QUESTION 4

Kat is a property developer on the Gold Coast. She was recently offered a block of land in Surfers Paradise for $4 million. She formed a company with her boyfriend, Salek, called K&S Pty Ltd. K&S Pty Ltd purchased the land. Salek invested $4 million into K&S Pty Ltd for the purchase price of the land, but took no part in the management of the company or its affairs.

Kat then formed another company called Big Profit Pty Ltd. Before registering Big Profit, Kat entered into a contract between K&S Pty Ltd and Big Profit Pty Ltd whereby K&S would sell the land to Big Profit for $20 million. The directors of Big Profit were Kat and her father. Upon its formation, Big Profit had a directors' meeting whereby they agreed to ratify the sale contract.

Kat proceeded to find investors to invest $20 million in Big Profit. At no time did Kat tell anyone about the massive profit K&S would make on the transaction, or her interest in K&S. The new investors replaced Kat and her father with their nominee directors.

The property market in Surfers Paradise increased dramatically over the next few months and Big Profit sold the property for $22 million. In relation to this sale, the new directors of Big Profit discovered Kat's interest in the earlier transaction and the massive profit K&S had made.

(a) Can Big Profit recover any of the profit K&S made?

(b) If so, from whom can it be recovered?