd, a listed company, was a builder and property developer
specialising in projects in Melbourne's central business district. It has 5 directors. Giscard,
Eiffel Towers Ltd's managing director and Henri, the company’s chief finance officer, were
the only executive directors on the board. The others, all experienced business people, were
non-executive directors and attended the monthly board meetings.
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Over the past 2 years Eiffel Towers Ltd's financial position had worsened. Apart from
Henri, the directors were unaware that Eiffel Towers Ltd's liabilities vastly exceeded its
assets and that it had difficulties paying its sub-contractors and suppliers on time. Henri
made sure the other directors were kept in the dark about this and did not give them
meaningful or accurate financial information. The directors were satisfied with Henri's
false assurances that the company's finances were satisfactory.
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Several months ago, the following two important matters were considered at Eiffel Towers
Ltd’s board meeting:
 Giscard asked the board to approve the acquisition of a development site owned by Blue
Sky Pty Ltd for $90 million to be borrowed from Eastpac Bank. He explained that this
site was suitable for a 50 storey office building. The board agreed with his suggestions
notwithstanding that Giscard provided only sketchy details. In particular, the directors
were unaware that Blue Sky Pty Ltd was controlled by Henri’s wife and had been trying
unsuccessfully to sell the development site for $20 million. The board was also unaware
that the zoning laws did not permit the construction of a 50 storey building on the site.
 Henri asked the board to agree to a proposal for Eiffel Towers Ltd to raise $5 million by
offering to issue shares to the company’s employees as part of an employee incentive
scheme. Henri argued that it would not be necessary for the company to prepare a
prospectus.
(a) Director’s duties, Related party transaction (15 marks)
Assume, for purposes of Question 3(a) only, that Henri was last seen at the airport boarding
a plane to Brazil. The non-executive directors ordered an investigation of Eiffel Towers
Ltd's finances and for the first time became aware about the details about the zoning laws.
They forced Giscard to resign and reported the matter to ASIC. Advise ASIC whether
there have been breaches of the Corporations Act in the above circumstances.
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Question 4:
(a) Phoenix company, unreasonable director-related transaction, unfair preference (12
marks)
Darius, together with his wife Martine and three children are the shareholders of Flash
Autos Pty Ltd which operates as a retailer of used cars and vans. Darius runs the business
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of the company. Because of intense competition in the used car industry, Flash Autos fell
into financial difficulties during 2007.
In February 2007, Darius sold eight cars owned by Flash Autos Pty Ltd and paid the money
received into his and Martine’s joint bank account. He also sold a car valued at $45,000 to
Martine for $15,000. Acting on legal advice, Darius drew up a document which contained a
shareholders’ resolution authorising these transactions. All shareholders signed the
document.
In March 2007, Mark went to Marcus, a wholesaler and paid him $85,000 in part payment
of a debt owing from the purchase of cars in June 2006. Darius explained to Marcus that his
business was going very badly but he did not want to see Marcus receive much less than was
owed if Flash Autos Pty Ltd went into liquidation.
In April 2007 Darius registered a company by the name “Flashing Autos” Pty Ltd and
transferred to it the ownership of 15 cars from Flash Autos. He also purchased other cars
for Flashing Autos and largely ran his business through this new company.
In October 2007 Flash Autos Pty Ltd went into liquidation and it appears that there are few
assets to meet the claims of unsecured creditors.
Advise the liquidator in relation to these matters.
Question Two Answers available here: http://bit.ly/331GbyE
(a) Company Constitution, Replaceable rules (5 marks): Greenway Pty Ltd’s internal
management was governed almost exclusively by its own constitution. The only
replaceable rule it chose to retain is the one contained in s 201G which states:
“A company may appoint a person as a director by resolution passed in general meeting.”
There is nothing in Greenway’s constitution that allows for the appointment of a director
by the board.
Kevin and Julia, the only shareholders of Greenway Pty Ltd apart from the directors, were
informed by letter of the appointment of James to the board of directors. As a general
meeting had not taken place they were troubled by the appointment. They confronted the
directors and were informed that they were not obliged to comply with s 201G as it was
merely a replaceable rule.
Advise Kevin and Julia whether there is any legal basis upon which they could force the
company to comply with the replaceable rule and what further legal consequences could
result if it did not.
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(b) Director’s duties and phoenix company (5 marks)
Plasto Pty Ltd is a small manufacturer of plaster board. Its shareholders and directors are
John and Peter. Plasto Pty Ltd sells plaster board to builders. Many of Plasto Pty Ltd’s
customers have been complaining about the quality of the plaster board supplied by Plasto.
