5 Australian company hypothetical scenarios

[I need your help]

Please respond (for free) by clearly using the ILAC framework. I.e. preferably in headings: identifying major Issues (and sub-issues); listing the relevant Law under each issue [no need for quoting out the law, but can if highlighting]; Application of the above law to each hypothetical scenario for each issue; and the last issue of each scenario is remedies where Conclusion is the application of the law.

Both relevant company law legislation and cases must be Australian. This may include Corporations Act 2008 (Cth) (“CA”) including replaceable rules (“RR”): s1 – 288; and the company’s constitution (if any, which in general sets out company internal management rules). If not Australian would you recommend a similar Australian website alternative?

ILAC framework format example 1 [i.e. with more than one major issue]:

Issue 1 – “X”
Issue 1a: …? [framed as a question]

Law: [example of two evidence whether for/against]: s[ection/s](X)(x)(x) CA; and X v X [case law]… [other evidences].

Application: …

…Issue 5 – “X”…
…Issue 5e: …?...

Issue X: (remedies)…?

Law: ...

Conclusion: [i.e. resolve above hypothetical scenario]


ILAC framework format example 2 [i.e. with only one major issue]:

Issue (i): …?

Law: ...

Application: …

…Issue (iv): …?…

Issue (x): (remedies)…?

Law: ...

Conclusion: [i.e. resolve above hypothetical scenario]
--------------------(end of examples)--------------------

I don’t know how you lawyers usually answer problems, but, if you want to you can just recommend only your conclusion for each hypothetical scenario. Note: All five (5) hypothetical scenarios are restricted to the information given.


Scenario 1:
J-Mart Ltd (‘J Ltd’) is a company involved with the sale of various homeware products. The company has 3 directors, Jillian, Ben, and Sam. Jillian is the Chief Executive Officer of J Ltd, Ben is an executive director, while Sam is a non-executive director.

Throughout the period 2006 to 2008, the company’s financial position worsens until, on the 1st August 2008, the Court orders that J Ltd be wound up and appoints a liquidator. During an investigation of the company’s financial circumstances, the liquidator finds that as at 31 December 2007, the company’s current assets were $1,000,000 and current liabilities were $1,300,000. On the 4th of October 2007, J Ltd took a secured loan from Ballarat Bank Ltd for $200,000. No repayments on the loan have been made by J Ltd to date.

The financial situation of J Ltd was discussed at a board meeting on 1st January 2008. At that meeting, a letter from J Ltd’s major creditor, Ballarat Bank Ltd was discussed. Ballarat Bank Ltd refused to advance any more loans to J Ltd until outstanding loan repayments were made. Jillian believed that J Ltd could trade its way out of trouble and proposed to delay releasing the accounts for the year ending 31st December 2007. Also, to maintain the share price, she proposed to the other directors that the usual dividend of $200,000 be paid, to which the other directors agreed.

All directors were present at this meeting, however Ben seemed more interested in playing a game on his laptop computer. Ben approved the dividend but did not read the company accounts and did not know the amount of the dividend to be paid out.

Despite the financial situation, J Ltd’s accounts actually show a $200,000 profit made in the July to December 2007 period. A dividend was declared in accordance with J Ltd’s constitution on 3rd January 2008 and paid on 5th January 2008.

On the 15th of January 2008, J Ltd buys 500 tool kits from its supplier, Kyobi Ltd, on credit for $150,000 and Kyobi issues an invoice to J Ltd, with the due date for repayment being 1 month from the invoice date. All directors view the cash at bank balance of J Ltd on the 15th of January 2008, which is $125,000. The debt to Kyobi is not repaid.

Advise Kyobi Ltd as to what action (if any) it can take against some or all of the directors to recover the $150,000 owed to it.


Scenario 2:
Rappaz Communications Ltd wished to purchase a radio broadcasting license from the Commonwealth government for $2 million. Max, a license broker who operates his own business, reported to the Board that the license would be very profitable if it was purchased. Rappaz had paid Max to investigate the financial viability of the radio broadcasting license.

The 3 directors of Rappaz (Kirsty, Sally and Jay) wish to register a new company, Little G Communications Ltd (“LG”), to purchase the license. The initial plan was that LG issue shares to the value of $2 million (equal to the purchase price of the license) to Rappaz. However, due to a sudden economic downturn in the R&B music market, Rappaz can only contribute $1.6 million. Rappaz directors unsuccessfully sought to borrow the balance of $400,000 from a variety of sources. Further, the Rappaz directors considered issuing LG shares to Rappaz shareholders or to members of the public, but rejected these options because of costs and delay (these were valid reasons).

Following relevant disclosure of conflicts of interest to the Rappaz members at general meeting and approval by the Rappaz directors (as required by the Corporations Act and common law), the Rappaz directors subscribed $100,000 each to the capital of LG and invited Max to subscribe $100,000, which he did. Sally held the shares in the capacity of Trustee of the Smith Family Trust (i.e. the Trust “owned” the shares). Rappaz directors also justified the share purchase to members on the basis that Rappaz directors got to share in the gain with members arising from LG and this would make the directors work even harder to make LG a success.

The shares in LG were issued as $1 shares. The license was purchased by LG. Shortly after that a rival Communications company made a successful takeover bid for both Rappaz and LG. The offer for LG shares was several times the initial issue price. After the takeover, the board of Rappaz was replaced with new directors. The new board wishes to commence proceedings on behalf of Rappaz, against the former directors and against Max under section 183 Corporations Act, seeking compensation being an account of profits made on the sale of their LG shares.

Clause 23.11(b)(iii) of the Rappaz directors’ contract for services provided that “You shall not own any shares of a subsidiary or holding company of Rappaz at any time”. Kirsty, Sally and Jay were unaware of this provision in their contract at the time they set up LG and received LG shares.

Advise Max, Kirsty, Sally and Jay whether they will be liable under section 183 of the Corporations Act and what they can do about it (if anything).


Scenario 3:
A special resolution is passed of the shareholders of XYZ Ltd to change the constitution. The new provision in the constitution states that members cannot call and arrange to hold a meeting without approval of the board.

Is this new provision valid?


Scenario 4:
ABC Pty Ltd is a small proprietary company with 15 shareholders (each holding 1 share and each share has one vote per share). 14 of the shareholders find themselves together in the Big Brother House at Dreamworld. They decide to hold a meeting of the company there and then. At that meeting they pass an ordinary resolution.

Please advise on the following:
(a) Is the meeting valid?
(b) Is there any difference if the absent member was prepared to accept the resolution? Would the meeting have to be reconvened in that situation?


Scenario 5:
Madeline owns 51% of the shares in Snow Riders Pty Ltd. The balance of the shares is held by a number of shareholders – one of which is a public company which Madeline feels might try and take over Snow Riders. Madeline is unable to attend the forthcoming AGM and appointed her brother Brad as her proxy. The proxy was written on the back of a shopping receipt with the following information:

“I Madeline Sampson, of 20 Fleetway St, Morningside, Queensland, 4170, Australia, a shareholder in Snow Riders Pty Ltd (Shareholder Reference Number X00012324) appoint Brad Sampson of 20 Fleetway Street, Morningside, Queensland, 4170, Australia as my proxy at the AGM to be held on 20 September 2005.”

The proxy document was signed by Madeline and received at Snow Riders Pty Ltd’s registered office on 16 September 2005. At the meeting the Chairman refuses to allow Brad to vote on any motions as he refuses to recognise the proxy.

Assume the company’s constitution is silent on the issue of proxies. Advise Madeline.