Forrest Downer Pty Ltd (FD Pty Ltd) is a private company owned by the famous entertainer Mr Forrest Downer. Ms Donna Fox CPA was first employed by FD Pty Ltd in 2014 as their only accountant. Donna's duties originally involved formal accounting, the provision of management accounting advice including budgeting and the preparation of tax returns. Over time, Donna's role expanded and by the start of 2016, in addition to providing all accounting advice and information for FD Pty Ltd (including the preparation of financial reports) Donna was also making line management decisions in relation to financing, touring, concerts and concert management. Further, Donna and Forrest Downer had become good friends and Forrest and Donna together undertook all strategic planning along with control and operational reviews. FD Pty Ltd was very successful and at the end of the 2017 financial year FD was re-named and its incorporation status was changed so that, at 1 July 2018, FD Pty Ltd became FD Entertainment Limited (FDE Ltd). FDE Ltd was immediately listed on the Australian Securities Exchange (ASX). FDE Ltd was a popular ASX listing and more than eleven thousand (11,000) people chose to invest as shareholders, but it is not a top 300 company. In 2020, FDE Ltd has over 11,000 shareholders but there are only a small number of large shareholders. Mr Forrest Downer holds 30% of all shares in FDE Ltd. Forrest Downer's three sisters Ms Melissa Downer, Ms Nita Downer and Ms Daphne Downer each hold 5% of the shares in FDE Ltd. Ms Donna Fox holds 25% of the shares in FDE Ltd. The remaining 30% of shares are held by the other (approximately) 11,000 minor shareholders, none of whom holds more than 1% of the 1 million company shares issued. The initial Board of Directors of FDE Ltd (elected by a majority vote of the shareholders) comprised six people and has remained unchanged since 2018. Mr Forrest Downer is Chair and Managing Director, Ms Donna Fox is the CFO and is a director. Forrest Downer's three sisters named previously - Melissa, Nita and Daphne - are also directors. The final director is Mr Simon Spencer who is a social networking strategy specialist. Simon Spencer owns exactly 100 shares in FDE Ltd. Since listing occurred many formal Board decisions and directions have been made. These included the following four Board decisions and instructions (numbered, A, B, C and D): A. The FDE Ltd Board made the decision to establish a Remuneration and Risk Committee. It decided formally that it would not establish any other committees. B. The FDE Ltd Board instructed Forrest Downer to enter into an agreement with a major competitor Starstruck Entertainment Ltd. The purpose of this agreement is to ensure that FDE and Starstruck are able to regulate and control the market in relation to providing entertainment. By the start of 2020 Starstruck has told Forrest that it is in favour of this agreement and the agreement is expected to be signed soon. C. In August 2019 the FDE Ltd Board decided that FDE would invest heavily in shares in the entertainment ticketing company Tickamania Ltd. This plan involves FDE buying shares in Tickamania on the stock market with a view to FDE achieving a market takeover of Tickamania. FDE's share purchases started in August 2019. By March 2020 this purchase activity has been proceeding steadily and Tickamania's shares had risen in price from $12 (August 2019) to $22 (March 2020) in response to observed market buying activity. FDE Ltd is not yet legally required to inform the market of its purchases or its intention and therefore its current position is highly confidential. FDE plans to advise the market of its intention in May 2020 (this planned timing is lawful and is based on good advice to FDE). D. Following some negative press (which accused FDE of being only interested in profits) the FDE Board has advised that all staff must ensure the following statement is clearly stated on all FDE public documents and information: "FDE was founded with its vision being not merely to achieve growth and profits but to make a worthwhile a contribution to the well-being of all people in our Australian cities and in our many remote Australia regions. We will be an entity that helps to create outcomes that are good for our customers and communities and will seek to ensure that our strategies and operations provide long-term and sustainable benefits to the environment." REQUIRED: In the space provided answer the following and use case facts appropriately when they are needed in the answers. Nita Downer was very interested in the confidential (i.e. secret) planned takeover of Tickamania by FDE Ltd. In fact, she was so interested that in August 2018 she immediately started buying shares in Tickamania for herself. As the share price of Tickamania rose from $12 to more than $17 she became very excited. Nita borrowed a large sum of money in order to buy a large parcel of shares hoping to boost market prices even more speedily. Her large purchase resulted in share prices jumping immediately to over $20. Nita then began selling her shares in order to recover her investment and to leave the market. Nita sold slowly so that share prices did not fall. By the end of March 2020 she had sold all her shares. Nita was very pleased that she had made a profit on every Tickamania share that she bought and later sold. Nita's share activity was unknown to the rest of the Board as Nita kept her personal purchases and profits very secret. Discuss Nita's activities and explain, with relevant detail, important ways in which Nita was acting contrary to legal requirements relating to markets and directors and the potential consequences to Nita of her actions. (4 marks) 7 B U I FE Actions contrary to legal requirements Potential consequences of actions