BULAW5915 Corporate Law
1. Freebies Ltd has collapsed owning unsecured creditors $ 36m. Berne Stiller appointed as liquidator. The only secure creditor, virtual bank has acted on its security and appointed a receiver. Only tangible assests of the business are stock in a chain of stores operating from rented premises. Virtual Bank holds a registered circulating security interest over this stock (apart from the stock that is subject to retention of title clauses). (A) What actions should the liquidator take in the above circumstances to fulfil his obligations under the Corporations Act 2001(Cth)? (B) Are there any recovery actions the liquidator could consider covering his fees and costs and / or provide a return to unsecured creditors? in what circumstances could these actions be taken?
2. Amleth Pty Ltd manufactures reproduction mid-century mordern furniture. The directors of the company are Hamlet(CEO), Orphelia (production manager), Gertude ( chief financial officer), Laerters (Non- executive, Fortinbras (non-executive) and Yorrick ( Chairman, non ecxecutive but not independent as he retired last year as the CEO of the company). Hemlet wants to take advantage of the fact that Australia has a close relationshi with Denmark. He plans to take a sizeable display of the company’s furniture to denmark in April to participate in the Scandi Exhibition, A design extravaganza. The directors think this is an excellent idea and approve the trip. While exhibiting in Denmark on behalf of the company, Hamlet includes in the display a selection of abstract paintings that he has produced. He has his private business cards on the stand along with the company promotional material. Hamlet uses company funding for the trip to wine and dine gallery owners and art collectors. The directors are unaware of these activities. He sells 10 paintings for a total value of 25000 during the trip. The directors later become aware of what Hamlet has done. Requred: Has hamlet breached any of the general law or statutory duties he owes to Amleth Pty Ltd? If so, What are the possible consequences? Amleth Pty Ltd is a proprietary company.
3. Simon has been a director of shifty pty ltd. a removals company, since Mr simon, the company simon works for the company as a mechanic. Simon has be inrecreasingly uncomfortable about decisions the board is making. The other not like the simon as they think he stands in the way of the company moving forward. When simon refuses to join with the directors to approve large bonuses. They call an urgent board meeting at a time when simon is on holiday in Fiji.. deliberately have the agenda for the meeting sent to an incorrect address for.. send it out on the Thursday night before easter. the meeting is held at 9pm on night following easter. Unfortunately due to traffic accident on the Sydney harbor bridge only two .. and sarah make it to the board meeting. Nevertheless, they vote to remove s…. director. Required: Discuss whther simon jas been validly removed as a director of the company, include in your discussion any issues around the convening and holiding directors meeting
4. Lux Fabrics Pty. Ltd. (Lux) runs a business producing luxury fabrics in Western Australia. There are three shareholders: Ari, Bill and Kai. Ari holds 200 shares, Bill 120 and Kai (an employee of the company) holds 50 shares. All three have been directors since the company was first registered. Bill is the Managing Director and Chairperson of the Board. A friend of Bill’s approaches him, asking whether Lux would be interested in investing in a new company Silk Ltd. (Silk). Silk is going to purchase a Mulberry plantation used for silk worm farming. Bill says he is personally interested but will also put it to Lux’s Board. At the Board meeting held to discuss the proposal, Ari said the proposal sounds a bit vague and he is not interested in the company buying a plantation – even if it would make it easier to obtain luxury silk fibres. Kai thinks it is a good idea – but wants to agree with Ari. At the next Board meeting Bill asks Ari and Kai to approve a large loan to him at low interest so he can renovate his house. Ari says ‘sure’. K a i thinks it is a bit foolish as the company does not have a lot of extra money, however they both trust Bill as he is an accountant with experience as a finance director of another company.Bill uses the loan money to buy a large number of shares in Silk. He is also appointed as a director of Silk. Six months later the share value of Silk increases substantially because a plaque of locusts had devastated most of Western Australia’s mulberry plantations, except for the one owned by Silk. As a result of the shortage of mulberry leaves, very little silk fibres are produced and Lux finds it hard to purchase enough to keep up with their orders for luxury fabrics. The price of silk fibres increases dramatically. This put pressure on Lux’s financial position.Ari and Kai have now realised that Bill has made a large profit from his investment in Silk and believe that he should pay that to Lux. Bill refuses. Required: Discuss whether any of the directors in this case scenario have breached or may be about to breach their directors’ duties. Hint: You must consider the position of each director. Only discuss the duties in the Corporations Act 2001 (Cth). A directors’ duties question
