Brick Pty. Ltd. has the following provisions contained in its Constitution: 1. Where a new issue of shares is made, they shall first be offered to existing members in proportion to the shares they presently hold. In the event of any member not accepting some or all of the shares to which he is entitled, those shares shall be offered to the remaining members in proportion to the shares they presently hold. 2. The sales manager of the company shall be A. Harris for a period of ten years at a salary of $75,000 to be increased by 10% per annum in each successive year for the term of his employment. 3. The directors may compel the transfer at valuation of the shares held by any member who is engaged or interested in a business in competition with the company. In such a case the shares will be transferred to such existing member or members as the directors nominate and at a price determined by the directors. Discuss the following situations: a. The directors plan to issue shares to an associate of theirs who is not presently a member of the company. You are an existing member of the company, and claim that the shares must first be offered to existing members in accordance with article 1. Can you enforce this claim? b. Harris is dismissed from his position after two years. Can he sue the company for breach of contract? Would it make any difference if Harris was a member of the company? What should Harris have done to ensure that his employment as sales manager was enforced? c. Brown holds 30% of the issued shares in a company that carries on the same business as Brick Pty. Ltd. On discovering this, the directors exercise their power conferred by the above clause 3. Does Brown need to transfer his shares? What is the process? Can Brown argue that clause 3 is unfair or not for a proper purpose? PRACTICE QUESTIONS Question 1 Ryan is a production designer of a sweet factory, Lollipop Pty Ltd ("Lollipop"). His job is to design the artwork and shapes of the candies that Lollipop produces. The constitution of Lollipop states that after 5 years of working for Lollipop, the company production designer will receive a bonus of 30% of their annual salary. Ryan has now been with Lollipop for 5 years and is entitled to receive the bonus. However, Lollipop refuses to pay the 30% bonus because it has not been making a profit for the last few years and it blames Ryan for his poor designs and artwork. Ryan is not happy and wants to claim his bonus as set out in the constitution. REQUIRED: a) Can Ryan enforce his claim relying on Lollipop's constitution? b) Would your answer to (a) be different if Ryan was a member of Lollipop? (10 marks) (20 minutes) Question 2 Abe, Baker, and Charlie are members of Super Cup Ltd ("Super Cup"), a successful mid-sized Australian coffee retailer. Abe is a Super Cup director who also sits on the Gloria Jean's Coffee board of directors. Super Cup has been so successful in the past seven years that it has come to the attention of global coffee giant Starbucks. Starbucks was so impressed with Super Cup's performance that it recently acquired 85% of Super Cup's shares in a takeover action. Starbucks would now like to acquire the remaining 15% of Super Cup shares. Unfortunately for Starbucks, those shares are held by Abe, Baker, and Charlie (5% each) and they do not want to sell. The Super Cup constitution does not allow for expropriation of member shares. Starbucks decides to acquire these shares by using its voting power to pass a special resolution altering the constitution to allow any member with 85% or more of issued shares to compulsorily acquire all other issued shares. Starbucks attempts to justify this alteration by claiming it will result in administrative savings and tax advantages for the company. Starbucks provides notice of its intent to expropriate the shares in accordance with the company constitution and standard industry practice. It offers to pay Abe, Baker and Charlie the price that they initially paid for the Super Cup shares when they invested seven years ago. Abe, Baker and Charlie are angry and refuse to sell their shares. REQUIRED: Will Starbucks be able to successfully change the constitution? Will it be able to expropriate any or all of the shares held by Abe, Baker and Charlie? Why or why not? Please fully explain your answer citing Australian case law and the Australian Corporations Act. (15 marks) (30 minutes)