Eiffel Towers Ltd, a listed company, was a builder and property developer specialising in
projects in Brisbane’s central business district. It has five directors. Giscard is the managing
director and Henri is the chief financial officer. They are the only executive directors on the
board. The others, all experienced business people, were non-executive directors and
attended the monthly board meetings.
Over the past two years, Eiffel Twoers Ltd’s financial position had worsened. Apart from
Henri, the directors were unaware of this. Henri made sure the other directors were kept in
the dark about this and did not give them meaningful or accurate financial information. The
other directors did not read the financial reports and were satisfied with Henri’s false
assurances that the company’s finances were satisfactory.
Several months ago at a company’s meeting, Giscard asked the board to approve the
acquisition of a development site owned by Blue Sky Pty Ltd for 50 million, to be borrowed
from Eastpac Bank. This is because Henri convinced the rest of the board to contract with
Blue Sky Pty Ltd. Giscard 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 Blue Sky 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.
Not long ago the non-executive directors ordered an investigation of Eiffel Towers Ltd’s
finances and for the first time became aware of the zoning laws. They forced Giscard to resign and reported the matter to ASIC.You as a professional accountant are asked to write a formal letter to ASIC advise it
whether there have been breaches of the Corporations Act 2001 (Cth) in the above
circumstances. In you answer consider the positions of each of the directors and any possible
defences. (20 marks)
You should use both primary and secondary sources, e.g. legislation, case law, text books,
journal articles and websites, to demonstrate your research skills in support of your advice in
the letter. (5 marks)
Letter format and communication skills.
Lily and Morris are the directors and shareholders of Zap Graphic Pty Ltd. Recently, the
company began to suffer cash flow problems and needed additional capital. Lil persuaded
Rodney to invest $100,000 in the company. Lily and Morris held a directors’ meeting and
decided to issue Rodney with two shares in the company. A general meeting of shareholders
also appointed Rodney as a director of the company.
The company’s financial position improved as a result of Rodney’s $100,000 investment.
Despite the company’s increased profits, Lily and Morris decided not to declare a dividend
for the current year. Instead they gave themselves pay rises and arranged for the company to
lease two new Mercedes-Benz cars for their personal use. At the board meetings, Rodney
made a number of suggestions to improve the profitability of the business. He also questioned
Lily and Morris about their pay rises. Lily and Morris resented these questions. According,
Lily and Morris formed another company, LM Graphic Pty Ltd, in which Rodney was not
involved, and diverted a valuable government design contract that they had been negotiating
for Zap Graphic Pty Ltd to their new company. In addition, Lily and Morris also called a
shareholders’ meeting at which it was resolved that Rodney would be removed from his
position as a director.
Advise Rodney what legal remedy/remedies he has.
Bill and Bob are the directors and shareholders of a very small company which imports soft
toys from overseas for sale to various retail outlets. The company has a small warehouse
where it keeps its goods, and from which all products are distributed.
The company recently entered into a contract to supply a large chain with soft toys, and they
accordingly ordered large amounts of goods from overseas. The company ordered four
shipments of goods from a supplier and have paid them a large deposit. However, after only
one delivery to the retailing chain, a defect is discovered and the government puts a banning
order on the sale of the toys, the retailer cancels all further orders.
The company now has no future revenue; there are stocks of goods which cannot be sold. The
shipping company which brings the goods into Australia for Bill and Bob is now waiting for
payment. There are also various bills to the tax office, employees and others who have
provided services to be paid.
Bill and Bob are desperate. Advise what they need to do. Is the company insolvent, and if it is,what must Bill and Bob do?