QUESTION 1:
ANSWER ALL PARTS
(a) "This is the most significant economic event since the Great Depression" (Hon
Prime Minister Kevin Rudd MP Weekend Australian 11-12 October 2008)
In response to recent upheavals, the Australian Securities and Investments
Commission (ASIC) has placed bans on short selling. Discuss the significance and
role of ASIC. In so doing discuss (eg) why it is necessary to have a regulator for
corporate law; the importance of having a national system of regulation and the ban
on short selling.
(10 marks)
and
(b) Shorty and Shifty set up a company called Simpleton Ltd. Through the
business organisation Simpleton Ltd, Shorty and Shifty raised shareholder funds to
purchase a Goldmine from Façade Ltd. The Goldmine was long since past its best
and most productive, but Shorty and Shifty paid the market rate that would have
applied to an active mine, in its prime. Some time after the purchase, Shorty and
Shifty left the jurisdiction. After they mysteriously departed, the minority
shareholders of Simpleton Ltd discovered that Shorty and Shifty were the owners of
Façade Ltd.
The minority shareholders of Simpleton Ltd seek your advice as to what action they
can take in relation to their rights and the actions of the directors. In advising the
shareholders, discuss whether this action provides a role for ASIC and, if so, why that
is important. Briefly consider the remedies that are available in this case and whether
the type of company influences the remedies to be sought. Would your answer differ
if Shorty and Shifty were not the owners of Façade Ltd and if they had not left the
jurisdiction? Why?
(10 marks)
and
(c) Directors and liquidators both have duties. As business students you could occupy
either role. Briefly analyse the similarities and differences between the role of
directors and liquidators and their duties. In so doing, briefly discuss the aspects of
corporate insolvency and corporate governance that have a public law or public
interest element. Are laws relating to corporate contracting relevant in this regard?
(10 marks)
(Total 30 marks)
QUESTION 2:
ANSWER ALL PARTS
(a) Toolbox was a comedian. Due to his roguish humor, Toolbox gained many offers
to serve on boards of companies. (He made the meetings more lively and introduced
a new perspective into board room discussions). In the course of serving as a Director
of Not the Sharpest in the Shed Ltd (NTSS), Toolbox learnt a lot about NTSS's
market strategy for the coming years. For example, he learnt it was starting an ad
campaign aimed at Generation Y, it was about to lose a court case and it was
considering expanding its business overseas. Subsequent to learning these matters,
but before any of them actually occurred, Toolbox sold his NTSS shares and
discussed with directors of another company on whose board he served the feasibility
of starting an ad campaign aimed at Generation Y.
Has Toolbox breached his duties to NTSS? If so, which ones and what is the strength
of the case against him? In so doing discuss relevant cases and evidence. Also
discuss the penalties he may face and what occurs when there are a variety of actions
that could be taken against a director. Why have these sorts of situations lead to
discussion by judges and scholars of white collar crime?
(7.5 marks)
and
(b) Recently, there have been reforms to the laws on corporate insolvency and
voluntary administration. Briefly discuss those key reforms and why they were
adopted. In the course of your analysis discuss particular issues relevant to group
insolvencies and restructures.
(7.5 marks)
and
(c) It is often said that the bedrock of corporate law is the notion of the corporate
veil. As business people you would not only be likely to deal with corporations as
separate business organisations but you might also hold roles as directors. Would the
courts be likely to lift the corporate veil or seek redress against you in relation to all of
the following circumstances?



You are the sole director of a Company X. Several years after it is formed,
Company X collapses. In the early stages of Company X’s life, you had
loaned it money from your personal funds. After the collapse you seek to
become a preferred creditor of Company X. What would your position be?
The facts are the same as above, except that this time your loan is made within
months of Company X’s collapse and after it has experienced financial
turmoil.
You have established a subsidiary company but that subsidiary has no books
of account and no business charter of its own, it seems very much to follow
the lead of the holding company.
(15 marks)
QUESTION 1: (Answer all parts)
Burt and Ernie had both just caught the investment bug. Burt invested in Telecorp
Ltd – a communications company which was hitching its future prospects to the
National Broadband Network (NBN). Ernie invested in a new corporation that
promised a personal development regime delivered through a national network of
personal training studios, Hyper Active Ltd. When Burt made his investment he
relied on word of mouth from friends and documents produced by the corporation
which stated: “This is a once in a lifetime chance – our corporation is positioned to
take advantage of the NBN because of our close links to government.” When Ernie
invested he relied on a prospectus that said: “Your future personal success is
guaranteed through this move.” Both investments failed. Answer the following
questions:
(a)
Burt and Ernie now seek your advice as to the legal issues that arise in relation
to their failed investments and the documents on which they were based. Is
there further information you would need? (7.5 marks)
(b)
Further information becomes available that many self improvement gurus are
not licenced; that there have been law suits against them in the United States;
and that there is now evidence that some personal trainers have caused
nervous breakdowns as they have pushed clients too hard. That action had
caused such corporations to be sued. With this information in hand, is there
any way a prospectus could be legally drafted for the company in which Ernie
invests? If so, explain how. Would your answer differ if Ernie was a
professional or sophisticated investor? Answer giving reasons.
