QUESTION 1 [Answer all aspects of this question] [10 marks]

The basic purpose of corporate governance is to monitor those parties within a company which control the resources owned by investors. The primary objective of sound corporate governance is to contribute to improved corporate performance and accountability in creating long-term shareholder value.

Reflect on this statement and explain the role of the Australian Securities and Investments Commission (ASIC) in achieving the objectives of corporate governance. Provide at least two examples illustrating how ASIC monitors, enforces and administers compliance with the broad range of corporate governance provisions in the Corporations Act 2001.

QUESTION 2 [Answer all aspects of this question] [20 marks]

Domino Ltd (Domino) is a transport and cargo delivery company, focusing on large retailers and high-end electronic items. Although the company is in sound financial health according to its books and accounts, it has been receiving pressure recently from one of its major customers, AAA Industrial Pty Ltd (AAA), who are unhappy with a recent spate of mechanical failures in the Domino transport fleet, which have held up some deliveries.

From January 2020 onwards, Mal, the managing director of Domino, and Zoe, the executive director, meet on a weekly basis with Ben, the finance manager of AAA. Ben requires them to prepare financial reports and keep an up-to-date schedule of maintenance for the Domino transport fleet. He (Ben) says this is required in order to prevent AAA from having to seek an alternative delivery company. He (Ben) also looks over the Domino delivery schedules to help them optimise the delivery routes between the AAA warehouses and stores, and also routes to other customers sites.

In May 2020, in order to reassure AAA, the Board of Domino decides to seek tenders for a new maintenance company to repair their fleet. Zoe passes the public tender information to her husband, Hoban, who runs a maintenance business, and assists him in tailoring his tender application to address the particular concerns expressed by the Board in their meetings.

After publication of the tender notice, some shareholders who hold about 20% of the voting shares of Domino requested the Board of Domino to hold an extraordinary general meeting (EGM) to discuss the selection of a suitable maintenance company to repair their (Dominos) fleet. The Board of Domino ignored the request.

In July 2020, the Board convened a Board of Directors meeting for selection of the best bidder from the tender applications submitted in response to the recently advertised tender notice. All tender applications are circulated to the members of the Board before the Board meeting. Hobans bid is ultimately successful, not because it is the cheapest, but because, according to Mal, it offers the most comprehensive options which fit best with the needs of Dominos fleet. Other two non-executive directors Donna and Alex who attended the meeting did not make any attempt to investigate the competence and suitability of the bidders. Apparently, they did not read the tender applications thoroughly. Therefore, whatever suggested by Mal they just nodded.

Zoe abstains from the vote at the Board meeting in relation to the tenders, but is present at the meeting, and takes part in the discussion. Unfortunately, Mal is ultimately proved to be incorrect, as Hobans four chief mechanics quit within the following three months, leaving Hobans business unable to comply with the terms of the maintenance contract.

• Advise the Board of Domino whether the members of the Board of Directors including Mal, Zoe, Donna and Alex are in breach of any of the duties which they owe to Domino. What would be the consequences for breach of those duties? (14 marks)

• Advise the shareholders of Domino if they can take any action for turning down the request for convening an EGM by the Board. (6 marks)

Advise the Board and the members of Domino with the help of Corporations Act 2001 (Cth) and relevant case laws, and fully justify your answer.

QUESTION 3 [Answer all aspects of this question] [20 marks]

Alan, Bill and Clare were the directors and shareholders of Albatross Pty Ltd (Albatross) which distributes and sells boating equipment. Alan and Bill each had 300 shares in Albatross while Clare had 200 shares. All three of them actively participated in the company's management. Last year Clare suffered a mild heart attack and decided that she should resign from the board of Albatross and transfer her shares to her daughter, Gail. Alan and Bill did not object and the transfer was registered. Shortly afterwards, Alan discovered that Gail's fiance, Tom, was a major shareholder in and a director of a large interstate company that intended to expand its business and would possibly be a serious competitor to Albatross. Alan called a general meeting of Albatross which passed a special resolution adopting the following internal rule:

If a member or the spouse or child of a member carries on or is a director of a business that in the opinion of the directors is a competitor or a potential competitor of Albatross, the directors may require that member to sell her or his shares to a person named by the directors at a fair price fixed by an independent expert appointed by the directors.

The resolution was passed by Alan and Bill, who were the only people at the meeting. Gail was on her honeymoon in the Cook Islands at the time and did not receive the notice of meeting until she returned home. When she returned, she was given a notice requiring her to sell half her shares to Alan's wife, Sue, and half to Bill's wife, Helen, at a price of $20 per share (the value put on the shares by Graeme, the independent expert appointed by Alan and Bill). Gail does not want to sell her shares in Albatross.

Gail also came to know that Alan and Bill had a Board of Directors meeting during her absence. In that meeting, they (Alan and Bill) have decided to sell Albatrosss only yacht to Sailaway Pty Ltd (Sailaway), a tourism company jointly owned by Alan and Bill. While the market price of the yacht is about $120,000 Albatross has decided to sell it at only $60,000.

Advise Gail:

• whether the meeting had power to adopt the internal rule set out above (6 marks);

• whether Gail has any grounds to challenge the notice requiring her to sell her shares (8 marks) and

• what actions Gail can take in relation to the proposed sale of Albatrosss only yacht at reduced price. (6 marks)

Advise Gail with the help of Corporations Act 2001 (Cth) and relevant case laws, and fully justify your answer.