The plaster has been falling off the walls and in many cases has had to be replaced. Some of
Plasto’s customers have been threatening to take legal action against Plasto Pty Ltd alleging
their plaster board was unmerchantable. John and Peter are fearful that Plasto Pty Ltd will
lose the threatened legal actions and that it will not have enough money to pay the damages
claims. They decide to form a new company, Plasto Australia Pty Ltd, transfer all of the
assets of Plasto Pty Ltd to the new company and continue to trade under the new company.
Plasto Pty Ltd is not in liquidation but is left an empty shell with no money, business or
other assets. Advise the customers whether they can make John, Peter and Plasto Australia
Pty Ltd liable for the damages caused by Plasto Pty Ltd.
(c) Insider trading (5 marks) Answers available here: http://bit.ly/331GbyE
David is a director of Bell Ltd, a large public telecommunications company. At a recent
board meeting it is decided that Bell Ltd will enter into a lucrative contract with Fibro Ltd,
a supplier of fibre optic cables. This contract should result in a dramatic increase to Fibro
Ltd’s annual profit.
Immediately after the board meeting David telephones his stockbroker friend, Max. David
lies to Max and tells him that he has read an analysts’ report that recommends purchasing
Fibro Ltd’s shares. David asks Max to purchase $5 million worth of Fibro Ltd’s shares for
him.
Later that afternoon Max purchases the Fibro Ltd shares for David. Max also purchases
$100,000 worth of Fibro Ltd’s shares for himself.
The next day Bell Ltd and Fibro Ltd announce the details of the contract to the market.
Fibro Ltd’s share price rises by 25%.
Explain whether David and Max have contravened the insider trading prohibitions of the
Corporations Act.
(d) Share capital reduction (5 marks)
Thompson Ltd. is proposing an internal restructuring of its share capital. Currently its
issued share capital of $5 million is comprised of 4 million ordinary shares and 1 million
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preference shares. The company is proposing to cancel the ordinary shares of shareholders
holding parcels of 500 shares or less and to return the issue price.
A group of shareholders to be affected by the proposal have come to you seeking advice as
to whether there:
(i)
are any provisions under the Corporations Act which the company needs to
comply with to legally cancel the shares; and
(ii)
is any possible legal action that could arise should the company fail to comply
with provisions discussed in (i) above. Advise.
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Mario is the managing director of two companies, Northpoint Pty Ltd and Southpoint Pty
Ltd. For many years Northpoint carried on the business of buying and selling land and
Southpoint carried on the business of land developer. The two companies operated closely
together and occasionally Mario was in the habit of paying the debts of either of the
companies from the assets of the other company depending on where available funds were
located. Mario’s wife Lisa is also a director of both companies but took no active part in the
business of the company apart from signing forms brought to her by Mario.
During 2006 the companies fell into financial difficulties because a large commercial office
development owned by Southpoint experienced substantial cost overruns. The offices in the
development proved to be difficult to sell because of poor construction which caused
cracking and other defects.
Southpoint had insufficient funds to pay its debts incurred in the development so in August
2006 Northpoint loaned $3 million dollars to Southpoint. This loan was made with no
documentation and no provision for the payment of interest. In September 2006 further
payments of $1.5 million were made by Northpoint to several creditors of Southpoint to
satisfy their debts. In October 2006, Southpoint also borrowed $1.3 million dollars from
Western Bank. One of the conditions imposed by Western Bank was that Northpoint
guarantee the loan. Northpoint executed a deed of guarantee to enable the loan to proceed.
Despite these measures, it became increasingly obvious to Mario that by November 2006,
Southpoint was unable to pay its debts and if Western Bank enforced its guarantee against
Northpoint, it also would become insolvent. Mario formed a new company, Eastpoint Pty
Ltd and transferred to it, ownership of the office development from Southpoint for an
amount well below its market value. Later in the same month Mario and Lisa passed a
shareholders’ resolution ratifying the transfer of ownership of the office development.
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In December 2006, a creditor of Southpoint who was also a cousin of Mario’s, rang Mario
to inform him of rumours he had heard that Southpoint was insolvent. He asked whether
this was true and requested that he be paid the amount owing to him. Mario indicated that
there were financial problems and because “they were family” arranged to pay his cousin
the full amount owing plus an extra payment for the trouble caused by the delay in
payment.
In February 2007 Western Bank appointed a receiver to Southpoint for non-payment of
interest owing on the loan and enforced the guarantee against Northpoint. Soon after both
Northpoint Pty Ltd and Southpoint Pty Ltd went into liquidation and it appeared to the
liquidator that there were few assets to meet the claims of unsecured creditors.
