Ebony and Sam are the directors BananaRama Ltd, a producer of banana flavored cordials. They each hold 40% of the shares in the company. 15% of shares are owned by Sam's brother, Jordan and 5% by Kai, an external investor. Jordan and Kai are not directors.

In January 2020 Sam proposed to Ebony that BananaRama Pty Ltd open a second factory. With significant domestic growth, they need a second factory to keep up with orders. Ebony was not keen on expanding the business and building a second factory as she thinks it is too risky in the current economy. Instead she thinks they should be investing in the company's visibility internationally.

Despite Ebony's protest Sam forges ahead with the plan and put out a call for tenders. They receive three bids, including on from Jordan's construction company, Ubuild Pty Ltd. Although Sam knew this was Jordan's company he did not disclose this to Ebony and award the contract to Jordan's company. When Ebony finds out that Sam has undergone the tender process without consulting her first she is furious. She tells Sam that the money should have been used for the international expansion. Sam in turn is not keen on expanding internationally and doesn't believe that there is a taste for banana flavored cordial abroad. Ebony suggests that they explore the market further to see whether this may be a viable option - to which Sam agrees.

After two months of undertaking substantial research Ebony forms a proposal and puts it to Sam who turns it down without even reading it. The proposal included the opportunity to pursue three contracts abroad - in the UK, Canada and the US. This would have increased the profitability of the company by 50%. When Ebony' inquires why Sam has refused, Sam says he thinks they should partner with RaspberryBelieve Pty Ltd, a company which specializes in carbonated drinks.

Ebony disagreed and says that BananaRama Ltd is about health and wellness and being associated with a carbonated drink company, which is well known for high caffeine and sugar in its drinks, will hurt the company's image."Let's look at this as an opportunity - we could attract a new form of clientele". Before Ebony can answer Sam smiles and says "I knew you would love the idea, that is why I already signed the contract. Don't worry - I protected us, the contract is through a subsidiary of ours BananaBee Pty Ltd." Ebony is left sputtering in outrage as Sam leaves the room.

Ebony looks into this further and discovers that UBuild is Jordan's company and that Sam holds shares in uBuild. She also looks into RaspberryBelieve Pty Ltd and learns from Kai that the director is Sam's new girlfriend.

b) RaspberryBelieve Pty has come to you for advice and would like to know if they can bring an action against BananaRama Pty Ltd. (15 marks)

Kai has been waiting for her dividend payment to come through. She soon finds out that the directors have decided not to issue dividends because they want to increase on advertising and want to put the profits toward this. Kai is not happy with this as she wanted her dividend payment and had made plans to pay off some pressing debts. She suspects that Sam has done this because she raised the issue of Sam's relationship with the director of RaspberryBelieve Pty Ltd.

c) Kai has come to you for advice and wants to know what would be the legal arguments to be made if it is true that they are withholding her dividends because she brought up the relationship Sam has with his new girlfriend to Ebony (10 marks)

Kai is pretty unhappy with the situation at BananaRama Pty Ltd. She has recently heard that the directors are planning on selling a large bundle of shares. The directors claim that this is in order to raise capital, but Kai worries that the real reason the directors are doing this is in order to dilute her shareholdings and make sure that she is unable to bring a statutory derivative action. Further Kai is very unhappy with Sam as she and Sam used to date until Sam broke up with her and started dating his new girlfriend. It was Sam who convinced Kai to purchase shares in BananaRama Pty Ltd in the first place and Kai is pretty sure that Sam would be keen to see her go.

Kai is also quite worried about the situation with RaspberryBelieve Pty Ltd as she believes the directors are not going to take action against Sam because of his contributions to the company and the large-scale clients he brings in.

e) Advise Sam on the legality of these actions (15 marks)