1 A.What can internal rules of a company be comprised of? What are some of the most important ones and why are these important? B Julie is a director of BB Promotions Pty Ltd (BB Promotions). BB Promotions was registered on 8 August 2007. No constitution has been adopted and no relevant special resolutions have been passed. BB Promotions trades in Hobart and Perth. Julie lives in Hobart. Julie recently travelled to Perth for a meeting of the board of directors. She submitted receipts for these expenses but, even after repeated attempts, she cannot get the company secretary or the board to authorise payment. Julie had always assumed that these expenses would be reimbursed, but she had never actually discussed this with her fellow directors. Required: Please advise, what legal remedy (if any) does Julie have? Question 2 A.Why was the company in Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) CLR 72 not bound by the contract? Does the current statutory provision overcome this decision? Give reasons. B. Munchkins Pty Ltd (Munchkins) operates three children's clothing shops in Tasmania. On 8 August 2012, Marcia was appointed to the position of Managing Director of Munchkins for a period of three years. A return was lodged with ASIC indicating her appointment as a director on that date. Marcia was not formally reappointed after 8 August 2015, but she has continued to act as Managing Director. No return was lodged following the expiration of her period of office. The terms of Marcia's appointment, which were set out in a contract between her and Munchkins, included a restriction to the effect that she was not to commit the company to borrowing transactions in excess of $20,000. Any such transaction was to remain subject to the approval of the board of directors. On 20 December 2015 Marcia, purportedly acting on behalf of Munchkins, signed a loan contract with Costello Bank, pursuant to which the Bank agreed to lend the company $30,000 in order to establish a eucalypt plantation. The transaction was not referred to the Board. The Bank was not aware of either: the contents of Marcia's contract, or the return lodged by Munchkins at the time of Marcia's appointment. The Board has since discovered the loan contract and has stopped all repayments on the loan. The Bank has called in the loan and is suing Munchkins for the principal together with all outstanding interest. Required: a) What do you think the outcome of this case will be? b) What do you think the outcome of this case should be? c) Would the outcome of this case be different if: i. the loan was for refurbishment of two of Munchkins' clothing shops; and ii. the bank's loan officer knew Marcia had fallen out of favour with the board and was negotiating a new job? Question 3 A.What would constitute' just cause' for the refusal to register a transfer of shares? B Stone You Go Pty Ltd has the following provision in its constitution: The right of the members to transfer shares in the Company is restricted in that the directors may at any time in their absolute discretion decline to register any transfer of shares. Tom is in financial difficulty. He approaches his sister Marcia, and asks if she is interested in purchasing his shareholding of 2,000 shares in Stone You Go Pty Ltd. Marcia pays $40,000 to Tom and a duly executed and stamped transfer is forwarded to Stone You Go Ply Ltd with a request for registration. The board of directors refuse to register the transfer and promptly send Marcia notice to this effect. The notice gives no reasons for their decision. Tom's brother Robert was at the board meeting in his capacity as a director and company secretary. He says that the board were concerned that "Marcia is an interfering, emotional female". Required: Provide advice. Does Marcia have any remedy under the Corporations Act (2001)? Question 4 A.Suppose a resolution is passed at a general meeting without a quorum being present. If a member disagreed with the resolution, what could he or she do about it? B.Julie, Graham, Robert, Tom and Marcia are the only shareholders and directors of Stone You Go Pty Ltd. Julie holds 20%, Graham 60%, Robert 10%, Tom 5% and Marcia 5%. The relationship between the rest of the family and Robert breaks down and Robert has moved to the USA and is no longer actively involved in the company's management. Julie and Graham called a general meeting to be held at the family home in Hobart on the 20th August 2015. They propose to pass a resolution removing Robert from the board. The notice of meeting was sent to Robert but was delayed in the post and did not reach him until two days before the meeting. At this late stage he was unable to book a plane ticket from Missouri so could not attend the meeting. Required: Please advise Robert. Question 5 A. Briefly describe the information required in: A bidders statement A target's statement B. Do secured and unsecured creditors have too much or too little protection under the Corporations Act at the expense of other stakeholders such as members, employers and customers? Question 6 A. What is a class of shares? Why do companies have classes of shares? B. Boran Ltd (Boran) is an unlisted public company. Its share capital consists of 500,000 fully paid ordinary shares issued at a price of $1.00 per share and 250,000 fully paid (non-redeemable) preference shares issued at a price of $2.00 each. The preference shares carry the following rights: a right to a fixed cumulative dividend of 10%; a right to share equally with ordinary shareholders in any distribution of surplus assets (after return of capital) on winding up; and a right to exercise one vote per share, but only in relation to a proposal for a reduction of capital or a proposal affecting rights attached to the preference shares. These rights were set out in a special resolution passed by the company before the issue of the preference shares. Tina and Cyril hold between them 80% of the ordinary shares and 78% of the preference shares and control the composition of Boran's board. Mary holds the other 12% of the preference shares and 1,000 ordinary shares. Tina and Cyril think it unfair that preference shareholders are entitled to share surplus assets equally with ordinary shareholders on a winding up, particularly in the light of the high dividend payments the preference shareholders have received over many years. They have no immediate intention of winding up Boran, but may wish do so within the next few years. Mary strongly objects to any proposals that might affect her rights as a preference shareholder. Required: Please advise Tina and Cyril: i. whether Boran can alter the right of preference shareholders to share equally in surplus assets on a winding up by amending the company's internal rules; and ii. whether the company could improve the position of ordinary shareholders on winding up by making a bonus issue of fully paid shares to ordinary shareholders. Question 7 A. When can a company pay a dividend and why must a company be solvent at the time a dividend is declared? B. Spec Pty Ltd (Spec) is a property development company. It owns parcels of rural and semi-rural land in Victoria. Tom Stone owns 80% of the shares in Spec and controls the composition of its board. Last year the company made a small trading loss, but it owns a large area of land with a frontage to the Gold Coast which is valued in the company's balance sheet at $10 million but which is expected to be worth at least $25 million when it is developed as a golf course resort. Bill needs cash for another project in which he is involved. Tom wants the board to revalue the land at $25 million and then to distribute the $15 million "excess" to the shareholders in the form of a dividend. Required: Advise the directors of Spec: i. whether they can comply with Bill's wishes without breaching the Corporations Act; and ii. what guidelines should they follow in making their decision?