Question 1 (20 marks)

David goes to a company called Vehicle Wholesalers Pty Ltd ("VW"), which sells all types of new motor vehicles.He deals with the managing director of VW, Joseph, and says that he is acting for a business called Tempest Car Hire ("TCH").He has had previous dealings with Joseph buying cars for TCH, but on this occasion he buys a truck.Joseph is surprised because he remembers that TCH hires out cars, but not trucks.David asks Joseph to register the truck in his (David's) name, which is also unusual because David normally purchases in the name of TCH.He pays a 10% deposit with a cheque drawn on the account of TCH, and agrees that the balance will be paid within a month.He drives the truck away and the next day he sells it and uses the money to renovate his house.

1. Imagine that TCH is the business name of a partnership, and David is a partner.

i. Apply the relevant legal principles of partnership law to advise whether the other partners would be liable for the balance (90%) of the purchase price of the truck. (6 marks)

ii. Explain what partners' duties David has breached. (4 marks)

2. Now imagine that TCH is a business name of a company, and David is a director of the company.

i. Apply the relevant principles of company law to advise whether the company would be liable for the balance (90%) of the purchase price of the truck. (6 marks)

ii. Explain what directors' duties David has breached.(4 marks)

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Term 3 Standard Examination 2013

Corporate Law LAWS20029

Question 2 (20 marks)

You are a practising accountant.Your clients, Samantha and Doreen, are directors of a company, SuperGlow, and they made an urgent appointment to see you.SuperGlow sells cosmetics in large quantities to retail shops.It tries to maintain good cash flow by ordering the cosmetics from suppliers on 1-month credit terms (the supplier gives the company an invoice payable in 1 month), and selling the cosmetics at a profit before the company has paid for them.They tell you that one of their best customers, a major retail store, has gone into liquidation owing them $50,000.For this reason, they will be unable to pay their suppliers for the cosmetics. They have a plan to overcome this by urgently ordering new stock and selling it at discount prices to recover their cash flow.

(a) What advice do you give them to protect their own interests as directors?You need to explain the legal reasons for the advice. (5 marks)

(b) Their proposal involves trying to trade out of their financial difficulties.How can the company do that without putting the directors at risk of their personal liability?Explain to them the procedure they must adopt to achieve that. (5 marks)

(c) Imagine instead that they do not want to trade out of their difficulties and wish to wind the company up.Explain to them what effect a liquidation will have on their role as directors and what the liquidator's role is in relation to assets of the company. (5 marks)

(d) Explain to them what happens to the debts of the company in a liquidation. (5 marks)

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Term 3 Standard Examination 2013

Corporate Law LAWS20029

Question 3 (20 marks)

Kate, Tony and Andrew were friends who set up a business buying houses to renovate and sell for a profit.They incorporated the business as Renewal Pty Ltd.Andrew contributed $20,000 as start-up capital and Kate and Tony contributed $10,000 each.They received one share for each dollar they contributed.They also agreed that they should all run the business together, so they were all appointed as directors.The business went well for 6 months.Kate and Andrew worked closely together and they became very close friends. Eventually they moved in to live together and trouble started with the business. Kate and Andrew ignored all Tony's suggestions for the business and there were many arguments between them and Tony.Eventually Kate and Andrew called a general meeting and voted to remove Tony as a director.They gave him 14 days' notice of the meeting.At the same meeting, they voted that Tony must sell all his shares to the existing directors for 50 cents each.

(a) Provide an argument for why Tony should be able to challenge the resolution to forfeit his shares on the basis of section 232 of the Corporations Act 2001 (Cth.). (5 marks)

(b) Provide an argument for why Tony should be able to challenge the resolution to remove him as a director on the basis of section 232 of the Corporations Act 2001 (Cth.). (5 marks)

(c) Provide an argument for why Tony should be able to challenge the resolution to forfeit his shares on grounds that it was an inequitable use of majority voting power (or fraud on a minority). (5 marks)

(d) Explain how Tony could challenge all the resolutions on the basis of improper notice of the meeting. (5 marks)

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Term 3 Standard Examination 2013

Corporate Law LAWS20029

Question 4 (20 marks)

Gordon and Allan are directors of Hopes Ltd, a company involved in the mining industry.They are also drinking mates, and one night at the pub they overhear someone nearby saying that his company, Futures Ltd, has just located a promising gold reserve in Western Australia.They recognise the person as a director of Futures Ltd.On the basis of this information, they decide that their company should make an offer to buy all the shares of Futures Ltd.

(a) If the offer proceeds, who is guilty of insider trading and why? (5 marks)

(b) What steps must be taken by both companies to inform shareholders about the offer and its consequences? (5 marks)

(c) Assume that the offer succeeds and it turns out that there is no promising gold reserve in Western Australia.What standard of care applied to Gordon and Allan when they decided to make the offer? (5 marks)

(d) Explain the business judgement rule and why it would not help Gordon and Allan in this situation. (5 marks)

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Term 3 Standard Examination 2013

Corporate Law LAWS20029

Question 5 (20 marks)

Derek Williams wrote a will that stated: "I leave all my real property to my brother Manfred to use and invest for the benefit of all my children who are under 18 and living with me at the time of my death."When Derek died, he had one child, Harold, living with him who was 17 years old.Manfred gained legal title to all Derek's real property and rented it out.He deposited some of the rent monies into his personal bank account, and invested the remainder in gambling on horse races.He intended to pay the money in the bank account to Harold when Harold turned 18, but temptation got the better of him and he spent it on a holiday overseas.The money used for gambling was eventually all lost.

(a) Provide a legal argument for why Derek's will created a valid trust.

(5 marks)

(b) i. Who is the testator?

ii. Who is the trustee?

iii. Who is/are the beneficiaries?

iv. What is the trust property?

v. How can the trust be terminated in this situation?

(5 marks)

(c) What actions of the trustee breached fiduciary duties and explain why?

(5 marks)

(d) What actions of the trustee breached the duty of care and explain why?

(5 marks)

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Term 3 Standard Examination 2013

Corporate Law LAWS20029

Part B (10 marks) Answer one of these 2 questions.

6. In your own opinion, which of the cases you have studied in this course had the greatest impact on company law?Explain why you think that. (10 marks)

7. There are many types of disclosure required in company law.Explain why disclosure is required in each of the following situations and what must be disclosed:

i. Annual reporting;

ii. Continuous disclosure;

iii. Take-over bids. (10 marks)