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BTX2000 Australian Corporations Law

tag 0 Download 9 Pages / 2,225 Words tag 30-06-2021
  • Course Code: BTX2000
  • University: Monash University
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  • Country: Australia


Part A

Strawberry Fields (SF) Ltd, a listed company, is a builder and property developer specialising in modernist high-rise apartments and office buildings in inner Melbourne’s and the central business district.  SF is currently planning to build Melbourne’s highest apartment block on a disused industrial site in the trendy Melbourne suburb of Clifton Hill.  SF Ltd has 5 directors:  Brian (managing director), John (finance director), Paul (chairman), and George and Ringo who are both non-executive directors.   George has expertise and experience in planning law and architectural design and Ringo was a senior manager in large firms in the banking and finance sector.

Several months ago, the board approved Brian’s plan that SF Ltd acquire the large development site in Alphington for $100 million from Norwegian Wood Pty Ltd.  Norwegian Wood Pty Ltd is a company controlled by Brian and his family.  Brian told the board that in his opinion it was a great site and suitable for Melbourne’s largest high-rise project but he did not mention that he or his family were the shareholders of Norwegian Wood Pty Ltd.  Unfortunately, Brian did not have a sound basis for this opinion and was unaware that the applicable planning laws did not permit the construction of a building of more than 50 stories on the site.

The board relied on information provided by John who claimed that project would be highly profitable for SF Ltd.  John said the proposed acquisition and development project could clearly be funded but the financial details he put forward were vague and brief but highly optimistic.  John was also unaware of the relevant planning laws and the size of the asbestos problem. Paul supported Brian and John suggesting that George and Ringo should approve the purchase.  

None of the directors were aware that the development site was contaminated by asbestos and petroleum which would be extremely expensive to remove. In addition, George and Ringo were not that familiar with the company’s financial status and failed to ask John any questions about funding the project.  Ringo was not paying much attention as his mind was on an event he was attending following the board meeting. While George had failed to turn-up to a number of previous board meetings where the project was discussed.

The Alphington project proved to be a financial disaster for SF Ltd.  It paid too much for the site and the costs of borrowing were much greater than Brian had indicated. The financial viability of the project was adversely affected because the height of the high-rise development had to be scaled back to meet planning requirements along with the unexpected high cost of asbestos and petroleum removal. As a result, the anticipated losses from this project were likely to exceed $200 million.

Advise ASIC whether -

SF Ltd’s directors breached any of their statutory duties in relation to the purchase of the Alphington development site. In your advice consider the position of each of the directors and whether they may have a defence under the Business Judgement Rule or under Reliance.

Brian breached his fiduciary duties and contravened any (and if so what) provisions of the Corporations Act in relation to the purchase by SF Ltd of the development site from Norwegian Wood Pty Ltd.

Part B

The Government has released a draft bill entitled, Treasury Laws Amendment (2017 Enterprise Incentives No 2) Bill 2017.  The Bill proposes a new defence for s588G Duty to prevent insolvent trading.  According to the Explanatory Memorandum accompanying the Bill, under the new ‘Safe Harbour’ defence, directors will only be liable for the debts of an insolvent company where it can be shown that they were not taking a course of action reasonably likely to lead to a better outcome for the company and its creditors as a whole than proceeding to immediate administration or liquidation.

Explanatory Memorandum, Treasury Laws Amendment (2017 Enterprise Incentives No 2 Bill) p9 (Moodle)

What are the arguments for and against the proposed defence? Explain whether you think the defence is appropriate or justifiable.

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