THE CLIENT MEETING The client and issues: Metrix Pty Ltd (Metrix) is a large private company established in 1976 by Mario Le Mesurier and Stephen Adam. The two were carpenters and built up the company to be the preeminent home building company in Australia. The company focuses only on building residential homes. They do not build commercial buildings. The company has the following directors and senior officers: Mario Le Mesurier Chairperson Stephen Adam: Managing director Li Ma: Chief Financial Officer Suren Chandra: Construction director Victoria Moser: Design director Joshua Leong: Purchasing director Ali Ahmed: Senior safety and welfare manager Kathy Di Mella: Senior architect Mario, Stephen and Li have asked for the meeting because they have the following issues, they would like advice on.Issue 1: The company since January 2021 has been losing money on housing contracts due to the increase in building materials, the labour shortage and the nature of the contracts with customers. Currently to complete 58 housing contracts the company would make a loss of $3,653,000 in total. The reason for this was that these contracts were xed price contracts and did not envisage the impact of COVID on supplies and labour. The nancial statements prepared by Li show that this would result in the company for the year ended 30 June 2022 making a trading loss of $1 1 ,200,000. Other factors attributing to the estimated loss are rental costs, operating expenses and the cost of funding the construction of a new head ofce building in Mitcham. The company currently has retained earnings as at 1 July 2021 of $15,864,372 and after the estimated trading losses of $1 1,200,000 for 30 June 2022, this would leave Metrix with accumulated prots of $4,664,372. Metrix is also facing pressure from its contractors to pay them for their materials and services. The outstanding creditors are $18,328,789. Some are secured over the new head ofce, building supplies but many are unsecured. The shareholders funds of Metrix consist of: Authorised share capital (ordinary) $12,000,000 A class preference shareholders $8,000,000 Retained earnings $4,664,372 Total shareholders funds of the Metrix as at 30 June 2022: $24,664,372 The directors are mindful of the need to retain funds for working capital and estimate the company needs working capital of at least $6,500,000. Issues they seek advice on: 1. Is there a prot at law from which the directors of Matrix can pay a dividend if they wish to do so? The board of directors of Metrix has had a history in the past of paying dividends each year of approximately 15% of the retained earnings of the company at the end of the year. 2. If they do decide to pay a dividend of 15% of retained earnings, would you recommend it or not? Issue 1: Answer all the questions raised identifying the issues raised from your understanding of the facts, apply the relevant law (case law and legislation) to the issue and come to a conclusion. Your response must be supported by case law or legislation. Your conclusion in respect of each query raised by the client. Issue 2: The company has its own constitution (previously called the memorandum and articles of association). in the constitution it stated that the A class preference shareholders were entitled to a dividend of 6.5% each year. The directors would like to reduce this rate to 2.25% given the current nancial position of the company and propose replacing the existing rule with a new rule reducing the dividend to 2.25%. Issue they seek advice on: 1. Can the A class preference shareholders prevent the company from changing rule in the constitution to reduce the dividend rate? Issue 3: On a building site, one of the plumbers fell off the roof and severely injured herself. An investigation by Work Safe Victoria found that Metrix had not ensured that adequate scaffolding had been erected on site to prevent such an accident. Ali as the senior safety and welfare manager was responsible for ensuring the safety of the workers. He stated that he had delegated this responsibility to the supervisor on site and that it was that person's responsibility. Issue they seek advice on: 1. Is the company liable or is Ali and the supervisor personally liable for the injury to the plumber? Issue 4: Because of the shortage of supply of timber and other building materials, Joshua the purchasing director found it difficult to source the materials at a reasonable price. He managed to find one supplier Sandalwood Pty Ltd who was prepared to provide Metrix with the building materials at a reasonable price. To "thank" the director of Sandalwood Pty Ltd, Joshua signed a contract to transfer a block of land owned by Metrix to the director of Sandalwood Pty Ltd at no cost. Joshua signed the contract and also forged the signature of Victoria on the contract. Kathy Di Mella, the senior architect is nervous about the financial viability of Metrix and therefore her employment. She has always harboured ambitions of running her own architectural practice. During the year Victoria inadvertently left her computer on and Kathy downloaded the client list of Metrix. She established a new company called Melldik Services Pty Ltd to provide architectural services and contacted the clients from the lost she downloaded. One of Metrix's clients advised Mario that Kathy's company had contacted them. Issue they seek advice on: 1. Is the contract valid and is Metrix liable to transfer the land to the director of Sandalwood Pty Ltd. 2. Can Metrix take action against Joshua? 3. Can the directors remove Joshua? 4. Can Metrix take any action against Kathy?Issue 5: Li has indicated to the board of directors that the company is fast running out of funds to survive and complete the housing contracts. Given the downturn in the financial markets around the world, construction companies in particular are suffering from severe cash burn at the moment. Li has indicated that Metrix only has sufficient cash at bank to fund 3 months of operations. Mario, Stephen and Li are looking at various funding options and are considering: 1. Continue trading and incurring further debt in the hope of riding out the financial storm. 2. A rights issue 3. Private placement to Paradise Merchant Bank Lid, see below The current shareholders of the company are: Employees: 5% (15 staff) Mario: 12.5% Stephen: 12.5%Li: 2.5% Tiger Investments Ltd 40% (an investment bank based in Malaysia,) Paradise Merchant Bank Ltd: 27.5% (a venture capitalist) based in Melbourne. There are 12,000,000 shares currently on issue. The current market price is $1.50 which represents a decrease of 30% since the beginning of the year. The valuation was prepared by your employer. Megan advised the directors in the meeting that the price of a rights issue should be at a 30% discount to current market price. The rights issues should be in the following ratio: 1:3 (for every 3 ordinary shares owned 1 new share can be acquired under the rights issue. When Tiger Investment Ltd and Paradise Merchant Bank Ltd acquired their interest in the company the share price was $12.45 per share. Li estimates the company will need $15,000,000 within three months. Mario, Stephen and Li have no spare cash to invest in the company and would be happy to reduce their holdings. Issue they seek advice on: 1. What are the consequences if the company continues trading after the three months are up? 2. How much could Metrix raise by way of the rights issue assuming all the shareholders take up their entitlement? 3. What are the risks to them given the current economic and lack of condence in the construction industry and nancial markets turmoil? 4. What is a private placement and does the company need to issue any documents for this