Chapter 7 and Chapter 8 Questions: Growth Ltd and Goodtimes Ltd

QUESTION ONE- Chapter 7

In order to obtain the funds necessary to expand its business Growth Ltd is to make a $12M share issue. Advise the directors of Growth Ltd over the following matters.

Hint: The best practice questions to use from workshops come from workshop 5.

REQUIRED:

(a) Can the funds be raised without a prospectus?

(b) If a prospectus is prepared, will the directors be safe from prosecution if they provide to investors in everything they know that is relevant about the investment?

(c) If the company issues a prospectus and the directors then become aware that there is a false and misleading statement in it, what alternatives are available to them under the CA?

(d) Does the CA provide any protection for directors where funds are raised under a prospectus that contains a misleading statement?

QUESTION TWO- Chapter 8

Hint: The best practice questions to use from workshops is workshop 5 question 5.

Goodtimes Ltd has had a very successful trading period. The directors decide that the profits should be used to offer to purchase back some of their shares held by the members. The directors wish to undertake two transactions:

1. purchase 12% of the ordinary shares held by Jasline

2. offer all shareholders the opportunity to sell 8% of their ordinary shares to company.

REQUIRED:

(a) In terms of s256 A, describe the obligations of the directors in terms of whether the Corporations Act allows the directors to undertake their plans (3 marks)

(b) Name the type of buy-back relevant to each of the above and briefly detail the procedures to be followed (3 marks).

QUESTION THREE- Chapters 9, 12, 14, 17 (14 and 17 equivalent chapters in 20^th edition are 21 and 24)

Discuss ANY TWO of the following, which are worth 5 marks each (10 marks total):

(a) “Members can sue directors therefore there is no need for statutory derivative action” Discuss true or false and why.

(b) Legal significance of share register v share certificate

(c) Appointment of directors

(d) Casting vote

(e) Chairing meetings

QUESTION FOUR- Directors duties

Part a)

Hint: The best practice question to use from workshops is workshop 7 question 2.

Christine, Sharni and Mandy are the directors of Layabout Ltd, a company that manufactures camping equipment. Sales are falling and the directors are worried about the future prospects of the company. At a directors’ meeting it is resolved that a marketing campaign to promote the company’s products will be put out to tender.  Part of the campaign will involve television advertising and Christine wants the company to employ her husband Sunil to appear in television commercials as he has experience modelling and has taken acting lessons. It is expected that Sunil will be paid $100,000 by Layabout Ltd to be the ‘face’ of the company in the television commercials.

REQUIRED

Using your knowledge from studying directors duties (chapter 13.3 in 19^th edition and chapter 16 in 20^th edition), describe the procedure under the Corporations Act the company and Christine must follow in order to employ Sunil for the advertising campaign.

Part b)

Part b) is a real exercise in understanding the development over time of the duty of care and diligence as well as understanding liability for breach in order to determine whether the statement is correct or not. Note that, in either the introduction or the conclusion, you must state whether the statement is correct or not.

“Company directors have to exercise a very high standard of care and diligence under both the Corporations Act and case law because if they make a decision that causes any damage to the company, they will be personally liable to creditors.”

REQUIRED:

Using your knowledge from studying directors duties (chapter 13.4 in 19^th edition and chapter 17 in 20^th edition), discuss the correctness of this statement.