5. Jax took over his father's dry-cleaning business, “Caring Clothes Ltd” (CC) and within a few years CC had:• 10 dry-cleaning stores in Australia, all of which occupy rented premises;• a substantial quantity of equipment leased from finance companies and secured by personal guarantees from Jax and his wife; and § three subsidiaries: Rapid Delivery Pty Ltd (Rapid); Preloved Fashions Pty Ltd (Fashions); and Stitch in Time Pty Ltd. In recent years it has been much harder to persuade people to spend money on having drycleaning home delivered, so Rapid has been running at a loss and this is unlikely to change in the near future.Fashions is a very profitable business and operates out of a factory in Geelong that it owns outright. However, most of its profits have been drained off to cover the losses in Rapid and to fund the start-up costs of Stitch in Time. These start-up costs have been substantial and are putting pressure on the CC group (Group). In fact, CC itself is only just profitable. However, independent marketing consultants have reported the future for clothing repair services is promising and there is a realistic prospect that in one or two years the investment in Stitch in Time will pay substantial dividends. The Group is financed by loans totalling $10 million from BBank. BBank has security in the form of security interests and circulating security interests over all the assets of each company, except the Fashions' factory site. The loans from BBank are also secured by personal guarantees from Jax and his wife. Jax is worried about the state of the Group’s finances at the present time. He is particularly worried about his personal exposure under the guarantees he and his wife have given. For the past seven months CC has been late in paying the rent on its dry-cleaning store in Sydney. CC’s debt of $9,090 payable to the local newspaper for advertising is very overdue and Jax has received a statutory demand. The 21 days expired yesterday. Jax is now considering whether Fashions should sell the Geelong factory site to Jax’s family company - for less than the site’s full market value. Jax doesn’t know what to do. Required: Advise Jax about the likely consequences of: a) doing nothing other than trying to trade out of financial difficulty, b) taking steps to put one or more of the companies in the group into liquidation, c) approaching BBank and asking it to enforce its security over the companies in the group and appoint a receiver to the group Do nothing Risky.
6. Dirk runs a soil-testing business. He decides to form a company to take over the business. He is the sole shareholder and sole director. Dirk sells his business to the company at an inflated price and lends the company $90,000 to help meet the cost of purchase. As security for the loan, Dirk arranges a mortgage over a vacant block of land, which he transferred to the company as part of the business sale. In the first year of operation, the business makes a small profit (after paying both Dirk and his daughter's wages), but by the end of 2013 it is clear that the building industry is going through a major slump. Dirk becomes desperate and works even harder. While working late into the night, Dirk badly cuts his hand and needs micro-surgery. His efforts to keep the business afloat are in vain and the company is forced into liquidation. On realisation of the assets, it is found that the company has approximately $95,000 to go towards meeting creditors' claims of $210,000: a) If Dirk is the only secured creditor, will he get back his $95,000?, andb) Can Dirk claim workers' compensation, assuming that he is otherwise entitled to it?
7. Shane started a business in 2003 involving direct marketing of a range of cosmetic products. The business operates through a proprietary company, Glow Pty Ltd. The business has been quite successful and in 2013 Shane decided to dramatically expand the business and to change the operation from direct marketing to distribution of products through various retail outlets. In that year he converted the proprietary company into a public company Glow Ltd. He now wants to raise $10 million in additional funds to assist with the expansion and also to repay some debt. One option that is being considered is to offer shares in Glow Ltd to a number of institutional investors. An alternative option is to ‘float’ the business, that is, offer the shares to the public and apply for listing on the Australian Securities Exchange (ASX). S h a n e is very upbeat about the company’s prospects. He believes that with favourable economic conditions the company will double in size within a year. a) What are the implications under Ch 6D of the two fundraising options being considered?, and b) If a decision is made to carry out a float and seek listing on the ASX, what type of disclosure document will be required and what type of information must it contain?, and c) If the offer document includes forecasts consistent with Shane’s view concerning the prospects of the company, what consequences could follow if the forecasts are not met? Are there any precautions in relation to disclosure that Shan e, the board of directors and the advisers should take?
