Take Home Examination, LAWS3100, Corporations Law, Semester 2, 2017
Instructions
General
Your response to this Take Home Exam must be uploaded to Blackboard in the required format by the due date and time (7 November 2017 at 4:00pm) or marks will be deducted as per the policy in the ECP. Please see the Exam Notice and the ECP for further information.
Word Limits and Structure
The response to Question 1 should be no more than 600 words. The responses to Questions 2 and 3 should be no more than 450 words each. The total word count for the three questions is 1,500 words. Any words in excess of the word count will not be read or marked. The reference list does not count in the total word limit.
Presentation and Citation Style
Please follow the following instructions for the presentation of your responses:
- Put each question on a new page with the question number at the top: i.e. ‘Question One’. Do not include the question in your response.
- At the start of each question, include your student number, name and an accurate word count for that question. At the end of each question, include a reference list.
- You can use any of the following referencing styles: the Australian Guide to Legal Citation (AGLC); the American Psychological Association (APA) style guide; or the Harvard author-date system. Whatever system you use, you must use it consistently and correctly.
- Your work MUST be spell checked and proof read for typos, grammatical errors, etc.
Plagiarism
All work submitted for assessment must be your own and not completed with any assistance, as per the ECP, the Exam Notice and UQ Academic Integrity and Plagiarism policy. Students are encouraged to read that policy (http://ppl.app.uq.edu.au/content/3.60.04-student-integrity-and-misconduct) and to note the potentially serious consequences of breach. In addition to manual checking, all student responses will be analysed by the plagiarism detection software, Turnitin.
Submission Process and Format
Completed responses must be submitted electronically in MS Word and PDF formats via the ‘Online Submission of Assignments’ folder on the course Blackboard site. Blackboard or other sources may mention uploading in PDF, but you must submit in both MS Word and PDF formats.
Silk Road Ltd (SRL) owns a well-known chain of clothing and gift shops on the East Coast of Australia. The company has traditionally purchased items from East, South and Central Asia and sold them to retail customers in major shopping centres. However, since 2012, it has also conducted a successful online business through Silk Road Online Pty Ltd (SROPL). SROPL operates a website from which SRL’s products are sold to customers over the Internet. SROPL is 50% owned by SRL and 50% by Wicked Ideas Ltd (WIL), which is a Californian investment company. Leyla, SRL’s managing director, is also SROPL’s Chief Executive Officer. SROPL’s other director, Jed, is a nominee of WIL.
Initially highly successful, on 1 January 2017, SROPL was affected by a dangerous form of computer malware (virus) that rendered its main website inoperable for several days. Immediately after the attack, Leyla hired a cybersecurity company to investigate the security breach and to create a ‘patch’ for SROPL’s IT systems. The hacking problem was thereby resolved. But, SROPL is now experiencing restricted cashflow and is having some trouble meeting its usual financial commitments due to a drop in online traffic. For example, SROPL paid its Internet service provider ten days late in March 2017 and has not paid its employees their superannuation entitlements since April 2017. To make matters worse, on 1 May 2017, the chief bookkeeper of SROPL quit unexpectedly, leaving Leyla to maintain the company’s financial records. She makes her best effort to collect receipts but forgets to keep the books of prime entry.
On 1 June 2017, Leyla and Jed together decide as a board to ‘sponsor’ Marvin to write favourable reports about SROPL on his blog: Marvin is an ‘online influencer’ and is to be paid a $50,000 fee. Leyla raises some concerns about the size of the transaction given SROPL’s cash position but is assured by Jed that ‘WIL will pitch in with more cash if necessary’.
SROPL is wound-up in insolvency on 1 October 2017.
Advise the liquidator on any breaches of the duty(ies) to avoid insolvent trading in the Corporations Act 2001 (Cth), her/his potential remedies, and any amounts that the she/he could recover.
(Total = 20 marks)
Yolanda runs a wholefoods café in Brisbane’s South Side through Just Nuts Pty Ltd (JNPL). JNPL’s share capital consists of 100 ordinary shares owned 75% by Yolanda and 25% by her older brother, Rex.
A retired investment banker, Rex made an important contribution in JNPL’s start-up phase but is now, more or less, a passive investor. He is a director, but does not closely monitor notices from JNPL and only sometimes provides strategic advice to Yolanda about the running of the business.
Yolanda is highly grateful to Rex for his support in the past but would like to see JNPL expand through more external investment. She sees an opportunity in her new and charismatic friend and business coach, Laurie. Laurie convinces Yolanda to convene an extraordinary general meeting (EGM) at which she will use her voting power to have JNPL issue 25 new preference shares to Laurie. Laurie also persuades Yolanda to change the constitution at that meeting to allow Laurie to acquire Rex’s shares at reasonable market rates ‘if necessary and for genuine business reasons’ in the future. The amendment, Laurie argues, is necessary to secure the ‘long term growth trajectory of JNPL’.
Yolanda goes ahead with the plan without telling Rex. She is afraid of hurting his feelings. She also figures that the new preference shares do not give Laurie a right to vote, only to some priority of payment in dividends. Rex first hears about the plan at a family barbeque about a month after the resolutions are passed at the EGM.
Advise Rex on any remedies he might have under Part 2F.2 Corporations Act 2001 (Cth) and via the equitable limit on majority voting power, as well as any other relevant matters.
(Total = 15 marks)
Green Pastures Pty Ltd (GPPL) is a Queensland company that was established by Ray and Sharon Green in the 1960s as a family dairy farming business. Ray and Sharon passed away in the 1990s and, in keeping with their vision, ownership of the company was transferred to their children Dave, James and Oona. As the eldest, Dave was appointed managing director (MD) and assigned 70% of the shares. As the much younger siblings, James and Oona were minority shareholders (15% each) and company employees. They have historically sat on the board.
Now, however, Dave has retired as MD and elected his daughter, Geraldine, as his replacement. Geraldine has degrees in agricultural science and tourism, and is keen to make sure that GPPL remains viable in face of increasing climate uncertainty. Based on her own assessment of GPPL’s situation, she decides that GPPL will make an immediate shift away from dairy farming and into tourism. To facilitate the change, Dave will sell 15% of his shares in GPPL to a large tourism operator, Glamping Travel Ltd. Geraldine has told James and Oona that they will cease being employed by GPPL.
James and Oona describe Geraldine’s proposal as a betrayal of Ray and Sharon’s legacy. They point out that Dave oversaw a successful transition to organic milk production in the early 2000s, but the move was designed to provide job security for the family members and so was consistent with Ray and Sharon’s wishes. They are also outraged by Geraldine’s steadfast refusal to discuss her plan at board meetings and Dave’s move to call a general meeting to remove James and Oona as directors.
Advise James and Oona on any remedies they may have under Part 2F.1 Corporations Act 2001 (Cth).
(Total = 15 marks)