QUESTION 1 Answer true (T) or false (F) – this question has 8 parts – clearly indicate the part and next to it put T or F (whichever you think is the correct response)
1. Nicola is a director of a medium sized graphic design company. She is told by a friend in the company that a meeting has been called to remove her from her position as a director. Section 203D of the Corporations Act can be used to protect Nicola from removal.
2. Fulham Pty Ltd is not going well, it has many creditors and is insolvent. Its directors transfer its assets for no consideration to a new company they recently formed called Konstam Pty Ltd. The transfer of assets by Fulham’s directors will not amount to a breach of duty by its directors unless the company is actually in liquidation.
3. There are no age limits on directors.
4. Shareholders can be given notice of an extraordinary general meeting at any time prior to the meeting.
5. A company’s directors are collectively known as the ‘board’.
6. In Scottish Co-operative Wholesale Soc Ltd v Meyer the Court found that the majority shareholders acted oppressively in relation to the minority.
7. ASIC can disqualify a person from managing a corporation for up to 15 years without a court order. 8. All companies are required to hold AGM’s.
QUESTION 2 Lily is the managing director of a company specializing in buying and selling hair loss remedies for men. The company, Stoploss Pty Ltd (Stoploss) was registered in 2003. Stoploss markets to men between the ages of 40 and 70 years. In October 2017, while Lily is out of the office buying some stationary, she visits an old friend Tom at Tom’s work. As they are talking Tom asks Lily whether her company would be interested in helping him to market a new organic hair treatment for women called “No Curl”. Tom claims that the treatment is perfect for women because it straightens hair without the need for an expensive hair straightening device. Lily tells Tom that her company would not be interested because it sells men’s products only. She offers to help Tom herself. Tom agrees. Lily and Tom set up a company called “No Curl Pty Ltd (NC) and become its directors and members. Lily is the majority member. They call the product “No Curl” and the business of the company is an overnight success. At a board meeting of Stoploss six months later, Lily proposes that Stoploss enters into a longterm contract with NC to buy supplies of No Curl for re-sale. The board agrees and as part of the contract Lily negotiates with the board that she will be paid a small commission on each sale because she drew the board’s attention to this new product opportunity. Stoploss makes large profits from selling the soap overseas. In June 2018 Stoploss learns that Lily is involved in NC and seeks your advice as to whether she has breached her directors duties and if so what consequences follow.
QUESTION 3 Stock Pty Ltd (‘Stock’) is a small and successful graphic design company. The total number of issued shares in Stock is 6,000 ordinary shares. Each shareholder has 2,000 shares. All the shares are fully paid. The shareholders are Tom, John and Lucy. They are all directors of the company. Dividends were paid in the past but not for the last 3 years. Profits have instead been invested in further development projects. John is in financial trouble, his house burnt down but he didn’t have insurance. John wants a dividend paid but the other two are against it as they claim it would upset the long-term goals of the company. John becomes suspicious of Tom and Lucy. He recently found out that they are partners in an accounting firm and after some checking finds large sums have been paid by Stock to that firm in relation to work he can’t remember being carried out. To confirm this he wants to see the latest financial statements of Stock but the other two refuse him access. They tell John that unless he resigns as a director they will vote him out. Can you help John? What rights does he have as a shareholder of Stock?