(a) Director’s duty (Prejudice creditors), Antecedent transactions (12 marks): Advise
the liquidator about the transactions which occurred during 2006 and any actions
which may be brought by the liquidator in relation to these transactions.
(b) Director’s duties, Insolvent trading (8 marks): Discuss whether any contraventions
of the Corporations Act have occurred and what actions ASIC could bring.
Question 4 Answers available here: http://bit.ly/331GbyE
Careers Online Ltd operated an Internet-based employment agency. It had the following 5
directors on its board:

Robert, the company’s non-executive director chairman;

Arthur, the company’s managing director;

Jane, the company’s chief financial officer;

Frieda, a non-executive director. She was also a partner in a large information
technology consulting firm, Zender and Associates and was appointed to the board
of Careers Online Ltd because of her technical expertise.

Ashley, a non-executive director. He was the former managing director of Careers
Online Ltd and had a detailed knowledge of the company’s business operations and
the online commercial environment.
Careers Online Ltd used the replaceable rules with the following additional clauses in its
constitution:
(a) Director’s duty to care and diligence (10 marks): For purposes of Question 4(a) only,
assume that
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
Careers Online Ltd completed the $25 million purchase of business from
Your Space Ltd; and

The purchase of Your Space Ltd’s business proved to be a financial disaster
for Careers Online Ltd with the result that the shareholders replaced the
whole board with new directors.
Advise the new directors of Careers Online Ltd whether its former directors breached their
duty of care in relation to the decision to purchase the business from Your Space Ltd. Your
answer should also consider whether the directors can rely on the business judgment rule.
(b) Company’s relation with outsiders (s.129 assumptions) (5 marks): For purposes of
Question 4(b) only, assume that

The $25 million purchase price of Your Space Ltd’s business exceeded 15% of the
company’s issued capital; and

Careers Online Ltd shareholders had not met to approve the purchase as required
by its constitution.
Explain whether Careers Online Ltd can get out of the purchase of business contract by
arguing that its shareholders had not met to approve the purchase as required by its
constitution. Would your answer be different if Your Space Ltd owned some shares in
Careers Online Ltd?
The issue in this case is whether CO is bound be the purchase of YS though they did not
have a shareholders meeting of approve of it. Subsequently, can YS assert s.129
assumptions to make the contract enforceable.
.
(c) Company’s relation with outsiders (s.129 assumptions) (5 marks): For purposes of
Question 4(c) only, assume that the directors of Careers Online Ltd do not wish the
company to proceed with the $500,000 purchase of the hardware from Computer
Systems Ltd.
Explain whether Careers Online Ltd can argue that Frieda was not authorised to enter into
the contracts on the company’s behalf and Careers Online Ltd was not bound by the
contract to purchase the hardware from Computer Systems Ltd? Would your answer be
different if Robert entered into the contract instead of Frieda?
Question 5
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(a) Company vs Partnership (8 marks): David and his sister Stephanie are actively
involved in running a profitable wholesaling partnership business that has an
annual $50 million turnover. They inherited the business from their parents, who
died recently. David and Stephanie are both married and have young children.
While they eventually would like their respective spouses and children to have a
share in the business, David and Stephanie want to maintain managerial control.
They appreciate that their business needs additional money to grow and would be
happy to sell 20% of their business for a significant cash injection from one or more
investors. They confidently expect that with additional funding their business would
quickly achieve a $100 million turnover and control 30% of the market.
In view of the above, advise David and Stephanie whether or not they should continue to
operate their business as a partnership. Would another type of structure be more
appropriate for them in the future? Explain your reasons fully.
(b) Oppressive and unfair conduct, shareholders’ remedies (12 marks): Clayton Trucks
Pty Ltd was a family business that operated a profitable transport business in
Melbourne. It was founded by Rex Clayton in the 1960s. When Rex died his wife,
Pamela, and their three sons (Tony, Mark and Andrew) inherited his shares and
four of them were the company’s directors. Despite being a director, Pamela rarely
involved herself in the management of the company’s business.
