Question 13

Marie was appointed as a Director of Best Dressed Ltd to fill a casual vacancy until the next Annual General Meeting (AGM), at which Marie was not re-elected by the shareholders.Best Dressed Ltd's constitution provided that a director who was not re-elected at the AGM ceased to be a director of the company. Marie, however, continues to attend board meetings, provides specialist advice during these meetings based on her vast experience as a fashion designer, votes on resolutions with other directors and generally participates in the management of the company. Is Marie currently a director of Best Dressed Limited?

a. Yes, Marie is an alternate director under the Corporations Act 2001 (Cth)

b. Marie is a non-executive director

c. No, as Best Dressed Limited's constitution prevents her from being a director if she was not re-elected at the AGM

d. Marie is a defacto director

Question 14

The constitution of Tools Pty Ltd (Tools) is silent on matters relating to dividends. An Annual General Meeting (AGM) of Tools took place on 10 July 2019 during which Peter, the Managing Director of Tools, declared a final dividend of 15c per share payable on 1 August 2019. One week after the AGM, Tools decides not to pay the dividend "because it is in the best interests of the company". What can the shareholders of Tools do?

a. Accept the fact that no dividend will be paid to them

b. Seek an injunction from the Court that reverses Tools' decision not to pay the dividend

c. Take legal action against Peter for payment of the dividend because Peter breached his fiduciary duties to the shareholders

d. Take legal action against Tools for payment of the dividend because Tools breached its statutory contract with the shareholders according to section 140 of the Corporations Act

Question 15

Which of the following statements is false?

a. The directors of public companies can be removed by resolution in the general meeting

b. The Board of directors has the power to call a general meeting

c. A nominee director is a director appointed to represent the interests of a specific stakeholder(s) such as creditors or shareholders

d. The Corporations Act gives the power of management to shareholders while they are in a general meeting

Question 16

Foxus Pty Ltd was incorporated in 2008 and is in the business of publishing children's literature. Robin and Jessica are the only directors and shareholders of Foxus. Clause 3 of the constitution of the company provides that Clark is to be employed as the company's operations manager. Recently, the company decided to terminate Clark's employment. Which of the following is TRUE?

a. Clark can amend the constitution to reverse the company's decision to terminate his employment

b. Clark cannot enforce clause 3 because the constitution is not a statutory contract between Clark and the company

c. Clark can enforce clause 3 of the constitution by relying on the statutory contract that exists between the company and a member

d. Clark can enforce clause 3 of the constitution by relying on the statutory contract that exists between the company and a director

Question 17

Darren is the sole director and shareholder of Dance Extreme Pty Ltd, which specializes in manufacturing and laying dance floors. Recently, Dance Extreme was contracted by the Queensland Performing Arts Complex to prepare a dance floor for the upcoming extravaganza "Saturday Night Fever" starring Stu Campbell. Unfortunately, the floor manufactured and laid by Darren of Dance Extreme did not meet the Dance Council of Australia standards as required by the contract between Dance Extreme and Queensland Performing Arts Complex. Whilst practicing a difficult dance manoeuvre, Stu fell through the dance floor, ending his promising dancing career.

Fearing legal action by Stu, Darren decides to transfer all of the assets in Dance Extreme to another company in which he is the sole director and shareholder called Funky Dance Pty Ltd ("the transaction"). Dance Extreme is wound up one month after the transaction.

Stu commenced proceedings against Dance Extreme and Funky Dance in the Supreme Court of Queensland seeking compensation on the grounds of negligence. In relation to Dance Extreme, the Court finds that it was negligent in the manufacture of the dance floor. In relation to Funky Dance, the Court will most likely make the following finding(s):

a. Funky Dance is liable because the purpose of the transaction was to avoid Dance Extreme's legal obligations to Stu

b. Funky Dance is not liable because Dance Extreme manufactured and installed the dancefloor

c. Funky Dance is not liable on the basis of the separate legal entity principle set out in Salomon v Salomon & Co Ltd [1897] AC 22

d. Both (b) and (c)

Question 18

House Pty Ltd is the registered shareholder of 36% of the shares in Cuddy Pty Ltd. The other 64% of the shares are spread amongst 4 shareholders: Camryn, Wilson, Chase and Eric. Wilson, Chase and Eric each own 15% of the shares and Camryn owns 19% of the shares. House Pty Ltd is the proxy holder for Camryn's shares in Cuddy Pty Ltd. House Pty Ltd has agreed in writing to vote according to Camryn's wishes in relation to the proxy. The constitution of Cuddy Pty Ltd provides that it must have 3 directors only, and that House Pty Ltd has the power to appoint 2 and remove 1 of the directors.Which statement best describes the relationship between these companies?

a. House Pty Ltd is the holding company of Cuddy Pty Ltd because House controls the composition of Cuddy's board

b. House Pty Ltd is the holding company of Cuddy Pty Ltd because House can control the casting of more than 50% of the votes in Cuddy at its general meeting

c. Cuddy Pty Ltd is the holding company of House Pty Ltd because Cuddy controls the casting of more than 50% of the votes in House at its general meeting

d. Cuddy Pty Ltd is the holding company of House Pty Ltd because Cuddy holds more than half of the issued share capital in House

Question 19

Peake Ltd has an issued share capital of $3 million which consists of 2,000,000 fully paid $1 ordinary shares and 1,000,000 fully paid $1 preference shares. The company's constitution provides that preference shareholders have priority to repayment of capital on a winding up and to dividends and enjoy the same voting rights as ordinary shareholders on all matters. However, the constitution is silent about further share issues and does not outline any procedures when there is a variation to share class rights. The directors of Peake Ltd propose a resolution that the company carries out a new share issue of 500,000 preference shares to existing preference shareholders. The new shares will have the same rights as the existing preference shares. The issue price of 50c per share will be partly paid to 10c. Carmela, who holds 30% of the preference shares and is a director of Peake Ltd, is concerned that the new share issue will reduce the value of the company. In this situation:

a. Carmela can block the new share issue because she holds 30% of the preference shares

b. Carmela can block the new share issue as the Corporations Act requires a unanimous resolution by directors to carry out a new share issue

c. None of the answers are correct

d. The new share issue would be a share capital reduction in breach of the Corporations Act because of the issue price

e. The new share issue would not be a variation to share class rights under the Corporations Act

Question 20

Cheaters Ltd is an unlisted public company formed in 2000. Cheaters Ltd has a share capital of 10,000 $1 ordinary shares and 5,000 $2 preference shares. Under the company's constitution, preference shareholders have the right to be repaid capital ahead of ordinary shareholders if the company is wound up, and to exercise one vote per share on all matters affecting preference shares.

Tom and Dave hold all of the company's ordinary shares and 75% of the preference shares. Bill owns the remaining 25% of the preference shares. Tom and Dave have proposed a resolution amending the constitution to remove the preference shareholders' right to be repaid capital ahead of the ordinary shareholders if Cheaters Ltd is wound up ("the amendment").

Bill objects to the amendment. Your advice to Bill would be:-

a. The amendment can be made. Tom and Dave hold enough votes to pass the special resolutions required under the Corporations Act

b. The amendment cannot be made without Bill's consent because the amendment requires the unanimous support of all preference shareholders

c. The amendment can be made. Tom and Dave have the voting power to pass a special resolution adopting the amendment according to the Corporations Act

d. The amendment can be made. However, Bill can apply to the Court under the Corporations Act to set the amendment aside because of unfair prejudice