Question One

Risk management is of great concern to the firm and regular presentations are made to the staff on this subject.A senior member of your firm asks you to undertake the foundation work for her presentation by preparing answers to the following questions:

(a)What are the three prerequisites needed to establish negligence?

(b)What is the significance of the 'Good Neighbour Principle'?

(c)How is 'breach of standard of care' determined under the uniform Civil Liability Acts?

(d)Once a business understands to whom they owe a duty of care what sound risk management practices should it adopt?

(e)Describe the possible defences available to a defendant when a negligence action is brought against them.

Question Two

Katy is an established client who has recently inherited a share portfolio in various companies from her grandmother. Katy has not owned shares before and wants advice from the firm on the following matters:

(a)Katy is now the owner of 25% of the ordinary shares issued by Cherry Tree Ltd, a public company listed on the ASX.

Does this give Katy the right to make management decisions for the company? Give reasons for your answer including the relevant section(s) of the legislation.

(b)Explain the difference between:

(i)A 'de-facto director' and a 'shadow director'; and

(ii)An 'executive director' and a 'non-executive' director?

(c)How is a person appointed to be a director of a public company (include the relevant section(s) of the legislation)?

(d)Does the chairman of the board have greater responsibility than other board members?

Give reasons for your answer (include the relevant section(s) of the legislation).

(e)Do all the directors have to be present in the same room for a quorum to exist at a meeting of a board of directors (include the relevant section(s) of the legislation)?

(f)Katy has received notice of a general meeting of the members of Cherry Tree Ltd which has been called to consider a resolution to remove two (2) of the directors of the board, Ellen and James. The board itself opposes the resolution.

What process is required for the resolution to remove the directors to be successful (include the relevant section(s) of the legislation)?

(g)Under what circumstances may there be a calling of a members' meeting by directors (include the relevant section(s) of the legislation)?

(h)What is the process required for Cherry Tree Ltd to hold an Annual General Meeting?Does Cherry Tree Ltd have to hold an Annual General Meeting? Give reasons for your answer (include the relevant section(s) of the legislation).

(i)How does voting at a members' meeting take place (include the relevant section(s) of the legislation)?

Question Three

Grace is an entrepreneurial aeronautical engineer who has grown her business into the publicly listed company, Ideas Made Real Ltd (the Company).Grace has recently become the new chairman of the board.The board is composed of eight (8) non-executive directors and Will, the managing director.

Grace has been reviewing some of Will's previous decisions, and has some concerns, assist Grace with the following issues, and in your answers include the relevant section of the legislation.

(a)Explain the meaning of 'material personal interest' and how it affects the voting powers of directors in a public company.

(b)What is the purpose of the 'business judgement rule'? What conduct may exclude a director from relying on the 'business judgement rule'?

(c)One year ago, Will as managing director of the company, entered into a contract with Beyond Jets Pty Ltd (Beyond Jets) to provide them with 30 pilot consoles for $2 million.The order has been manufactured and delivered to Beyond Jets but no payment has been received.

Grace has now discovered that it was very clear at the time the contract was entered into that Beyond Jets was in financial difficulties and was known in the engineering industry to be a bad credit risk. She has also discovered that Will knew this, but wanted to help Beyond Jets trade out of trouble, as Jack, the managing director of Beyond Jets is his cousin.

Beyond Jets is now in liquidation and the Company is still owed $2 million.

(i)Has Will properly fulfilled his duties as a director of the Company?

If not, what duties has he breached and what are the possible consequences of his conduct?

(ii)Has Jack properly fulfilled his duties as a director of Beyond Jets Ltd?If not, what duties has he breached and what are the possible consequences of his conduct?

(d)The board of the Company and the board of Aero Splat Ltd (Aero Splat) have been negotiating a merger of the two companies in strict commercial confidence.Will has told his wife and adult children that they should buy shares in Aero Splat immediately, so they can be sold for a higher price in the merger.Will does not buy any shares himself.

Six months later the merger has occurred and Will's wife and children have made a profit of $50,000 each.

Has Will properly fulfilled his duties as a director of Ideas Made Real Ltd?

If not, what duties has he breached and what are the possible consequences of his conduct?

Question Four

A partner at the firm has asked you to research and provide answers on the following matters:

(a)Bob is a builder who operates his business as a sole trader. He undertook work for Abode Homes Pty Ltd 10 months ago for which he has not been paid the $80,000 he is owed.He has filed an action in court against Abode Homes Pty Ltd but has now been told the company is in receivership.

Explain to Bob what this means and how it may affect his claim for payment.

(b)What is a 'deed of company arrangement'?When does it occur?

Type your answer below

(c)How can consumers or members of the public obtain information about companies under external administration?

(d)Who can make an application for a company to undergo compulsory winding up because of insolvency?What steps must be followed?

Question Five

Rebecca is a very successful jeweller who operates under the label Snazzy Fox. Rebecca is married with three teenage children.Her husband is not currently working but has returned to university to complete his PhD.Rebecca is considering setting up a trust and wants answers to the following questions.

(a)What is the meaning of the term 'dual ownership' in relation to a trust?

(b)What is a 'discretionary' trust?

(c)Explain the 'three certainties' which are needed for a trust to exist.

(d)What would be the most beneficial type of express trust for Rebecca's situation?

(e)Who can be the Trustee of Rebecca's Trust? List the Trustee's duties.