Tony and Mark regarded Andrew as a lazy man who was more concerned with playing golf
than the business. For the last few years the three brothers constantly argued with each
other about expanding the business. Tony and Mark wanted to set up operations in New
South Wales and commenced negotiations for Clayton Trucks Pty Ltd to buy a Sydneybased transport business. Andrew disagreed with this. Indeed, Andrew disagreed with
every important business decision his brothers made. Tony and Mark eventually got sick of
Andrew’s attitude and stopped consulting him about business matters. Because Andrew
stopped coming to work, Tony and Mark arranged for significant increases in their salaries
and arranged for the company to pay very low dividends to shareholders. Answers
available here: http://bit.ly/331GbyE
Unknown to Andrew and Pamela, Tony and Mark formed another company (Sydney
Transport Pty Ltd) in which their respective wives and children held all the shares. This
company purchased the Sydney-based transport business which quickly became very
profitable.
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Not long ago, Tony and Mark borrowed $1 million from Clayton Trucks Pty Ltd and used
the money to buy Pamela’s shares. After this share acquisition Tony and Mark held 75% of
the shares in the company. When Andrew learned that his mother had sold her shares to his
brothers, he asked them to buy his shares in Clayton Trucks Pty Ltd as well. Tony and
Mark refused and used their newly increased shareholding to remove Andrew as a director.
This meant that Andrew no longer received directors’ fees.
Question: Chris and John are mechanics who originally operated their respective
businesses as sole traders. They decided to combine their experience and resources and
formed a company called Clever Mechanics Ltd to run their new business. All of the assets
of their respective businesses were transferred to the new company. The date of the
certificate of incorporation was 10 January 2010. Chris and John are the only directors and
shareholders of the company, holding 10,000 shares each, which have a nominal value of £1
each and are partly paid for to the extent of 50 pence per share. The business is run from
the company‟s garage premises previously used by John, which he continues to insure in
his own name. Answers available here: http://bit.ly/331GbyE
On 1 January 2010, Chris ordered some motor parts from Dan costing £1,000. He signed
the contract with Dan, „For and on behalf of Clever Mechanics Ltd (in formation)‟. Dan
has not received any payment for these parts.
The company has been financed mainly by a £25,000 loan from South Bank plc and this was
personally guaranteed by John. In addition, John‟s sister, Sue, invested in the company by
taking a thousand 6% non-voting preference shares of £2 each in the company.
In May 2010, the company’s premises were destroyed by a fire. John made a claim on his
insurance policy but the insurance company has refused to indemnify him, and John does
not understand why. This has caused the company to go into insolvent liquidation. The
liquidator has discovered that Chris was a director of another company called Intelligent
Mechanics Ltd, which went into liquidation in 2009. Following the liquidation of this
company Chris was disqualified for a period of 3 years.
Required: Advise Chris, John and Sue on their potential personal liability for the debts of
the company and on any other matters that you feel are relevant. (25 marks)
2. Alpha Ltd (the company) is a private tutorial college. Alec, Christine and Barry are the
only directors and shareholders of the company, each owning 100 shares. In addition, Alec
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has been appointed the managing director. The Articles of Association of the company
contain the following clauses:
(a) In the event of a resolution being proposed at any general meeting of the company for
the removal from office of any director, any shares held by that director shall carry the
right to three votes per share.
(b) Jake shall be the company secretary.
(c) The managing director, Alec, shall have the power to veto any board decision relating to
the teaching of any new course at the college.
In addition, there is a shareholders‟ agreement signed by the company and all of the
shareholders that the company will not increase its share capital unless all of the parties to
the agreement give their consent.
At a recent board meeting, Alec tried to exercise his veto after the board decided that the
college should offer a new course but Christine and Barry ignored Alec’s veto. They then
called a general meeting which passed a resolution ratifying the decision of the board. The
company will need to raise additional capital to run the course but Alec has stated that he
will not consent to any increase in the company’s share capital. Christine and Barry are
now considering calling another general meeting to remove Alec as a director. Jake acted as
the company secretary but has since been removed.
Required: Advise Alec and Jake whether they can rely on any of the above Articles of
Association or the shareholders’ agreement. (25 marks)
The shareholders‟ agreement
3. Magda plc (Magda) recently created the following charges over assets:
(i) On 1 September, a floating charge over its stock of goods in favour of Beryl, to secure a
loan by her of £50,000. This charge was not registered.
(ii) On 1 October, a floating charge over the entire undertaking of the business in favour of
North Bank plc („the bank‟). The background to creating this charge was that the bank
had granted an unsecured overdraft of £60,000 to Magda. The bank then asked for it to be
secured and so the company paid the overdraft off with what little money it had and then
immediately borrowed the money from the bank again, but this time on a secured basis. In
consideration for granting the charge, the bank agreed to extend the overdraft facility to
£70,000. The charge contains a clause which prohibits Magda from creating any further
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charges ranking equally with, or having priority over, the charge granted to the bank. This
charge was registered on 10 October.
