PAST EXAM QUESTIONS - FOR REVISION 2

Question 1 - ANSWER ALL SUB-QUESTIONS

Lots-a-Fun Ltd ("LF") is a publicly listed entertainment company, which runs a range of theme parks, bowling alleys and movie cinemas. Its board is made up of five directors: Tienne Sinnamon (the Managing Director), Jack Daniels and three non-executive directors, Sarah Evans (the chairperson), Andrew Lindsay and Guy Webb.

LF is always on the lookout for additional entertainment venues that it can acquire and then operate at a profit. Whenever a new opportunity arises, Jack Daniels is generally in charge of the negotiations and due diligence process on the potential acquisition. However, Jack has been discussing with Tienne the fact that he would like to set up his own company focused just on running theme parks. Tienne notes that she would be supportive of this and offers to invest in the company when he sets it up.

An opportunity arises for LF to purchase a reasonably successful theme park in Melbourne called Nightmare Land. Jack is put in charge of the negotiations and due diligence. In working through the due diligence Jack recognizes that this is an opportunity that he would like to take for himself. He represents to the managers and owners of Nightmare Land that LF is not interested in the park, as it does not fit with their branding of great value entertainment for all the family. However, he himself, with a company he has just incorporated (Be Scared Pty Ltd, which Tienne has purchased 20% of the shares in) would be interested in acquiring the theme park. The owners of Nightmare Land seem amenable to this and, given they were aware that Jack had authority to negotiate on behalf of LF, assume that LF is not interested in the park. Jack continues negotiations and eventually arranges for Be Scared Pty Ltd to purchase the park. He then resigns from LF.

At the next board meeting of LF, Tienne notes Jack's resignation and the fact that the opportunity to purchase Nightmare Land has fallen through. When Andrew and Guy ask who purchased the park, Tienne notes that it was Jack's new company. However, she says that she doesn't want to create any dispute between LF and Jack and therefore recommends that they do not pursue Jack or Be Scared Pty Ltd at all. The other directors reluctantly agree. Tienne does not disclose the fact that she owns 20% of the shares in Be Scared Pty Ltd.

At a BBQ later that week, Andrew Lindsay, discusses the outcomes of the meeting with Alfred, who is a substantial shareholder of LF. Alfred is concerned about the actions of the board and the fact that they have allowed the opportunity to purchase Nightmare Land to slip away.

Advise Alfred:

1. Whether Jack Daniels has breached any of his fiduciary duties to LF or his duties under the Corporations Act 2001 (Cth) in taking up the opportunity to purchase Nightmare Land. In your answer note what remedies or penalties would apply. [14 marks]
2. Whether Tienne Sinnamon has breached any of her obligations under the Corporations Act 2001 (Cth). [8 marks]
3. What action, if any, Alfred as a shareholder can take in relation to a director's breach of duty, and how [14 marks]

TOTAL FOR QUESTION 1: 36 MARKS

Question 2

Michael Murray ("MM") is an electrician who is owed $18,000 by Light-em-up Builders Pty Ltd ("LB") for subcontracting work. Despite numerous phone calls and letters to LB over the past 12 months, MM is yet to receive any of the money that he is owed. MM has not taken any legal action in relation to the debt. LB have alleged that the work undertaken by MM was defective and required them to engage another electrician to correct, but are yet to specify any amount by which they believe MM's claim should be reduced. MM suspects that LB is in financial difficulty and that he is unlikely to receive any payment unless the company is wound up and the company's assets are placed into the hands of a liquidator.

Advise as to:

1. What steps MM should take / procedure MM should follow in order to have LB wound up; and (6 marks)
2. Any issues that LB might raise in order to prevent the winding up, and whether those issues could be raised by LB at the hearing of the winding up application, or whether they would need to be raised beforehand. (8 marks)

TOTAL FOR QUESTION 2: 14 MARKS