Background:

You have recently graduated as an accountant/ financial adviser and your first position is with an integrated accounting and financial services organisation in Melbourne called Korder Menthol and Associates Pty Ltd (KM). It is an unlimited company.

BMW Ltd (BMW) is a company listed on the ASX and is a client of KM. See below for the corporate structure. It is a vertically integrated House of Natural Brands at the forefront of the global natural beauty and wellness movement andis involved the sale of cosmetics. The company's portfolio consists of market leading brands that span multiple personal care categories and are currently sold throughout Australasia, Asia, the Americas, Europe and the Middle East.

Retailers reduced their inventories as consumers tightened their belts and the manufacturing sector responded by destocking; in other words, they have reduced their output.

The company's expertise is in innovation, product development, manufacturing and marketing natural products makes the company unique in the beauty industry.

The goal at BMW is to make natural beauty the only choice for people wanting to live a healthy, balanced life, free from unnecessary toxins.

Its operations are based in Melbourne and California in the United States.

It recently acquired 50.1% of a well know brand of cosmetics call Run-To at a cost of $89.5M. The owner of the Run-To brand is entitled to another $49m in 12 months' time under the terms of the sales contract for the remaining 49.9%.

However due to rising costs of living, interest rates, consumers are not spending as much on discretionary beauty products and looking for cheaper versions offered by supermarkets and discount chemist chains.

This has led to a downturn in revenue and also the company is struggling to pay back the interest on the debt borrowed from the Commonwealth Bank Ltd (CBA) and may not have the funds to acquire the other 49.9% of Run-To. The CBA has currently relaxed its loan covenants which have been breached by BMW but has indicated that it is unlikely to do so again unless there are legitimate business reasons to continue allowing the company to breach the loan covenants.

Shareholding of the company:

Number of Shares %

Bennelong Australia Equity Pty Ltd 43,599,928 21.8

Tattarang Ventures Pty Ltd 36,586,365 18.3

Paradice Investments Pty Ltd 11,392,834 5.7

Vanguard Investments Australia Ltd 2,524,393 1.3

Public (3,857 shareholders) 105,883,982 52.9

Total shares 199,987,502 100.00

The current share price is 20c per share. The shares were as high as $2.05 in mid-2022.

Current market value of the company is $39,997,500 as at 26 April 2023.

Bennelong Australia Equity Pty Ltd and Tattarang Ventures Pty Ltd acquired their shares at $1 each.

1. Given the financial markets are in turmoil and the share price of BMW has fallen dramatically from $2.05 to .20c per share is it likely that the public will take up a share issue?

2. Is a preference share issue a better option?

3. The recent case of Cassimatis v ASIC [2020] FCAFC 52 involved the application of s180 of the Corporations Act by the Full Federal Court. Can you explain why the court came to the view the directors breached s180 of the Corporations Act. Does it apply to the directors of BMW?

4. KM has a financial planning division which has many high-net-worth clients each with funds in excess of $3,000,000. Would it be easier for BMW to ask these clients to invest than asking the public? What does the company have to do?