Al Bundy had a profitable shoe store Al’s Shoes. He arranged for a new company called Shoemart Pty Ltd (“Shoemart”) to be set up to purchase his business and the building which it occupied.

On 3rd May 2021, Shoemart was incorporated and its constitution is a combination of all the replaceable rules and the following provisions:

"Clause 1

The sole object of the company is to carry on the manufacture and sale of shoes.

Clause 2

Peggy Bundy shall remain as a Managing Director for so long as she desires.

Clause 3

Al Bundy shall be employed as a Shoe Consultant until 2025 at a salary of $40,000 per annum.”

The company issued 10 shares each to Peggy and Bud (Al’s sister and brother) and 80 shares to Kelly (Al’s daughter). Peggy and Bud were appointed as directors with Peggy as Managing Director.

On 5th May2021, Shoemart entered into a contract with Al to purchase the shoe business and the building for $500,000. The business and building were independently valued in February 2021 for $350,000.

Al is unhappy about the following events:

(i)Kelly requested the Board for an extraordinary general meeting, which was refused. The next day, without informing Peggy, she invited Bud for lunch at her home and called it a General Meeting. She named herself Chairperson and declared that three resolutions were passed at the meeting. The first resolution deleted Clause 2 from Shoemart'sconstitution. The second resolution dismissed both Peggy and Bud from their position as directors. The third resolution appointed Kelly as the sole director of Shoemart. As sole director, she dismissed Al from his position as consultant. Discuss whether all three have lost their positions in the company. (7 marks)

(ii)Kelly wondered why the business and the building were bought at such an overvalue. When she confronted Bud and Peggy, they said that they were not informed of the inflated price and that they had followed Al’s instructions as they had trusted him. They went on to say that it was too late now and that she should not begrudge her father the overpayment. On Shoemart’s behalf, Kelly, as sole director, plans to take action against Al. Advise Al on Shoemart’s chances of success. (5 marks)

Part B (9 marks)

Peggy seeks your advice on the following matters:

(i)On 2nd April 2021, Peggy was asked by Al to sign a contract with Tang Department Store for a special order of shoes to be delivered by 1 August. She signed a contract “for and on behalf of ShoemartPty Ltd”. It is now September and there still has not been any delivery. Peggy is worried that Tang will sue her for breach of the contract she signed. (3 marks)

(ii)Kelly found out that in June, Shoemart delivered shoes worth $10,000 to Metro Stores with payment to be made in August. Unfortunately, Metro went into liquidation in July. Upon looking further into the transaction, she found that Bud was asked by Peggy to be in charge of negotiating and entering into the contract. Bud agreed to allow Metro to pay in August, without checking Metro’s creditworthiness. If he had, he would have found out that there was a winding-up petition on the ground of insolvency against Metro dated 20 May. Advise Peggy and Bud on Shoemart’s chances of success against them under s180 of the Corporations Act. (6 marks)

Part C (9 marks)

Kelly seeks your advice on the following events:

(i)In early September, Kelly decided that she plans to hold another extra-ordinary general meeting to become the only shareholder of Shoemart. She plans to amend Shoemart’s Constitution to enable “any owner of more than 75% of the shares in the company to compulsorily acquire the shares of other members for $2.50 per share”. The shares are worth $4.00 each based on a recent valuation. Discuss whether she will succeed. (2.5 marks)

(ii)She also plans to change Shoemart to a public company called “Kelly Shoes Ltd”. Discuss what requirements need to be met for this change. (2 marks)

(iii)Kelly succeeded in changing the name to Kelly Shoes Ltd. The company set up a wholly-ownedsubsidiary called Acme Pty Ltd to make hats, with Kelly’s friend Rachel and Monica as Acme’s directors. Kelly seeks your advice on the liability of Peggy, Buddy, Rachel, Monica, Kelly Shoes Ltd and herself, in the event that Acme Pty Ltd is wound up with debts owing. There were no tort liability claims. (2 marks)

(iv)Peggy wishes to give 1 share in Shoemart to her closest friend, Elle. On 25th August, Kelly informs Peggy that she refuses to register the transfer as she has not liked Elle since they were children. Advise Kelly on any action that may be taken to have the share registered in Elle’s name. (2.5 marks)