Burt and Ernie had both just caught the investment bug. Burt invested in Telecorp Ltd - a communications company which was hitching its future prospects to the National Broadband Network (NBN). Ernie invested in a new corporation that promised a personal development regime delivered through a national network of personal training studios, Hyper Active Ltd. When Burt made his investment he relied on word of mouth from friends and documents produced by the corporation which stated: "This is a once in a lifetime chance - our corporation is positioned to take advantage of the NBN because of our close links to government." When Ernie invested he relied on a prospectus that said: "Your future personal success is guaranteed through this move." Both investments failed. Answer the following questions:

(a)Burt and Ernie now seek your advice as to the legal issues that arise in relation to their failed investments and the documents on which they were based. Is there further information you would need?

(b)Further information becomes available that many self improvement gurus are not licenced; that there have been law suits against them in the United States; and that there is now evidence that some personal trainers have caused nervous breakdowns as they have pushed clients too hard. That action had caused such corporations to be sued. With this information in hand, is there any way a prospectus could be legally drafted for the company in which Ernie invests? If so, explain how. Would your answer differ if Ernie was a professional or sophisticated investor? Answer giving reasons.

(c)Imagine the facts change. This time the only evidence available is that Burt and Ernie are shareholders in Telecorp Ltd and Hyper Active Ltd, respectively, and that both companies have collapsed. Burt and Ernie wish to know if they could be preferred creditors in an insolvency. They are also interested in whether they might be able to access funds of the related companies of the ones in which they invested. Briefly advise Burt and Ernie. Is there further information you would need to answer that question?

(d)Imagine the facts of the case change again. This time Burt and Ernie are actually members of two corporations ABC and XYZ. As investors of ABC, Burt and Ernie are unimpressed with the decision taken by management to outsource work and they seek to prevent directors from doing that. In XYZ they represent only 1% of the company's voting shares and seek to prevent their expropriation from the company. Discuss their prospects of success in both cases. Would your answer for either scenario alter if a takeover was announced?