ACC204 Company Law
Leela is the Managing Director of ‘Weight Shedders Pty Ltd’ (hereafter ‘Weight Shedders’), a profitable company specialising in providing weight loss and dieting advice to customers with weight problems. Her company prepares light-meals for her clients using meat and vegetables sourced from local supermarkets.
While at an international food conference one day, Leela meets a fellow entrepreneur, Mark who runs an ‘Organic Meat and Groceries’ business called ‘Organic Goodness Pty Ltd’. Mark asks Leela if her company would be interested in purchasing organic products for use in preparing ‘light-meals’.
Leela informs Mark as follows: “I think Weight Shedders , at this stage, would not be interested in this business proposal because I believe it would want to maintain its current working relationships with its meat and vegetable suppliers”. However, Leela herself was interested in taking up this opportunity and to this effect, she and Mark set up a company called ‘Organic Wonders Pty Ltd’ and became its directors and shareholders. The business was initially successful but ended up being sued by the ACCC for making misleading statements about its products being a 100% organic.
Eight months later, at a board meeting of Weight Shedders, Leela proposes that Weight Shedders should enter into a long term contract with Organic Wonders to purchase ingredients for use in the light meals. The rest of the board (John and Michael, the executive directors and Paul, the non-executive director) are immediately agreeable (without conducting any further investigations of their own) as they trust Leela’s business judgment, as she has been a director with Weight Shedders for the past 6 years. Leela managed to negotiate a small commission on each sale.The board is unaware that Leela is a director and a 50% shareholder of Organic Wonders. The contract with Organic Wonders has caused it to suffer financial losses (as their customers soon became aware that ingredients for their light meals were being sourced from Organic Wonders).
(a)Discuss whether Leela, John, Michael and Paul have breached their directors’ duties
and what penalties/remedies can be obtained against them.
(b)Are any defences available to them if they have breached the duties.
Please use relevant cases and legislation in your answer.
(15 marks) (5 marks)
ACC204 Company Law Semester 1, 2015 GROUP ASSIGNMENT
Weight Shedders is currently the subject of a hostile takeover from Anglo-Chino Ltd (hereafter ‘Anglo-Chino’). Before Anglo-Chino’s takeover announcement, the market capitalisation of Weight Shedders is $1 million and its pre-takeover share price is $0.50. Anglo-Chino has offered $1 a share for Weight Shedders. At a board meeting, John, Michael and Paul, the current directors of Weight Shedders, decided that John should be provided with an interest-fee loan of $500,000 so that he would use the loan to purchase shares in Weight Shedders to push up the current share price. The net effect of this is that Anglo-Chino would have to offer more to the shareholders of Weight shedders to takeover the company.
Discuss whether John, Michael and Paul have breached their directors’ duties. Please use relevant cases and legislation in your answer.