Company LAW

Question 1

Aussie Films Pty Ltd (Aussie Films) is a company incorporated in Australia. It agreed to produce a film titled "Little Roo". The rights to that film is owned by USA Inc (an American company). Aussie Films has 3 directors (Ollie, James and Davina). Ollie owns 90% of the shares in Aussie Films and he is also a director and owner of USA Inc. James owns 10% of the shares in Aussie Films.

USA Inc provided finance for the film and all the facilities required Aussie Films for the production. The production took place in India. Aussie Films sought to register the film as an Australian film in order to attract the subsidy available to Australian film makers. Subsidy is available only if the film is made by Aussie Films. Aussie Film's application for registration was refused on the grounds that "Little Roo" was not made by Aussie Films.

Required:

Based on your understanding of company law, explain:

1. Grounds to support the argument that Aussie Films is the maker of the film; and
2. possible grounds that may exist to support the argument that Aussie Films is not the maker of the film.

Question 2

Chic Ltd is an Australian proprietary company. Its only business is the distribution of high end fashions through various retail channels. For many years, it has had its garments manufactured in Indonesia from fabrics imported from Europe. It has contracts with the Indonesian manufacturers to make these garments to its specification. The current contracts with Indonesian manufacturers will expire shortly and Chic has negotiated a new supply deal with a Thai manufacturer on significantly cheaper terms. In addition, Chic will also take a large equity in the manufacturer.

Some shareholders are concerned that the new arrangements pose considerable reputational risks for the company whose principal assets are intangible, namely, its brand and retail distribution arrangements. They wanted to stop the transaction and renew the Indonesian supply agreement. At the minimum, they would like the Chic directors to commission and release the results of a reputational risk assessment by an independent expert. They also have concerns about the financial merits of the Thai investment.

Required:

Based on your understanding of company law, advise these shareholders of any rights they may have to address their concerns.

Question 3

Tom, Dick and Harry are the directors and shareholders of Tomb Raider Pty Ltd. Tomb Raider is a swimming pool construction company.

The market for pools in Australia is very strong and highly competitive. Each of the directors deals with this by devising expensive advertising campaigns, and attempting to undercut their competitors' prices.

Unfortunately, Tom, Dick and Harry are not good financial managers. In recognition of this they employ a financial accountant, Moe, to manage the financial side of the business. Moe is paid a good salary for this, but has no say in the company's activities.

Moe advises Tom, Dick and Harry that they have to refrain from their undercutting practices, because their cash-flow position is in peril. The directors tell Moe not to interfere in managerial decisions, but just make sure there is money to pay the subcontractors. Moe finds this increasingly difficult and begins to undertake a program of only paying select creditors. The company has few options left to generate sufficient cash to fund continuing operations.

In frustration with the company's troubles, Moe resigns. The directors are then served with a director penalty notice from the Australian Taxation Office and they respond by putting the company into voluntary liquidation.

REQUIRED:

The liquidator investigates the actions of Tom, Dick and Harry in the months leading up to the liquidation and seeks your advice as to whether they may be liable for insolvent trading.