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Riddle Ltd ( Riddle ) operates a gold mine in Western Australia. It has four members who are Harold ( who holds 3 0 %
Riddle Ltd Riddle operates a gold mine in Western Australia. It has four members
who are Harold who holds of the shares Gary who holds of the shares
Marie who holds of the shares and Johnson who holds of the shares
Marie is the managing director and Gary is the chairman of the company. Harold was
appointed as a nonexecutive director of Riddle as a favour to Marie. However he
has an understanding that he will not be involved in the affairs of the company and
he will rely on Marie to advise him on any relevant issues that he needs to be aware
of Riddle is investigating the possibility of extending the mine beyond its current
footprint after hearing reports that a competing mine, Super Pit mine, is planning a
major expansion.
Accordingly, Riddle commissioned a report from Earthwork, an engineering firm to
assess the viability of extending the operation of its gold mine. The report noted that
the carbon footprint and the electricity needs of this expansion would be massive
and as a result the expansion is not commercially viable. Further, the companys
auditor, Mike, also wrote a report in relation to this matter and he noted that the
company would need more capital to be able to pay for such an expansion.
The directors, encouraged by Marie, decided that the expansion is viable if the
company can raise $ million. Accordingly, they pass a resolution to raise capital by
issuing debentures to financial institutions, friends and other members of the public.
Marie puts an advertisement in Australian Financial Review for interested investors
detailing the rights and obligations that come with the debenture.
Before the outcome of the fundraising becomes known to the company, the directors
pass a resolution to go ahead with the expansion. During the meeting that passed
the resolution, Gary asked Marie to summarise the Earthwork and the auditors
reports because he did not have time to read the reports. He noted that he relied on
Marie to provide him with the information. Marie stated confidently that the expansion
would be a huge success irrespective of the reports and Gary voted in favour of the
decision. Harold was absent from the meeting. The expansion proceeded but it was
unsuccessful and the company, while remaining solvent, suffered a huge financial
loss.
When Johnson discovered this, he becomes dissatisfied with the affairs of the
company. Since Johnson seems to be dissatisfied with how the company is run, the
directors propose to buy his shares at market value. Johnson refuses. As a
consequence, the board of directors calls for a members meeting to change the
companys constitution to allow anyone who has more than of the shares to
expropriate the shares of Johnson. The resolution is passed with a majority of
and the change of the constitution takes effect. As a result, Johnsons shares are
expropriated at market value. However, Johnson believes that the change of the
constitution is invalid and comes to you for advice.
Advise the company, the directors and Johnson about their rights and liabilities. In
your answer consider any remedies that may apply for the different breaches of the
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