Dasher, Prancer and Vixen are the only directors of Festive Couriers Pty Ltd (‘Festive Couriers’). Although Vixen has never been formally appointed by the board as managing director, she has been running the day-to-day operations of the company since it was registered 10 years ago with the knowledge and acquiescence of Dasher and Prancer.
Six months ago, the constitution of Festive Couriers was amended to provide that all contracts over $30,000 required board approval.
Last month, without discussing the issue with Dasher or Prancer, Vixen decided that Festive Couriers needed to upgrade their global positioning and tracking system. Vixen went to Surveillance-R-Us Pty Ltd (‘Surveillance-R-Us’) and discussed with Tom, the store manager, the specifications that Festive Couriers required for their new system. When first meeting Tom, Vixen hands over her Festive Couriers business card, which has herself listed as Managing Director of the company. Tom said he would be able to put a package together at a cost of $50,000. Vixen agreed and she signed a contract to that effect. As Tom was finalising the order for the system, Vixen had a look around the store. The store not only contained surveillance equipment but also other electronic items. She liked the look of the new iPhone and the new iPad; Vixen needed a new phone and thought that the iPad would make a great birthday present for her children. She said, ‘Hey Tom, add 1 iPhone to the order and 2 of these iPads as well, will you? Deliver them to my address, 123 North Pole.’
When Festive Couriers receives the account from Surveillance-R-Us, Dasher and Prancer think that although Festive Couriers needed an upgrade to their systems that this was too expensive and they do not want to go ahead with the purchase. They argue that Vixen did not have board approval to buy the system and also that she did not have the authority to do so. They are outraged to see the iPhone and iPads on the account and refuse to pay.
Discuss whether Festive Couriers is bound to the contract for the new global positioning and tracking system and whether Surveilliance-R-Us can enforce payment for the iPhone and iPads. Refer to both the Corporations Act 2001 (Cth) and cases in your answer.
Alex, Zac and Josh are the directors of a company called ‘Happy Days Company Limited’ (HD). All three were appointed by the shareholders as they are experienced directors. Prior to becoming directors, Alex had been a partner of a large commercial law firm, and Zac and Josh had previously been partners in 2 of the big-4 accounting firms. Alex works full time for HD as the Managing Director. Zac and Josh are non-executive directors and are not particularly interested in the company’s affairs; they are more interested in planning and taking golfing holidays.
Official board meetings of HD take place only every six months and as Zac and Josh trust Alex, they agree to everything Alex proposes without much scrutiny. They say, Alex is the lawyer, he knows what he is doing.
HD’s core business is retail. They own multiple shopping centres across Australia. HD have been making large profits for a number of years, although the profit has been declining each year. Alex thinks that it is time for HD to diversify. He thinks that retail is great, but retail plus advertising would be even better. Alex has come across a large online advertising business which is up for sale. He thinks it is a great opportunity.
At the next board meeting Alex proposes that HD purchase the online advertising business. Alex is very optimistic about the proposal. Zac and Josh are not so sure. They are worried that they do not know much about the advertising industry, but Alex says, ‘it’s a piece of cake, nothing to worry about’. Zac is also concerned about the financial position of the company – he has been checking the books periodically and thinks that the online advertising business is a little more than they can comfortably afford. Alex says, ‘it’s not a problem buddy, we will make huge profits really quickly, we can pay off any loan we take out comfortably.’ Zac and Josh reluctantly agree to the proposal. To finance the deal, HD takes out a loan from Dodge-E Finance Ltd. When signing the finance documents, Zac and Josh do not read the fine print and simply sign on the dotted line. In the fine print was a clause stating that after the first month the interest rate payable would increase from the original 5% to 18% p.a.
After 6 months, the online advertising business has not been as successful as hoped. Zac and Josh realise it was not ‘the piece of cake’ that Alex had described. HD are also finding it difficult to pay the high interest payments.
The shareholders are not happy with the performance of HD, and argue that this is due to the mismanagement and carelessness of Alex, Zac and Josh. At the recent general meeting, the board is removed and replaced with 3 new directors.
Using relevant sections of the Corporations Act 2001 (Cth) and cases, discuss whether HD could successfully bring action against Alex, Zac and Josh, and if Alex, Zac and Josh could successfully raise any defences.