THE QUESTION Peter Blake and Donald Thomson are directors of a company called Party-on-the-Run Pty Ltd. The business of the company is to hire out equipment for parties and all types of corporate and social events. Shares in the company are held by Peter (40 ordinary shares), Donald (30 ordinary shares), Peters son, Malcolm (20 shares) and Donalds wife, Alicia (10 shares). The business of the company is managed on the basis of a combination of a constitution and the replaceable rules in the Corporations Act 2001 (Cth). The constitution contains only the clauses below: The business of the company is to provide hiring equipment for parties and all types of corporate and social events. The business of the company will be managed by the board of directors, who has the power to appoint a single director as managing director. Any contract exceeding $5 000 requires prior approval of the company in general meeting. Any shareholder who wishes to sell his/her shares must first offer the shares for sale to other existing shareholders of the company. Only if none of these shareholders are interested in purchasing the shares, may the shares be offered for sale to nonshareholders. Peter and Donald initially decided against appointing one of them as a managing director and up to now, have been quite comfortable making decisions together. Unfortunately, their business relationship has taken a turn for the worse, with Peter wishing to expand their business to include a catering arm and Donald resisting the idea. Peters wife, Lorna, is a wonderful cook and he is convinced that having her in charge of a new catering division of the business will result in even better profits for the company. Donald is satisfied with the business as it is and does not want the company to take on any more than what it is currently doing. He also draws Peters attention to the clause in the constitution describing the business as hiring out party equipment and is convinced that this clause is sufficient to prevent Peter from proceeding with his plans to expand the business of the company. Peter wishes to take the idea to the general meeting of shareholders to decide the issue, but Donald blocks a board resolution to convene a general meeting of shareholders. Peter decides that it might be a better strategy to actually show Donald how successful they could be in catering for events. When he is contacted by one of their regular clients, Tims Tyres Pty Ltd, who wishes to rent party equipment for their end-of-year function, Peter informs them that Party-on-the-Run Pty Ltd could also cater for the end-of-year function, in addition to providing the usual party equipment. Patricia, the receptionist at Tims Tyres who always makes the arrangement for the end of year function, is very happy when Peter tells her that Party-on-the-Run Pty Ltd now provides a one-stop-shop for parties, which will include catering services. Peter indicates to Patricia that the catering will be done at a cost of $7 000. Donald is furious when he hears that Peter offered catering services on behalf of the company. He immediately calls Patricia to tell her that they wont be catering for the event. Patricia refuses to accept this it is too late to try and get another caterer at this stage, and according to her she made a valid agreement with Party-on-the-Run Pty Ltd on behalf of Tims Tyres. The conversation with Patricia does not improve Donalds mood in any way. He immediately fires off an email to Peter to let him know that Party-on-the-Run Pty Ltd is not bound by the agreement made by Peter for a number reasons, including the fact that Peter didnt consult with him about the contract, the fact that catering is not covered by the company constitution, and also the fact that the contract requires prior approval of the general meeting, as it was for more than $10 000. Donald also informs Peter that he (Peter) will be personally liable for any costs associated with catering for the party and that he is not allowed to use any company property to provide the catering services. Peter is upset when he receives Donalds email. He realises that he under-quoted on the catering contract in his eagerness to get this contract and feels a bit concerned about the loss that the company will suffer as a result. The whole debacle causes Peter to realise that his relationship with Donald has deteriorated to such an extent that he no longer wishes to be involved in the business with Donald. He is considering the possibility to have Donald dismissed as a director, or alternatively, to get out of the company himself by resigning as director and selling his shares in the company to his neighbour, Pat. 1 Explain in detail whether Peter could potentially be liable in any way because of the catering contract that he made on behalf of Party-on-the Run Pty Ltd. 2 Explain in detail whether the agreement that Peter made on behalf of Party-on-the Run Pty Ltd, with Tims Tyres to cater for their end-of-year function, is binding on Party-on-the-Run Pty Ltd. 3 Explain in detail whether Peter would be able to have Donald dismissed as a director, or to get out of the company by resigning as a director and selling his shares to his neigbour, Pat, as he is thinking of doing.

use Australian law