CLIENT INSTRUCTIONS

1. Advise Kate whether she can be an employee of the company, as well as its owner and director.

2. Advise Kate what changes have to be made if the company converts from a proprietary company

to a public company. Please briefly discuss the advantages and disadvantages of each type of company.

3. Advise Kate what a security is and the difference between a share and a debenture.

4. Assuming that the investors choose to purchase shares, please explain with reasons which type

of share would be most suitable for these investors.

5. Is Cross Key required to provide the investors with disclosure under Chapter 6 D of the

Corporations Act?

The capital raising has now been finalised and the security registered on the PPSR in the name of The

Investment Group.

6. One of the new investors Tim has become very troublesome, asking difficult questions. The

other shareholders are planning to squeeze Tim out by cancelling his shares at the Annual General

Meeting. Advise Kate as to the likely outcome if the other shareholders attempt this.

7. Unfortunately, an outbreak of fungus has ruined the current crop. Cross Keys cash flow is now

insufficient to cover its debts. Advise Kate of the consequences of continuing to trade as normal in

these circumstances. What is the process of voluntary administration and what input will Kate have

into the decision making process in relation to Cross Key?

8. The Administrator has discovered that Cross Key purchased the vineyard in King Valley Victoria,

rather than South Australia. Did Cross Key breach any disclosure obligations under Chapter 6D of the

Corporations Act?

9. What are the consequences if Cross Key is put into liquidation due to insolvency?

Background

Kate Manderly is a winemaker who is the sole director and shareholder of Cross Key Wines Pty Ltd. The

company operates a vineyard in Gippsland with fifteen employees. The company has $800 000 in assets,

wine-making equipment and a twenty year lease over the vineyard. Cross Key white wines have become

very popular with the drinking public.

Kate recently expanded the offering to include red wines. In order to do this, Kate purchased a second

vineyard in the Coonawarra region of South Australia. Ten experienced investors invested $500 000

each in return for:

a) 5% equity each;

b) guaranteed dividends until each investors stake is returned (after a period of 5 years). The

investors then intend to remain as shareholders, although dividends will no longer be guaranteed; and

c) Security over the entire property and shares of the company under the Personal Property

Securities Register (PPSR)

The prospectus contains the following words: Funds raised will be principally utilised to purchase land

in the Coonawarra Region of South Australia, and winemaking equipment.

Consultants and Corporate Advisors

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