Funtimes Ltd (Funtimes) is a small unlisted company in the film production business. It is based on Queensland’s Gold Coast.

Funtimes is a joint venture between Mouse Pty Ltd (Mouse) and Balloon Holdings Ltd (Balloon), which are owned and managed by Sonja and Grey, and Flack and Mac (respectively). Sonja, Grey, Flack and Mac are all directors of Funtimes, and Mouse and Balloon each own 40% of Funtimes’ shares. The rest of Funtimes’ shares are owned by Neil, who is a well-known local business person with various interests in the entertainment industry. There are 10,000 ordinary shares in Funtimes in total and they are all ordinary shares.

Recently, Funtimes sold the rights to its flagship programme, Mouse House, to a major cable-TV channel in the US. Based on this success, Sonja (who is Funtimes’ CEO), pitches a recapitalization plan to Grey, Flack and Mac in an email:

Hi Guys, As discussed, I think we are in a position to fund a new series of Mouse House with a few changes to our capital structure. Here is my Three Point Plan:

1. Borrow $500,000 from Big Bank Ltd. I have spoken with our account manager at the bank and he said that it’s likely they would lend us the money if we give a mortgage over our studios and land. I know this will be a high level of debt for Funtimes but, as you know, taking on more debt may actually improve the return we can deliver to our shareholders.

2.Amend the constitution to compulsorily acquire Neil’s holding for $20 per share. As you also know, there have been some issues with Neil challenging our authority to make managerial decisions for Funtimes in the past. It’s time consuming to respond to his complaints, which have no basis in company law. I’m also concerned about the fact that Neil is invested in some of our competitors. For both reasons, I suggest we use this moment to replace Neil’s investment with others who support our vision for Funtimes.

3. Sell 1,500 of Neil’s shares for $50 each to members of the public (we can now put the offer documents directly on our website) and the rest to Warren. You remember Warren. We all met him at the golf day last week. I Googled him and turns out he’s worth $10 million. That said, my sense is that we may need to ‘sweeten the deal’ for him, e.g., by arranging for Funtimes to loan him some of the money to buy the shares at below the market interest rate. Looking forward to your thoughts. Sonja

Advise Funtimes on whether and, if so, under what conditions each point of Sonja’s plan may be lawfully executed, as well as on the consequences of any breach of the law.