(iii)
On 5 October, a charge which was expressed to be a „first specific charge‟
over its book debts in favour of East Bank plc („East Bank‟). The charge
contained the following clause: “The company shall pay into an account with
East Bank, designated for that purpose, all monies which it may receive in
respect of the book debts, and shall not without the prior consent of East
Bank in writing make any withdrawals or direct any payment from the said
account.”
This charge was registered on 8 October. In addition to these charges, Magda has borrowed
£50,000 from First Finance plc. The rate of interest charged by First Finance plc is 35 per
cent.
Required: In the event that Magda goes into liquidation, discuss the nature and validity of
the:
(a) 1 September charge. (7 marks) Answers available here: http://bit.ly/331GbyE
(b) 1 October charge. (6 marks)
(c) 5 October charge. (7 marks)
(d) Loan with First Finance plc. (5 marks)
(a) 1 September charge: 1 October charge:
(b) 5 October charge:
(c) Loan with First Finance plc.
4. Sarah is the company secretary of Beta plc, („the company‟), a non-listed public
company. She seeks your advice on the following matters.
(a) The company has 100,000 £1 preference shares and 500,000 £1 ordinary shares. The
Articles of Association provide that the preference shares carry the right to a 12 per cent
preference dividend and a prior right to the return of their capital on a winding up. They
have no right to vote except at class meetings. The board of directors wants to reduce the
preference dividend from 12 to 8 per cent.
(b) The company plans to allot an additional £30,000 ordinary shares with a nominal value
of £1 to Roger, for £1.30 each. Roger cannot afford to pay for the shares in full and has
suggested that the company allows him to pay £1 per share, and that he acts as the
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company‟s legal adviser for the next three months in order to pay for the premium.
Alternatively, he has suggested that the company re-registers as a private limited company.
Roger will then arrange a loan of £39,000 from his bank which will be guaranteed by the
company.
Required: Advise Sarah: Answers available here: http://bit.ly/331GbyE
(a) On the proposed dividend reduction and on any procedural matters necessary to
implement it. (12 marks)
(b) On the validity of the plans to allot the additional ordinary shares to Roger. (13
marks)
5. Mytec plc („the company‟) designs and installs computer software. At a recent board
meeting, the following resolutions were passed:
(a) To purchase a plot of land from Stuart, the husband of Mary, one of the company‟s
directors, for £200,000. Mary did not disclose that the land is owned by her husband.
(6 marks)
Suggested answer
(b) To reject a proposed contract with Riverside University to install a new computer
system in its library. The board did not feel that there was enough profit in the contract to
make it commercially viable. After the meeting, Derek, a director of the company,
approached Riverside University and has been offered the contract in his personal capacity
which he intends to accept.
(7 marks)
Suggested answer
(c) To purchase some new computer equipment from iTech plc. This contract was
negotiated by Ian, one of the company‟s directors, who, unknown to Mytec plc, has been
paid a £5,000 commission for recommending iTech plc to the company.
(5 marks)
Suggested answer
(d) To award Edward, a director of the company, £100,000 compensation for loss of office.
(7 marks)
Suggested answer
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6. Rubero plc (the company) is an importer of electrical equipment and was formed in 1990.
It has two directors, Albert and Bob, and three shareholders, Albert, Bob and Clive.
The company‟s financial problems began in late 2007 when it lost its major customer. Since
that time it has exceeded its overdraft on many occasions, its cheques have been returned
unpaid, and trade customers have been paid either late, or not at all. The company made a
loss in 2008 and 2009 but made a profit in 2010, following which the directors
recommended a dividend that the general meeting declared shortly afterwards.
In November 2009, the directors started importing spare parts for motor cars. They did so
in the hope of avoiding liquidation, even though no mention of this was made in the
company‟s objects clause in the Article of Association. This did not turn out to be profitable
and caused the company to lose a further £60,000.
By August 2010 the directors realised that there was no alternative to the company going
into liquidation as the company could no longer pay its debts as they fell due. The directors
intend to put the company into a members‟ voluntary winding up. Before doing so, they
have ensured that any money that has been received by the company has been used to
reduce the company‟s overdraft with West Bank plc, which they have personally
guaranteed.
Required
(a) Advise the directors why a members‟ voluntary winding up is not possible.
(5 marks)
Suggested answer (b) If the company goes into compulsory liquidation by the court, explain
what action a liquidator could take to swell the assets of the company available for
distribution.
(20 marks) Answers available here: http://bit.ly/331GbyE
Suggested answer