Directors duties:

4.         (a)        The Secretary of X Ltd. advises you that a proposal has been put forward to remove Jones as a director of the company although his term of office has not expired.  He asks you if this can be done, and if so, how? s203D

(b)         

What rights does Jones have if he is removed in breach of his service agreement with X Ltd?

(c)         

How would you answer differ, if Jones were a director of X Pty. Ltd?

            Duties are imposed on directors at common law  and under the Corporations Act 2001 by virtue of the fiduciary relationship which exists between them and the company?  (See s180-184,s588G) Consider the common law and statutory duties as they may apply in the following questions.

5.         Simpson is the managing director of Developers Ltd., a company engaged in the business of acquiring and developing building sites.

            Developers Ltd. wishes to buy a piece of land on which to erect a factory.  Simpson, whilst out looking for a site which would suit the company for this purpose, discovers a piece of land which will soon adjoin a new main highway.  Realising the value of the land for development as a factory site, Simpson, without informing the shareholders in Developers Ltd., purchases the land on his own behalf and subsequently sells it to an engineering company at a substantial profit.  Hawkins, a major shareholder in Developers Ltd. learns of these transactions and tells Simpson that he objects to his conduct and intends to raise the matter at the forthcoming annual general meeting.  Simpson replies that he is not aware that he has done anything improper, especially as Developers Ltd. might not have been able to raise sufficient funds to purchase this particular site itself.

            (i) Advise Hawkins generally and state what action, if any, can be taken against Simpson for any possible breaches of his duties as a director.

            (ii) What penalties (civil penalty regime) may be imposed on Simpson for breaching the common law and Statutory duties under the Corporations Act? What are the possible remedies available to Developers Ltd if Simpson is found to have breached such duties?

6.         Happy Day’s Ltd operates child day care centres. In 2008 the directors of the company decide to sell a large block of land in Footscray to Victoria University for $750,000, without consulting the shareholders. The directors believed the land was surplus to its needs. On advice of its merchant banker the directors decided to invest the money from the sale into high growth biotechnology shares. The company invested $700,00 in Biotech Ltd. By 2011 the shares in Biotech Ltd were worth about 50% if the initial purchase price while the land sold to Victoria University was now worth $2.2m.

            Despite the adverse effect the fall in this asset the directors sign off on the 2011 financial reports on the recommendation of Jill the CFO. At the time the board approved the financial statements the shares in Boitech Ltd had fallen to 30% of the initial purchase price.

Discuss the duty of care owed by directors and other officers to the company and advise whether action can be taken against them. (S180(1) Also advise whether the directors can rely on the business judgement rule. (S180(2).

7.         Mr Loosley is a director of his wife’s personnel consulting company, Femplacement Pty Ltd.  He does not take an active part in the company but does receive a small income from directors fees paid to him

            Unbeknown to Mr Loosley, one of the company’s main clients goes into liquidation, owing Femplacement $½ million.  Femplacement cannot pay its debts and obligations.

            Mrs Loosley suffers a nervous breakdown as a result and can no longer run the affairs of the company.  Mr Loosley takes control of the company and for some 8 months tries to restore its fortunes without success.  Femplacement Pty Ltd fails financially.

            Friendly Consulting, a creditor of the company, was engaged by Mr Loosley to do some consulting work, and has not been paid for the last two months wishes to bring an action against Mr Loosley for insolvent trading.

            a) Advise Friendly Consulting whether it can take action against the directors of Femplacement Pty Ltd for breach             of s588G.

            b) Advise whether the directors of Femplacement Pty Ltd have any defences they can rely on under the             Corporations Act 2001.

            c) Finally, advise what penalties may be imposed on the directors of Femplacement Pty Ltd for breaching the       insolvent trading provisions under Act.

 
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Company’s capacity to make contracts, types of agency.

2.         (a)        What is the effect of sections 125 and 130 of the Corporations Act on the Common Law Doctrine ‘ultra    vires’ and “constructive notice”?

            (b)        What is the rule in ‘Turquands Case’?

(c)        What is the effect of Section 128 and 129 of the Corporations Act 2001 when persons are contracting with a Company.

                                                                           

4    Tom and Terry set up TT. Pty. Ltd. with the objective of carrying on the business of antique furniture manufactures.  Some years later it transferred its activities to dealing in antique gold and diamonds jewellery although it had no power in its Constitution to engage in such a business. Tom and Terry agree that in order to expand the business TT Pty Ltd needs to borrow $50,000.00 and they approach WeLand Bank Ltd. Bruce is Tom’s friend and also a manager with WeLend Bank and he organises the loan for TT Pty Ltd. The constitution has no limits on the companies borrowing capacity but is does require both directors to sign all loan documents and affix the company seal. Without Terry knowing Tom signs for himself and Terry. Terry and Tom’s signatures are very similar. Tom cannot find the company seal so the loan document is signed without the sea. It transpires that Bruce was not aware of Tom’s actions or the clauses in TT Pty Ltd’s constitution. In view of these facts TT Pty Ltd does not thing it should have any liability for the contract.

