QUESTION 1

Fairbridge Ltd has three directors and does not have a constitution. The three directors are Chelsea the managing director, Charlie the non-executive Chairperson and Rodney, a non-executive director. Smalls Pty Ltd is emerging to takeover Fairbridge Ltd and the directors have concerns.

At the next directors meeting the board is considering to issue 1,000,000 ordinary shares to Jordan, Chelseas husband in order to ensure that the company can expand into other markets and shield itself from being potentially taken over by Smalls Pty Ltd, a current shareholder of the company.

REQUIRED:

With reference to the relevant provisions in the Corporations Act 2001 (Cth) and case law, discuss whether Smalls Pty Ltd would be able to challenge the directors of Fairbridge Ltd for breaching their duty by issuing 1,000,000 shares to Jordan.

Note: disregard laws pertaining to takeovers when answering this question.

Note: You are required to use the 4-step process in answering this question. The marks allocated for the steps are as follows:

Steps 1 and 2: 6 marks

Steps 3 and 4: 9 marks