Problem Assignment 77947 COSEC 2023 Autumn Requirement: You are expected to research a specified topic, reading and interpreting case and statute law, analyzing the effect and operations of these laws on companies and their stakeholders. You are also expected to report on corporate legal issues using a Report format (refer to Podcast which discusses what this means). Objectives: This task addresses subject learning objectives 1, 2 and 4. This task contributes to the development of the graduate attributes 1.0, 2.0 and 3.0. Weight: 20% Length 2,250 words Submission: The assignment of 2250 words is due as stated in the subject outline.

Consider the following facts: ABC Pty Ltd (ABC) is a company incorporated in 2002. It is the holding company of a group of subsidiary companies. The subsidiaries operate a variety of different businesses. One particular subsidiary is XYZ Pty Ltd (XYZ), which was incorporated in 2015, and was established for the sole purpose of operating a pleasure business. The pleasure boating business is operated in a 50/50 partnership with HAL Pty Ltd (HAL), a company that is owned 100% by Ivan. Ivan is a boating enthusiast and provides the day-to-day operations and management of the boating business, while XYZ had provided the start-up capital to allow the partnership (trading as the EVA Boats) to purchase and refit the boats and to cover initial operating costs until the boats had become profitable. ABC has 5 directors: Anna (the chair), Bryon (the managing director and Annas husband), Cesare, Danny and Erica. Each of the directors owns two voting shares in ABC. Francis and George are not directors, but are major shareholders of ABC: Francis owns 100 voting shares in ABC, while George owns 140 shares in ABC. Francis is keenly involved in the business of ABC, regularly attends board meetings, and Anna and Bryon look to him for guidance. The companys head office is in Brisbane. All its directors and shareholders live in Brisbane, except for Danny, who lives in the Whitsundays, near where the boats are anchored. ABC follows the replaceable rules, with one exception. There is a clause that states that ABC cannot enter into any loan, or guarantee any loan, in excess of $1,000,000 without the approval of the general meeting. XYZ has no other enterprises or activities, other than the boating activities. Its directors are Bryon and Cesare, but it does not appear to hold board meetings: the directors merely sign resolutions (which they term circulating resolutions of XYZ) when they are meeting at the board meetings of ABC. They do this at the meeting with of ABCs board of directors, and the other directors observe what they are doing. The group does not keep any books or records for XYZ. At the end every financial year, the accountant for the group, Halitosis Accountants, drafts minutes of supposed meetings of XYZ. However, Halitosis Accountants does not prepare separate accounts for XYZ. XYZs share of profits from the EVA Boats business are paid directly into a bank account in the name of ABC. XYZ and HAL jointly own the boats, employ all crew and staff including captains of the boats, engage advertising agencies and other contractors, and technically provide the staff. Ivan is the manager and face of EVA Boats. All expenditure and outgoings of EVA Boats have been covered by XYZ out of equity contributions form ABC and also from a significant loan from a banker, Lima Finance. HAL has guaranteed the loans owed to Lima Finance. Lima Finance are worried about HALs liquidity. With rising interest and inflation rates, and with consumer confidence waning, Lima Finance does a review of XYZ and HAL, and realises that they are both $2 companies, with no assets other than the boats. Lima Finance therefore approach Cesare about signing a guarantee (as he is a director of both ABC and XYZ), to guarantee of all the debts that XYZ owes to Lima Finance (which amount to $3,000,000). This guarantee includes a charge over the property of ABC, including investments in various olive groves and private loans to high net wealth individuals. Cesare calls an emergency board meeting, giving 3 days notice via email, saying that this needs to be done because financing will be pulled if it does not occur. He does not explain exactly what will occur in the board meeting. Anna, Cesare and Bryon attend in person, at the offices of ABC. As Danny and Erica cannot attend in person, Cesare arranges for them to dial in to the meeting. Anna also arranges for Francis to dial in. Erica does not dial in, as she cannot get access to the technology. She emails this fact to Cesare and Anna before the meeting, but Cesare ignores the email and Anna does not read it. Francis and Danny both dial in. Francis is cut off halfway through meeting, but no-one seems to notice. Danny is unhappy with the guarantee, arguing that the reason they set up XYZ was to ensure that ABC was not exposed to this liability. When no-one is listening to him, he hangs up in disgust. Anna and Cesare vote in favour of the guarantee, while Bryon abstains. When they hear nothing on the conference line, they assume that the other directors have abstained from voting. Cesare attends a meeting with Maverick, the loan officer of Lima Finance. He signs the guarantee, including the charge, signing for ABC Pty Ltd. Maverick knows that Cesare is not the managing director of ABC. He also knows that ABCs constitution requires that the general meeting approve this guarantee and asks Cesare about the matter. Cesare is vague about the matter, as he has not considered the point. Maverick accepts the guarantee despite his misgivings and Cesares vagueness. Danny is angry with the outcome of the board meeting and, therefore, calls a general meeting. The notice is posted to all shareholders on 1 February, with the meeting to be held at Dannys home in the Whitsundays on 21 February. Danny, Erica and George all attend, and vote to rescind the contract. They also vote to sack Anna, Bryon and Cesare from the board, although this resolution was not included in the notices to shareholders. They send notifications to this effect to the other shareholders and Danny contacts Maverick to state that the guarantee has been rescinded. The following day, the Lima Finance registers the charge. Your client is Erica, who approaches you after finding out that the charge has been registered. You need to advise Erica on whether ABC will be held liable for the any debts incurred by HAL, either under this guarantee or otherwise. In particular, you need to advise as to whether the charge could be valid. Is ABC liable for the debts incurred by HAL? Is the Charge of Lima Finance Valid?