Question: Cappuccino comes to you and asks you to advise them, using the Corporations Act 2001 (Cth) on whether he or Americano, Latte and Expresso have breached the Corporations Act 2001 (Cth), the consequences of such breaches and what he should do now.

Facts:

Hyper Ltd owns a major building complex at West End. It rents out office and other space in this building. It has no other assets and essentially no cash reserves. When the West End property is fully tenanted Hyper Ltd makes a healthy profit but if tenancy falls beyond 80% then it would struggle to pay all its bills. Hyper Ltd has 80 shareholders and 1 director, Latte. There are 3 shareholders with 30% of the shares each, being Americano, Expresso and Latte. The remaining shares are held by minority shareholders.

Cappuccino, not a shareholder, is the registered auditor but has not had access to the books or performed an audit for 2 years. While Cappuccino is not auditing books, he does attend a monthly meeting with Latte. Americano and Expresso also attend these monthly meetings.

Hyper Ltd has some financial difficulties during the COVID-19 pandemic and there emerges 4 deals having a major impact on the survival of Hyper Ltd. Latte asks if Americano, Cappuccino and Expresso would each accept carriage of negotiation and closing of one of the 4 deals. They agree so that each deal has one person representing Hyper Ltd. The 4 deals are successfully finalised. They involve building works, marketing and securing 2 new tenants. The building works and marketing requires Hyper Ltd to draw down on its mortgage over its West End building.

In July 2020 Americano asks Cappuccino to audit the books for the 2020 AGM. Later in July 2020 Cappuccino asks Latte for the books and is surprised to find that they do not provide details on a number of transactions and do not explain the overall performance of Hyper Ltd. Latte also cannot provide records going back more than 3 years. This is a problem as the valuation of the West End property was done in July 2017. At the August 2020 meeting, Latte explained all is well but was unable to comment on the valuation of the West End property when Americano explained that September 2017 was the end of the last Australian property market boom and now with COVID-19 things were very different. Latte agrees that Cappuccino should get an updated valuation of the West End property, especially as a number of tenants have terminated their leases early and vacated the building and occupancy was now at 75%.

In August 2020 Cappuccino obtains 3 valuations of the West End property. All 3 value the property approximately 40% lower than the value stated in Hyper Ltd's books. It also means the value of the debt against the security is now 10% higher than the book value of the asset. The mortgagee has heard that Cappuccino is getting the West End property valued and has asked for copies of the valuations and has arranged their own valuation.