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Three months later, a shortage of specialist labour and equipment in South Australia results in massive cost overruns on ACE's exploration project. It is unable to meet its exploration schedule and, after disclosing this to the ASX, ACE 's share price slumps to less than lc per share which triggers a clause in its loan contract with BT Associates Pty Ltd and puts it in default on its loan. BT Associates Pty Ltd then exercises its rights to purchase the gold exploration rights. Julia resigns the following week and is subsequently announced as the new CEO of BT Associates Pty Ltd. Six weeks later, labour markets in South Australia have loosened and BT Associates Pty Ltd is able to complete its exploration of the site and finds a huge gold deposit. Soon after it sells its interests in the site to a large European energy company for A$5 billion. The shareholders of ACE are outraged at the conduct by ACEs board. They have been pressuring Luke to resign from the board and for a new Chair and CEO to be appointed.

Question 1A. Advise ACE Ltd of its legal rights and any action available under general law and the Corporations Act 2001 (Cth) (40 marks)

Question 1B. Joe is a member of ACE Ltd. He seeks your advice about any legal action available to him in this case. (10 marks)

Aurum Centric Enterprises Ltd ("ACE') is a small ASX listed mining company which focusses on gold exploration. The non-executive chair of ACE's board of directors is Luke, who also serves as chair of the audit and risk management committee of the board. The managing director and chief executive officer of ACE is Julia. The three remaining directors are all non-executive independent directors. ACE's main assets consists of rights to explore and exploit potential gold reserves in South Australia. The market for gold has boomed in recent times. The extensive market interest in gold presents an opportunity for ACE to expand its operations and hopefully attract either a friendly takeover that will deliver big returns to shareholders or a big contract with an overseas customer that will provide increased revenue. Julia is very active in seeking out funding opportunities to enable ACE to expand its operations, but is unable to receive support from the banking community who are already over extended in their loan exposures to the mining and resources industry and Julia has been unable to attract further loan funding from the banks. Julia's frustration at being unable to attract further bank finance is widely known in the South Australian business community, where Julia is a well-known and independently wealthy businessperson. access to Julia is approached by an independent financing firm, Barren Capital Ltd ("Barren Capital), based in South Australia who proposes to extend sufficient funds to ACE to enable it to expand its operations. Barren Capital is backed by large institutional investors from around the globe and therefore has may othe be unavailable to AC The chief investment manager Barren Capital pitches a proposal to Julia that would involve establishing a new company (BT Associates Pty Ltd) that will provide approximately $100 million in loan funds to ACE. A condition of the loan is that Julia buys a 25% stake in BT Associates Pty Ltd to ensure that her interests are aligned with that company's and to encourage her to remain in her position at ACE into the future. Julia agrees to do this as long as her name is kept out of the press and so she provides the funding to purchase the shares in BT Associates through an anonymous family trust. Julia does however disclose her interest in BT Associates Pty Ltd to the ACE board of directors, by stating that she has "a minor stake in BT Associates Pty Ltd". The loan will carry a 20% interest rate, which is well above commercial lending rates but reflects the current lack of financing available to mining companies and the risk of lending to a small speculative company such as ACE. The terms of the loan provide that if ACE defaults on the loan BT Associates Pty Ltd will be eligible to exercise an option to purchase ACE's interest in the gold reserves at a valuation determined by reference to ACE's current share price. This is a risky deal that could result in ACE losing its major asset, potentially at a discount if ACE's shares are trading below their real value, but Julia considers the potential economic benefits that could be gained from obtaining the funding is worth the commercial risk to the company. After agreeing to seek the approval of ACE's board of directors for the funding deal from BT Associates, Julia does not pursue any further funding options, nor does she obtain any further independent expert advice on the value/risks associated with the loan, although she does have significant information on the deal that was provided by Barren Capital. Julia puts the funding deal to ACE's board and after a 2 hour meeting the board of directors approves the proposal with Julia voting in favour of the deal. The board also has a very extensive report prepared by Barren Capital and an external mining and engineering consulting firm that states that the funds to be provided by the funding deal should be sufficient to expand the operations. Aurum Centric Enterprises Ltd ("ACE') is a small ASX listed mining company which focusses on gold exploration. The non-executive chair of ACE's board of directors is Luke, who also serves as chair of the audit and risk management committee of the board. The managing director and chief executive officer of ACE is Julia. The three remaining directors are all non-executive independent directors. ACE's main assets consists of rights to explore and exploit potential gold reserves in South Australia. The market for gold has boomed in recent times. The extensive market interest in gold presents an opportunity for ACE to expand its operations and hopefully attract either a friendly takeover that will deliver big returns to shareholders or a big contract with an overseas customer that will provide increased revenue. Julia is very active in seeking out funding opportunities to enable ACE to expand its operations, but is unable to receive support from the banking community who are already over extended in their loan exposures to the mining and resources industry and Julia has been unable to attract further loan funding from the banks. Julia's frustration at being unable to attract further bank finance is widely known in the South Australian business community, where Julia is a well-known and independently wealthy businessperson. access to Julia is approached by an independent financing firm, Barren Capital Ltd ("Barren Capital), based in South Australia who proposes to extend sufficient funds to ACE to enable it to expand its operations. Barren Capital is backed by large institutional investors from around the globe and therefore has may othe be unavailable to AC The chief investment manager Barren Capital pitches a proposal to Julia that would involve establishing a new company (BT Associates Pty Ltd) that will provide approximately $100 million in loan funds to ACE. A condition of the loan is that Julia buys a 25% stake in BT Associates Pty Ltd to ensure that her interests are aligned with that company's and to encourage her to remain in her position at ACE into the future. Julia agrees to do this as long as her name is kept out of the press and so she provides the funding to purchase the shares in BT Associates through an anonymous family trust. Julia does however disclose her interest in BT Associates Pty Ltd to the ACE board of directors, by stating that she has "a minor stake in BT Associates Pty Ltd". The loan will carry a 20% interest rate, which is well above commercial lending rates but reflects the current lack of financing available to mining companies and the risk of lending to a small speculative company such as ACE. The terms of the loan provide that if ACE defaults on the loan BT Associates Pty Ltd will be eligible to exercise an option to purchase ACE's interest in the gold reserves at a valuation determined by reference to ACE's current share price. This is a risky deal that could result in ACE losing its major asset, potentially at a discount if ACE's shares are trading below their real value, but Julia considers the potential economic benefits that could be gained from obtaining the funding is worth the commercial risk to the company. After agreeing to seek the approval of ACE's board of directors for the funding deal from BT Associates, Julia does not pursue any further funding options, nor does she obtain any further independent expert advice on the value/risks associated with the loan, although she does have significant information on the deal that was provided by Barren Capital. Julia puts the funding deal to ACE's board and after a 2 hour meeting the board of directors approves the proposal with Julia voting in favour of the deal. The board also has a very extensive report prepared by Barren Capital and an external mining and engineering consulting firm that states that the funds to be provided by the funding deal should be sufficient to expand the operations