Inspired Design Ltd (Inspired) is a medium size company with approximately $100 million of assets (mainly computing equipment and contracts to supply services or receive royalties for the applications it develops) and $70 million of liabilities.It creates applications for smart phones like the iPhone and Android phones using computing facilities based in Perth.

The chairperson (also a director) of Inspired approaches the Perth based commercial manager of ABB Australian Better Bank Ltd (ABB) to obtain $50 million to help Inspired carry out a substantial upgrade of its computing facilities.The chairperson has a preference for the $50 million to be provided by way of debentures (i.e. debt funding).You understand that the chairperson of Inspired has previously regularly entered into contracts on behalf of Inspired to borrow day to day funds or to sell applications - which have subsequently been formally ratified by the board of Inspired.

Question:

(a)Would a contract signed only by the chairperson be binding on Inspired if ABB sought to enforce it at a later point in time?Assume that ABB's commercial manager has authority to contract.

(b)Briefly explain the key advantages and disadvantages for ABB of providing debt rather than equity funding to Inspired, assuming the choice is between preference shares and debentures.

For discussion purposes only:

A's to argue from ABB's perspective.

B's to argue from Inspired's perspective.