8. Sian and Ali Jaks run a successful car hire company, Get and Go Pty. Ltd. They are the only shareholders and executive directors. Sian is the Managing Director. When Sian and Ali set the company up in February2013 they invited an accountant friend of theirs, Trevor to be a nonexecutive finance director. Trevor insisted that the Managing Director have the capacity to bind the company to contracts only up to $60,000. This limitation is written into the company’s Constitution. Recently, Sian saw a great deal being advertised on a van that would carry up to 10 people. She had been thinking lately that the business would be more competitive if it had vehicles that could carry more people so she decided to take the risk and buy the new van. Sian cannot contact Ali because he is in a remote location. Sian goes to the company’s bank and arranged a loan for $180,000 to buy the van. She knows the bank staff as she always does the weekly banking. Sian signs the loan documents as ‘Director of Get and Go Pty. Ltd.’. When the bank’s accountant asked for another director to sign as well, Sian explained that this was not possible as both Ali and Trevor were unavailable, and the deal was urgent. The bank’s lending officer was reluctant to approve the loan as it was a large sum for the business, but Sian convinced him it would be OK. When Ali returns from his trip, he is horrified to find out what Sian has done as the business was actually in financial difficulty. At a meeting with Trevor, it is decided that the company would argue that the contract was not valid as Sian had no authority to make it. Required: Discuss whether the company is bound to the contract.
9. The board of ABC Ltd has decided to proceed with a public offering of shares. What disclosure and other requirements apply, under Ch 6D of the Corporations Act, to the offer?
10. Shai and Harry hold a majority shareholding in the gas heater company Winter Pty Ltd. They own 96% of the shares in the company between them. Employees of the company own the remaining 4% of the shares. Winter Pty Ltd wishes to expand its business to include the manufacture of air conditioners but needs more capital to do so. Shai and Harry have offered to lend the required money to Winter Pty Ltd on the condition that the minority shareholding be eliminated. They are unsure whether they can change the constitution, and if so how, so that they may compulsorily acquire the minority shares. WHAT IS PROCESS OF AMENDING CONSTITUTION:
11. Dairy Fresh Pty Ltd (DF) manufactures yoghurt, cream and custard products in a large factory it owns in Melbourne. DF’s factory is equipped with sterilising and heating machinery and refrigerated storage facilities. These are all owned by DF. In 2012, DF borrowed money from its bank, Bank Better, to upgrade its manufacturing process. In order to obtain the loan, DF granted a security interest to the bank over all its current and future property, including the new machinery DF was purchasing as part of the upgrade of the manufacturing process. Book debts and stock in trade were also included in this security interest. The security instrument provided that it would be a default if the value of the stock in trade fell below $100,000. DF usually held approx. $200,000 of stock in its business. DFs stock included long life dairy products as well as those with a shorter use by date. All DF products needed to be correctly stored and many needed refrigeration. Unfortunately, in the summer of 2013 there was an outbreak of illness normally associated with bacteria in milk. Amongst those affected was a child and led to legal action against DF alleging that a DF product was the cause. As a result of the publicity around the case, ABC Supermarket, DFs largest customer, , returned all its DF stock. These products were returned on a very hot day and many were now of poor quality, close to their use by date and unable to be resold to any other customers. In addition, the value of the remaining products dropped. The final result was that the value of DFs stock in trade fell below $100,000. This meant DF was in default of the loan conditions from Bank Better. This gave the bank the right to appoint a receiver. The directors are now concerned about the company’s viability, believing they may be unable to pay suppliers immediately. (a)Discuss what course of action the directors should take if they are concerned about the company’s viability.