(5
marks)
(c)
Imagine the facts change. This time the only evidence available is that Burt
and Ernie are shareholders in Telecorp Ltd and Hyper Active Ltd,
respectively, and that both companies have collapsed. Burt and Ernie wish to
know if they could be preferred creditors in an insolvency. They are also
interested in whether they might be able to access funds of the related
companies of the ones in which they invested. Briefly advise Burt and Ernie.
Is there further information you would need to answer that question? (7.5
marks)
(d)
Imagine the facts of the case change again. This time Burt and Ernie are
actually members of two corporations ABC and XYZ. As investors of ABC,
Burt and Ernie are unimpressed with the decision taken by management to
outsource work and they seek to prevent directors from doing that. In XYZ
they represent only 1% of the company’s voting shares and seek to prevent
their expropriation from the company. Discuss their prospects of success in
both cases. Would your answer for either scenario alter if a takeover was
announced? (10 marks)
(30 Marks)
QUESTION 2: (Answer all parts)
(a)
Re CSR Ltd and James Hardy v Briggs are often mistakenly linked as
exemplifying the same point. In fact, they do not. Analyse the legal
significance of those cases. (15 marks)
(b)
Jada is a partner in Bloggs and Co. Bloggs and Co is a partnership in the
garage business but unlike most such partnerships, Bloggs and Co has an
internal agreement not to sell cars. When might Jada be able to rely on an
agreement of that type to avoid liability if a car sale takes place and there are
subsequent problems with the sale? Have there been cases which have held
partnerships liable for a transaction even although it is questionable as to
whether such a transaction is of the type they usually complete? Why have
those cases been decided that way? Discuss giving reasons from statutes and
cases. (15 marks)
(30 Marks)
QUESTION 3: (Answer all parts)
(a)
In running a public company, Daryl was managing director and Lewis was
executive director. They both had information that the company was both
engaged in foreign currency transactions and that it was (as an insurance
company) exposed to losses due to the Pakistan floods. Early into the flood
disaster, Daryl and Lewis ordered a report on the exposure of the company to
the risk of insurance claims associated with the floods – which found the
extent of the exposure minimal. At the same time, they receive accountant’s
advice to pull out of foreign currency trades because the recent collapse of the
Greek economy in April 2010 had highlighted how vulnerable the Australian
dollar could be in times of crisis. Daryl and Lewis ignored this latter advice.
Advise them on their position. Would your answer differ if the business
mentor of Daryl and Lewis had been the person who told them to ignore the
advice? (10 marks)
(b)
There has been criticism of the way ASIC has run cases in eg ASIC v Rich
(No 2); and ASIC v Vizard. Discuss the nature of those criticisms and what
they show about the nature of corporate prosecutions. In answering the
question, discuss any other cases you think are relevant. (7.5 marks)
(c)
There is a saying that partnership law never changes but corporations law
always changes. Is that correct? Why? Briefly discuss with reference to
decided cases and relevant laws. (10 marks)
(d)
“As of 2011, the spirit of the Trade Practice Act 1974 (Cth) will have
disappeared.” Is that statement correct? Briefly outline the reasons for your
answer. (2.5 marks).
(30 Marks)
Company Law Questions (for use in class in Cairns) – Basic Principles
Question 1
As a sole proprietor, Seymour conducted a highly lucrative business making
and delivering pizzas to the affluent residential areas abutting the local
university.
In June, Seymour sold his business to Talbot for an exorbitant sum. A clause
in their agreement stipulated that for two years after the sale Seymour would
not conduct a similar business within five kilometres of the business premises.
In July, in the name of Better Pizzas Pty. Ltd., a company proposed to be
incorporated by him, Seymour leased premises situated next door to Talbot
from Lance
In August, Better Pizzas Pty. Ltd. was incorporated with Seymour being
employed as Managing Director. Seymour was the sole shareholder in the
company.
From the premises leased from Lance, the company conducted a pizza
delivery business in direct competition with Talbot.
Seymour has now received claims against him personally, from Talbot,
demanding that he discontinue the pizza operations of Better Pizzas Pty. Ltd.,
from Lance demanding unpaid rent and from local suppliers seeking payment
for ingredients supplied to Better Pizzas Pty. Ltd.
Advise Seymour.
Question 2
Harry was appointed under a service contract as managing director for five
years. The contract was stated to be subject to the Constitution.
The Constitution stated that directors could be removed by special resolution,
however, subject to the provisions of any service agreement. A special
resolution was passed and Harry was dismissed with three years left to run.
Harry now seeks your advice as to whether he can enforce the service
agreement.
Question 3
George, Tony and John are the only shareholders in a manufacturing business
called “Canit Pty Ltd”. George owns 80% of the shares and both Tony and
John hold 10% each. George also holds the position of Managing Director of
Canit Pty Ltd.
