Organisations Law
Purpose
To enable you to apply problem solving skills; to research the nature of some of the duties owed by directors in companies.
The Assignment will be marked out of 30 and is worth 30% of your total mark for the BULAW2611 course.
It is important for you to have time to think through how to structure and present arguments, and to review and discuss what the law is or should be in a particular area. Whilst discussion with others is encouraged, the final piece of work must be your own.
Word Limit
2,300-2,500 in total (assignments exceeding the word limit may not be marked and may be returned to the student for re-writing; assignments less than the required length will risk not covering the topic adequately and may result in a fail). Do not include synopsis, references or bibliography in the word count.
Required
Read the fact situation below and complete the tasks in Part A and Part B.
SUPPORT YOUR ANSWER WITH REFERENCE TO RELEVANT CASES AND LEGISLATION.
Nurture Nature Pty Ltd organises ‘environmental awareness’ getaways in various locations around Australia. It specialises in weekend retreats that involve camping and bushwalking activities that build respect for nature. Many businesses pay $1,000 for each of their employees to attend a Nurture Nature weekend retreat.
There are three directors of Nurture Nature: Yolande (Managing Director), Shani (Financial Director) and Wei (a non-executive Director). When they started the company in February 2007 they sought advice from an accountant friend of theirs, who suggested that no director should have the capacity to bind the company to contracts worth more than $50,000. This limitation was written into the company’s Constitution.
Yolande and Shani control the business, and Wei, who is Yolande’s boyfriend, has little interest in the company and little knowledge about its affairs.
The three directors each hold 20% of the shares of the company, and there are several non-director shareholders.
Yolande, Shani and Wei regularly hold directors’ board meetings. During a meeting in July 2013 the directors consider the following proposals:
1. That the company should enter into a contract to purchase camping equipment imported by Outside Life Pty Ltd, a company wholly owned and controlled by Yolande and Shani. Outside Life Pty Ltd is proposing to charge twice the price for camping equipment compared with Nurture Nature’s current supplier.
2. That the company should expand into Papua New Guinea (PNG). Yolande and Shani believe PNG is a great untapped market. Neither Yolande nor Shani provide any financial forecasts or legal information about the proposed expansion into PNG.
All three directors vote in favour of the above proposals. Wei is wary about both proposals, but a stern look across the board room from Yolande silences him, and he votes in favour of the proposals.
Wei becomes unhappy because of his passive role in the business. Wei decides to show how useful he is to the company, and while Yolande and Shani are on a business trip to PNG, he approaches A Bank Ltd for a loan of $500,000 to finance Nurture Nature’s expansion into PNG. Wei knows the bank staff because he has occasionally deposited Nurture Nature’s weekly takings into the company’s account.
Wei signs a loan agreement with A Bank Ltd, signing his name next to the words ‘director of Nurture Nature, for and on behalf of Nurture Nature. When the bank’s accountant asked for another director to sign as well, Wei explained that this was not possible as both Yolande and Shani were unavailable, could not be contacted because they are in a remote location, and said ‘financing the expansion into PNG is urgent’.
The bank’s lending officer was reluctant to approve the loan as it was a large sum for Nurture Nature but Wei convinced him it would be OK.
Unfortunately, the directors of Nurture Nature soon find out that PNG’s government imposes heavy legal restrictions on companies operating adventure activities and Nurture Nature cannot obtain the necessary government approvals to operate in PNG. The proposed expansion into PNG will not be able to proceed.
Because of this, and because Nurture Nature is now paying twice the price for camping equipment, the company’s financial situation deteriorates and it can no longer meet its repayment obligations to A Bank. At a directors’ meeting, it is decided that Nurture Nature would argue that the contract was not valid as Wei had no authority to make it.
Part A (20 marks)
Discuss whether any of the directors of Nurture Nature Pty Ltd are in breach of any of their directors’ duties.
Hints
o Consider each director separately.
o Identify relevant sections of the Corporations Act 2001 (Cth) and apply these to the facts.
o Identify and discuss at least two relevant cases.
o Consider whether there are any defences available to any of the directors.
Part B (10 marks)
Discuss whether Nurture Nature Pty Ltd is bound to the loan contract with A Bank Ltd.
Hints
o Discuss companies’ relations with outsiders, do NOT discuss directors’ duties in Part B
o Identify relevant sections of the Corporations Act 2001 (Cth) and apply these to the facts.
o Identify and discuss at least two relevant cases.
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