An unlisted public company, Chandler Co Ltd, owned land which was valued at a $2 million historical cost in its balance sheet. The directors were advised that the land was worth in excess of $65 million. David, a substantial shareholder in the company, advised the board that he intended to make a takeover bid for the company, offering $10 per share. The board believed that in light of the value of the land, shareholders should be advised not to sell at that price. However, they feared that because shares were trading at 75 cents, shareholders would accept the bid.

The company’s financial adviser suggested that the company should arrange for an alternative bid at a higher price and that it should develop the land. The board agreed and a scheme was proposed whereby the land would be sold to a wholly owned subsidiary of the company, which would enter into a joint venture with another company, Crown Finance.

The managing director of Chandler was involved in the negotiations with Crown and decided to make his own takeover bid, offering $12 per share. Crown agreed to finance his bid on favourable terms if the joint venture proceeded. He did not disclose details of the arrangement with Crown to the board, though directors suspected there was a secret arrangement with Crown. At the meeting, which the managing director did not attend, the directors approved the joint venture scheme with Crown.

1. What are the legal rules that govern the proposed offer and issue of new shares? 2 marks

2. What should the directors of Chandler Pty Ltd. do in deciding on the number of shares to be issued, the subscription price, and the identity of those to whom the shares should be offered? 2 marks

3. Advise whether the directors have breached any of their required directors’ duties and if so whether they can rely on any defense? 2 marks

4. Advise David in regards to any implications of his actions. 2 marks

5. Can Chandler Co Ltd bring an action against the managing director if you believe he is in breach of his duty? 2 marks

QUESTION 

1. Diana is busy making contracts in preparation for her yet-to-be-formed company that will specialise in providing consulting services. Diana has been told that she is a ‘promoter’. Diana asks you, ‘what is a promoter?’, and ‘what is a promoter’s relationship to the later incorporated company?’ Lu then asks you to explain to her Part 2B.3 of the Corporations Act, and what dilemma in common law it was intended to overcome. 2 marks

2. Diana’s Company A was registered by ASIC on 10 February 2010 with its internal management governed by the replaceable rules. On 10 February 2016, 55% of the Company’s members voted in favour of adopting a constitution. Is this adoption permissible under the Corporations Act? 2 marks

3. Is it possible for this company to make a contract at common law and under the Corporations Act? 2 marks

4. Does the concept of a company being described as an ‘artificial legal person’ apply to this scenario? How has this concept has been dealt with in John Henshall (Quarries) Ltd v Harvey (1965) 1 All ER 725? 2 marks

5. Under what circumstances would a statuary derivative action be applicable to this company? 2 marks