George is ambitious and decides to put his long-held vision of holding 100% of
the shares in the company into action. He wants to change the constitution to
allow a shareholder holding 35% or more of the issued share capital of Canit
Pty Ltd to acquire the shares of a shareholder holding less than 15% of the
issued share capital, at “fair market price”.
(a)
Advise George as to what procedural steps must be followed to validly
alter the constitution.
(b)
Tony and John are concerned that George will apply the necessary
procedures required to alter the constitution. Advise Tony and John whether
there are any other grounds upon which they may challenge the compulsory
acquisition of their shares.
(c)
If George held 90% of the issued share capital would he need to change
the constitution to acquire the rest of the shares? Discuss.
Question 4
Paul is a director of Sparky Pty Ltd, an electrical services company. He signed
a contract on behalf of the company to buy some electrical components from X
Co. However he was not authorised by the Board of directors to enter the
company into this contract and the Board do not wish the company to be bound
it.
There is evidence that the Board acquiesced in Paul to making such contracts
for the company in the past. There was also a provision in the Constitution
authorising the Board to appoint a Managing Director.
Advise the company. Identify any further facts you would like to know.
Question 5
ABC Enterprises Ltd was incorporated under the Corporations Law and
adopted the replaceable rules, subject to certain modifications and additions,
including: “A poll may be demanded by at least 6 members entitled to vote on
the resolution" and "Proxy documents must be received not less than 4 days
before the time for holding the meeting.”
ABC Enterprises Ltd was due to hold its last annual general meeting on 16th
July. On 3rd June, some of the members notified the company that they
wished to have Kurt, one of the directors, removed.
At the meeting, the agenda contained no reference to any resolution for the
removal of Kurt from his directorship.
Jason, went to the meeting and voted against the resolution but the chairman
declared it passed. Jason and 4 other members (including a proxy nominated
48 hours earlier) demanded a poll but this was refused by the chairman.
Advise Kurt as to whether his dismissal was lawful.
Question 1
Kath, Kim and Sharon are having coffee after completing the last of
their variety dance classes and are complimenting each other on
their impressive dance skills. The conversation turns to using their
newly acquired expertise to open up a dance studio to teach
beginners. They call their business a joint venture and decide that
they should run the business in consultation with one another.
They agree to share the profits equally and decide that they should
all have access to the financial details of the business. Sharon will
use the skills she acquired as treasurer of the netball club to run the
administrative side of the business, while Kath and Kim will run the
boot-scooting and flamenco dance classes.
During the two weeks it took to find suitable premises, the dance
trio open up a bank account under the name of “Look at Me” Dance
Studios, and are finally ready for business.
The business has been going well for a couple of months, when
Kath decides that the dance floor in the studio she runs the bootscooting class is not quite good enough. She believes she will get
more pronounced kicks from her students if the floor is more highly
polished. In the two hours before her class starts, she continually
polishes the floor until she has used well over the recommended
amount polish for the dance floor. When her students arrive for the
class, some of the students express concern about the slipperiness
of the floor, but Kath reassures them that the floor is just how it
should be and today’s lesson is going to be particularly good.
However, Kel, one Kath’s favourite students, does a rather
enthusiastic kick and, due to the overly slippery floor, ends up falling
rather awkwardly breaking his leg.
(a) Does a partnership exist? If so, who are the partners?
(b) From whom can Kel obtain compensation for the personal
injuries resulting from Kath’s negligence? Explain.
(c) Kim has been dating Brett for about a year now, and she
decides she also wants to go into business with him in
another dance studio that is only 2 streets away from the
“Look at me” Dance Studio. Advise Kim.
Question 2
Will, Dave and Corinne are in a partnership as window repairers.
Their business is called “Windows R Us”. Consider the following:
(a) The business is run from an industrial shed which Dave
owns. Dave pays for the upkeep of his shed, and the shed
has remained basically unaltered since the business
starting using it. However, due to rezoning of the area, the
premises have substantially increased in value.
Explain the nature of the property in relation to the
partnership and, if the premises is sold, whether profits
must be shared.
(b) Corinne purchases some expensive tinted glass on credit
from a glass wholesaler –“Glass House”.
Although
Corinne actually wants the expensive tinted glass for her
own private use (for a home she is building with her
boyfriend Rove), she gives the impression to the
salesperson at the Glass House that the purchase is on
behalf of Windows R Us. Corinne has entered into this
transaction on behalf of the partnership even though there
was no express authority in the partnership agreement for
Corinne to do so.
Who will be liable for the debt incurred by Corinne?
(c) (i) Dave and Corinne want to continue the business, but
Wil is feeling like he wants to do something else with his
life now, and thinks he would like to retire from the
partnership. Advise Will in relation to what action he
should take regarding his liability for debts incurred by the
partnership after he ceases to be a partner.
(ii) Unfortunately, before Will makes up his mind as to
whether he wants to retire, he dies suddenly. The
partnership agreement does not include any provisions
relating to the death of a partner. Discuss the impact of
Will’s death on the partnership, and what happens with his
share of the partnership.