      In the meantime Atkins Office Design (AOD) , who has been dealing with the company secretary, Jane, for a number of years sells a computer system to TT. Pty. Ltd. for the sum of $15,000.00 on their usual terms with payment due within thirty days of the date of delivery.  Due to short term liquidity problems and before delivery takes place Tom informs AOD that it will not accept delivery of the new computer system because Jane had no authority to make the contract.

      (i) Advise WeLend Bank Ltd whether it can enforce the contract.

      (ii) Also advise AOD of its rights against TT Pty Ltd.

     

                  5.  Explain the significance of BNZ v Fiberi Pty Ltd in respect of Section 129 of the Corporations Act 2001 and the limitation to the assumptions under the section. (s128(4).

6.         A. Co. Ltd. had the power to borrow money and to mortgage its property.  Under the Constitution of the company this power could be exercised by the directors at a meeting of the board, the necessary quorum for which was three directors.  A. Co. Ltd. borrowed $10,000 from Tom on mortgage; the mortgage document was signed “R. Roe, Managing Director”.  Subsequently, Tom sought to enforce the mortgage against the company but the company argued that he could not do so because at the board meeting approving the loan, only two directors had been present and further, at the time of executing the mortgage, R. Roe had not been appointed Managing Director. 

            Advise Tom.

            Would your answer be different if R. Roe was only a director of A.Co Ltd?

Members Remedies/Rights of Minority shareholders under Statute; Statutory Derivative Action

2.         What protection is afforded minority shareholders:

            (a)        at common law?

            (b)        under the Corporations Act?

4.         Andrews is a minority shareholder in Traders Pty. Ltd.  He states that, recently, Burton, the managing director, retired from the company owing to ill health.  It has since been revealed that during his time as managing director, Burton negligently arranged a sale by the company of a piece of its land at a price which was far below the market value. Andrews wants the company to institute legal proceedings against Burton, seeking damages.  However, the company is aware that Burton’s financial position is such that it is doubtful whether the company would succeed in recovering any damages from him.  Accordingly, it is decided by a majority of the shareholders at a company meeting, that no action be taken.

            Andrews is not satisfied with this decision and wishes to bring an action himself against Burton, on behalf of the company.

            Advise Andrews of his rights to bring a statutory derivative action.

5.         Paul, Mark and Maria decide to go into business together to acquire and run art galleries.  They form a company, Collections Pty. Ltd., to run the business.  Paul holds 25% of the company’s shares and Mark and Maria hold the remaining shares between them.  Originally all three are directors of the company.  Paul seeks your advice.

            Paul complains that the business is not being run in the way in which he thinks it should be run.  He believes that the company should spend more money in advertising its art exhibitions and that Mark and Maria are too conservative in their choice of exhibitors.  He expresses these views to them on many occasions, but they reject his arguments.  He discovers that recently, Mark and Maria have held directors’ meetings in his absence.  Furthermore, at a general meeting of the company held last week, they used their majority voting power to increase their own directors’ salaries substantially, whilst keeping Paul’s salary at the same figure.

            Paul states that Mark and Maria now wish to acquire his shares; they made him an offer for his shares at a price far below their real value and when he refused the offer they used their majority voting power to remove him as a director.  Paul further advises that, under the company’s Constitution, he is unable to sell his shares to a person outside the company without the consent of the directors and Mark and Maria have stated categorically that they will refuse their consent to any such transfer.

            Discuss the remedies, if any, available to Paul.

                                                

6.         Wellworn Pty. Ltd. is engaged in the business of the acquisition and retail sale of floor coverings.  The shareholders of the company are Peter, Norman and Norman’s son, George.  The company makes good profits, all of which are distributed as directors’ remuneration.  Under its Constitution, the company has express power in a general meeting to remove a director by ordinary resolution.

            Peter works mainly on the sales side of the business in London, whilst Norman spends much of his time acquiring carpets in India.  Disputes arise between Peter and Norman. Peter alleges that Norman is engaging in improper practices in buying and selling carpets from which he is deriving personal profits.  Norman denies these allegations.  Subsequently, Norman and George exercise their majority voting power at a general meeting of the company, to remove Peter from the board of directors.

            Advise Peter.

Fundraising and Disclosure Documents – Share Capital

 
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1.         (a)        What types of Disclosure Documents can be used for capital raising? (Sect 9, s705, 709, 92 )

            (b)        When do you have to give a disclosure document to investors? (s704,705,706,726,727).

            (c)        What types of issues offers or invitations do not require a Disclosure Document? (see Sect 708).

            (d)        What particular benefit does the Offer Information Statement provide to a company raising capital? (Sect 709 (4))

2.         Explain the General Disclosure Test and the general requirements for disclosure for a prospectus. s710  

3.         (a)        What is the role of the ASIC in relation to the issue of a Disclosure Document? (Sect 741,711(7), 739, 718 Note 1.).

            (b)        What is the requirement for lodging and pre-vetting a Disclosure Document? See Sect 718 and s727(3).

4.  &n