Question 1 - ANSWER ALL SUB-QUESTIONS

Alice Black is the Managing Director of Creative Cranes Pty Ltd, a large proprietary company that manufactures cranes and other construction equipment. In addition to Alice, there are three other directors of the company (Cliff Daniels, Ellen Farrell and Gary Hugh). Each of the directors own 20% of the shares each, with the remaining 20% issued to two other investors in the company who own 10% each (Martin Motha and Adam Freeman).

Alice has been in negotiations with Sophisticated Engineering Pty Ltd for the exclusive licence of the designs for a new crane that can be manufactured more cheaply but is of similar quality and would therefore increase Creative Cranes' profit margin, while enabling them to undercut their competitors. Even with the ongoing licence payments to Sophisticated Engineering for use of the designs, the benefit to Creative Cranes is substantial. Alice presents the proposal to the board of Creative Cranes who agree that it is an excellent opportunity and a contract is finalised and executed immediately. Alice did not disclose in the board meeting that she holds 12% of the shares in Sophisticated Engineering and, as a result of securing this agreement, will receive an additional 12% shareholding in Sophisticated Engineering. She had, however, discussed this with the board members at the annual board dinner the night before.

The transaction goes ahead and Creative Cranes begin manufacturing the new cranes, which are a huge success. The directors provide an interim report to all shareholders noting the success of the new designs and the expected increase in profits of the company. Martin and Adam are excited by the prospects of the company and look forward to receiving very strong dividend payments based on the increased profits. However, at the annual general meeting they discover that the directors have resolved not to pay dividends but to reinvest all profits into the company. At the same meeting a resolution is put to substantially increase the directors' bonuses. When Martin questions the directors in this regard at the meeting, the response is that the director bonuses are reasonable given the overall success and profitability of Creative Cranes. The resolution is passed with the four director-shareholders voting for it and the two other shareholding voting against.

1. Advise Martin and Adam whether they can personally take action against Creative Cranes under the Corporations Act 2001 (Cth) in relation to the director bonuses and the non-payment of dividends. In your answer identify what orders the court would be likely to make if such an action is successful. (16 marks)

Meanwhile, Alice, being quite happy with the success she has achieved with the business (not to mention the dividends that Sophisticated Engineering has paid out on her shareholding), decides to retire. Isabelle Jenkins is appointed as her replacement. While Isabelle is impressed with Creative Cranes' profitability, she does wonder about the way the opportunity with Sophisticated Engineering came about and the level of licence fees that are being paid (which, while still enabling the company to be profitable, are substantially higher than she would have expected). She does some investigation of both companies and discovers Alice's 24% holding in Creative Cranes. Whilst noting that the agreement would have been worth pursuing anyway (given its profitability), she reviews the minutes of both the director and shareholder meetings and finds no record of disclosure of these shareholdings.

1. Advise Isabelle as to whether Alice has breached any of her fiduciary duties to Creative Cranes Pty Ltd at general law or any relevant sections of the Corporations Act 2001(Cth)in relation to her failure to disclose her shareholdings in Sophisticated Engineering and any misuse of her position. Your answer should note any remedies that may be available and/or penalties that are applicable. (22 marks)

Question 2.

From January 2015, Coffees R Us Pty Ltd ("CRU"), a small caf, has rented space from Strip Shop Retailers Pty Ltd ("SSR") at a strip of shops on Smith St. A clause in the lease agreement between CRU and SSR limits SSR from leasing any of the other shopfronts in Smith St to a direct competitor of CRU.

As at September 2017, CRU had accumulated debt of $6000 to SSR in late rental fees. CRU argued that it had suffered loss of trade as a result of SSR's decision to rent space to another caf, Organic Coffee Culture Pty Ltd ("OCC"), two doors down from CRU in April 2017, and that it was justified in not paying rent because it had lost more than $6000 in trade due to this alleged breach of the lease agreement.

In October 2017, SSR served a statutory demand upon the registered office of CRU under section 459E of the Corporations Act 2001 (Cth). The registered office was the office of CRU's solicitors, however the company's regular solicitor was on leave and did not bring the demand to the attention of CRU until 30 days had passed from the date of service. The solicitor advised CRU that it was too late to bring an application to set aside the statutory demand but that, if SSR applied to wind up CRU, CRU could then oppose the application. CRU told its solicitor that it is not in a position to pay the $6000 claimed by SSR, but that it is able to meet all other debts as they fall due.

On the 15^th of November 2017, SSR filed an application to wind up CRU under section 459P of the Corporations Act 2001 (Cth) relying on the presumption of insolvency arising under the statutory demand procedure.

1. Advise Coffees R us Pty Ltd whether they can oppose SSR's application to wind up the company and on what basis. [12 marks]