Forrest Downer Pty Ltd (FD Pty Ltd) is a private company owned by the famous entertainer Mr Forrest Downer. Ms Donna Fox CPA was first employed by FD Pty Ltd in 2014 as their only accountant. Donna's duties originally involved formal accounting, the provision of management accounting advice including budgeting and the preparation of tax returns. Over time, Donna's role expanded and by the start of 2016, in addition to providing all accounting advice and information for FD Pty Ltd (including the preparation of financial reports) Donna was also making line management decisions in relation to financing, touring, concerts and concert management. Further, Donna and Forrest Downer had become good friends and Forrest and Donna together undertook all strategic planning along with control and operational reviews. FD Pty Ltd was very successful and at the end of the 2017 financial year FD was re-named and its incorporation status was changed so that, at 1 July 2018, FD Pty Ltd became FD Entertainment Limited (FDE Ltd). FDE Ltd was immediately listed on the Australian Securities Exchange (ASX). FDE Ltd was a popular ASX listing and more than eleven thousand (11,000) people chose to invest as shareholders, but it is not a top 300 company. In 2020, FDE Ltd has over 11,000 shareholders but there are only a small number of large shareholders. Mr Forrest Downer holds 30% of all shares in FDE Ltd. Forrest Downer's three sisters Ms Melissa Downer, Ms Nita Downer and Ms Daphne Downer each hold 5% of the shares in FDE Ltd. Ms Donna Fox holds 25% of the shares in FDE Ltd. The remaining 30% of shares are held by the other (approximately) 11,000 minor shareholders, none of whom holds more than 1% of the 1 million company shares issued. The initial Board of Directors of FDE Ltd (elected by a majority vote of the shareholders) comprised six people and has remained unchanged since 2018. Mr Forrest Downer is Chair and Managing Director, Ms Donna Fox is the CFO and is a director. Forrest Downer's three sisters named previously - Melissa, Nita and Daphne - are also directors. The final director is Mr Simon Spencer who is a social networking strategy specialist. Simon Spencer owns exactly 100 shares in FDE Ltd. Since listing occurred many formal Board decisions and directions have been made. These included the following four Board decisions and instructions (numbered, A, B, C and D): A. The FDE Ltd Board made the decision to establish a Remuneration and Risk Committee. It decided formally that it would not establish any other committees. B. The FDE Ltd Board instructed Forrest Downer to enter into an agreement with a major competitor Starstruck Entertainment Ltd. The purpose of this agreement is to ensure that FDE and Starstruck are able to regulate and control the market in relation to providing entertainment. By the start of 2020 Starstruck has told Forrest that it is in favour of this agreement and the agreement is expected to be signed soon. C. In August 2019 the FDE Ltd Board decided that FDE would invest heavily in shares in the entertainment ticketing company Tickamania Ltd. This plan involves FDE buying shares in Tickamania on the stock market with a view to FDE achieving a market takeover of Tickamania. FDE's share purchases started in August 2019. By March 2020 this purchase activity has been proceeding steadily and Tickamania's shares had risen in price from $12 (August 2019) to $22 (March 2020) in response to observed market buying activity. FDE Ltd is not yet legally required to inform the market of its purchases or its intention and therefore its current position is highly confidential. FDE plans to advise the market of its intention in May 2020 (this planned timing is lawful and is based on good advice to FDE). D. Following some negative press (which accused FDE of being only interested in profits) the FDE Board has advised that all staff must ensure the following statement is clearly stated on all FDE public documents and information: "FDE was founded with its vision being not merely to achieve growth and profits but to make a worthwhile a contribution to the well-being of all people in our Australian cities and in our many remote Australia regions. We will be an entity that helps to create outcomes that are good for our customers and communities and will seek to ensure that our strategies and operations provide long-term and sustainable benefits to the environment." REQUIRED: In the space provided answer the following and use case facts appropriately when they are needed in the answers. Nita Downer was very interested in the confidential (i.e. secret) planned takeover of Tickamania by FDE Ltd. In fact, she was so interested that in August 2018 she immediately started buying shares in Tickamania for herself. As the share price of Tickamania rose from $12 to more than $17 she became very excited. Nita borrowed a large sum of money in order to buy a large parcel of shares hoping to boost market prices even more speedily. Her large purchase resulted in share prices jumping immediately to over $20. Nita then began selling her shares in order to recover her investment and to leave the market. Nita sold slowly so that share prices did not fall. By the end of March 2020 she had sold all her shares. Nita was very pleased that she had made a profit on every Tickamania share that she bought and later sold. Nita's share activity was unknown to the rest of the Board as Nita kept her personal purchases and profits very secret. Discuss Nita's activities and explain, with relevant detail, important ways in which Nita was acting contrary to legal requirements relating to markets and directors and the potential consequences to Nita of her actions. (4 marks) 7 B U I FE Actions contrary to legal requirements Potential consequences of actions