Q1: Roger recently started work in a merchant bank. Last year, Roger and his girlfriend Melina had a baby, but they broke up last month. The child support agency tells Roger that he must pay $1,000 a month for the baby.
Roger is angry, because Melina already has a new partner who makes much more money than he does. Roger decides to form a company,
Roger Pty Ltd, of which he is the only director and shareholder. He asks the bank to terminate his employment contract and enter a consultancy agreement with Roger Pty Ltd instead. Roger Pty Ltd agrees to provide the bank with Roger’s services. The bank then pays Roger Pty Ltd the same amount of money Roger had been earning, but Roger Pty Ltd only pays a small amount directly to Roger. This means that Roger receives a new child support assessment to pay only $200 a month, based on his changed financial position.
Melina now comes to you for advice. Is there any basis on which she can challenge these new arrangements?
Would your answer be any different if the company had been formed and the consultancy arrangements put in place before the baby was born?
Q2: Agrico Limited (“Agrico”) is a public listed company based in Sydney with over 100,000 shareholders, 30,000 employees, an annual turnover of $8 billion and annual net profit of $600 million. Agrico conducts a range of businesses - hardware retailing, coal and gas production, industrial and safety product distribution, and chemical and fertiliser manufacture.
Last month a terrible cyclone hit the far north coast of Queensland, causing significant damage and terrible loss. Agrico has many customers in that area. Jenny Smith, the managing director, grew up in that region and is particularly concerned about the impact on local towns. She telephones each of the directors and suggests that Agrico make a donation of $1 million to the cyclone relief appeal launched by the Red
Cross. Each director signs a circular resolution, stating they are in favour of the donation by Agrico, which is then made.
Have all the directors acted in the best interests of the company?
Would your answer be any different if:
1.(a) Agrico had very few customers in the area?
2.(b) Jenny Smith insisted that the donation be anonymous?
3.(c) The donation was for $50 million rather than $1 million?
4. (d) Agrico had recently been publicly criticised for its lack of philanthropy and had received advice from its PR consultants that it needs to lift its profile in this area?
Q3: A company with 3 directors (also shareholders), A is management director, B is busy with a project and C is busy with other things outside the company and never care about the company. The company uses the money prepared for income tax and GST to pay the bank loan and interests and hence the company has a statutory demand of $10,000.
Advice there are any breach of director’s duty in the situations below and what is the consequences?
1.(a) The company owns a property which worth about $250,000, the company is in financial difficulties and the management director arrange the property to another company with $1,000 because once the company is taken into liquidation process, this property will be sold by the liquidator. The company have the power to purchase the property back with $2,000 after two years.
2.(b) The management director buys some raw material in credit and believes that he can earn profit with this part of fund. The due date was reduced to 7 days from 30 days due to the bad financial position of the company. The director B is busy with other project and have knowledge about the company’s financial position, but the management director told B that he can deal with everything. C is busy with other things outside the company and still have no knowledge about the company’s financial position.
