CLIENT INFORMATION AND TASK: The new client is PCG Consulting Pty Ltd a prominent consulting firm and lobbying company. You have been asked by Ateemah to sit in on a meeting of the Chairperson and Managing Directors of the client and take notes on the issues raised and then to prepare a report on the matters for review by Ateemah and Jessica. The new client is a spinoff from a recent parting of the ways from a large accounting partnership. The company was incorporated in Melbourne on 3 February 2022. Many of their clients are government departments as well as large public companies and industry groups. The company was funded by Lego Pty Ltd a large private equity organisation which invested $100 million to set up PCG Consulting Pty Ltd. $65 million was injected by way of equity and $35 million by way of a 5 year fixed rate loan at 8.5% pa. The directors of the company are: Joan Mills the chairperson and independent director Rick Gouger executive director and the CEO Fai Bing non-executive director (representative of Lego Pty Ltd) Nadia Ogilvie non-executive director Alain Boucher non-executive director Lego Pty Ltd owns 90% of the company and the balance is owned by senior management. Fai is a non-executive director who was nominated by Lego Pty Ltd to represent their interest. To ensure that corporate governance rules are complied with there are a majority of non-executive and independent directors on the Board. This is seen as important as the company tenders for a lot of federal and State Government work and recent issues relating to the Big 4 accounting practices.. Joan and Rick on behalf of the Board have requested a meeting with you to discuss several issues that have arisen and would like your advice on these matters plus any other recommendations/alternatives that you as experts believe are appropriate. The agenda of issues they wish to discuss with you are: 1. Finance 2. Rules 3. Duties

Also attached are the draft budgeted financial statements to 30 September 2024. The financial results for the year ended 30 June 2024 show that the company has generated at least $60 million in revenue. However, with the Federal and State Governments being forced to cut back on expenditure the estimated income for the 2025 financial year is likely to drop by 55%. The large private company clients are also deferring any further consulting/management projects. The interim financial statements for the period 1 July 2024 to 30 September 2024 show the following: Total assets: $137m Liabilities: $88m Net shareholder funds: $49m The net shareholder funds is made up of: the issued share capital $72.2m accumulated losses to 30 June 2024: ($38.2m) Projected profit to 30/9/24 $15m Issues as per the agenda: A. Finance: The company has a 5 year fixed rate loan from Lego Pty Ltd of $35 million. The budgeted numbers currently indicate that it will be difficult for the company to be able to repay the principal by the due date. Also the interest rate is extremely high and with talk of interest rates dropping next year before the May 2025 election, what can we do? The loan expires on 3 February 2027. Required: 1. What options are there for the company if it cannot repay the debt by the due date? 2. What are the risks for the directors knowing that the company may not be able to repay the debt and also pay the interest due on the loan? 3. Does the company have a profit to pay any dividends based on the projected financial statements at 30 September 2024 and would you recommend they pay any? B. The constitution: The company has its own constitution (see attached document). The company always wants to ensure that Joan as an independent person is the chairperson in all Board meetings.

Also, as the business grows the senior staff of the company will be promoted to become directors of the company. Required: 1. How does clauses 84 impact the company if Joan always wants to be the chairperson for all Board meetings? 2. How does clause 78(2) of the constitution comply with the common law rule that a nominee director must always act in the interest of all the shareholders and not just those that appointed him. 3. How many directors can the company have and what if senior staff that get promoted to be directors of a company exceed the number allowed per the constitution. Would this make it unwieldy in running the company? What would you recommend? 4. Can we have people with the title of directors but not actually be a director under the Corporations Act? C. Duties: Joan and Rick, from their past experience are aware of the need to ensure that appointed directors understand their duties and obligations. As the work involves dealing with confidential information of clients being the Government and large corporations, there is the possibility of breaches. This is what caused the need to break away from the large accounting practice in the past and the formation of PCG Consulting Pty Ltd. Required: 1. The misuse of confidential information can cause reputational harm to the company. Who can be held liable to the company for breach of this obligation? Does it apply to employees who may be analysing the data? 2. We want to ensure all directors and officers comply with their legal obligations so what is the purpose of clause 79 of the constitution. 3. Should the company keep such a clause or remove it?

Expectations in preparation of the report: The new client seeks the firm's advice and opinion on a range of issues. Ateemah your senior manager has higher expectations of you and will not accept: 1. any grammatical errors or unsubstantiated statements or conclusions made in your report. 2. Incorrect spelling or references to the client. 3. She will not tolerate any material copied from textbooks, Google or any other source. The organisation that you work for has a high profile in the profession and therefore expects all staff to demonstrate a high degree of professionalism. In the advice that you are to prepare, you are expected to demonstrate that you understand the relevant law and how the law applies to the issues raised by the client and come to a logical conclusion.

You are also expected to be able to justify your conclusion by reference to the relevant legislation in the Corporations Act, ASIC Act, or any other legislation you think appropriate, case law and regulatory guidelines. Your senior manager has high expectations of you and will not accept any grammatical errors or unsubstantiated statements or conclusions made in your report. He will not tolerate any material copied from textbooks, google or any other source which you attempt to pass off as your own material. You must use an appropriate system of referencing for references to case law, legislation, the internet, ASIC guidelines, articles or journals in your report.