Title: Individual Assignment (50%) Purpose: 1. To demonstrate your knowledge of the relevant law as it applies to the regulatory framework, different types of companies, and the company's relations with outsiders, including its role as a corporate citizen, directors' duties, ethics and liabilities, and statutory remedies. 2. To apply your legal knowledge of the Corporations Act 2001 (Cth), related legislation and relevant case law to complex factual situations in order to identify relevant legal issues and achieve a reasoned defensible conclusion through written communication using your analytical, synthesising and evaluative skills. 3. To assess your capacity to effectively apply Australia's First Peoples' perspectives to contemporary business contexts. Learning Outcomes Assessed: 1.1, 1.2, 1.3, 2.1. Length or Duration: 2,000 words maximum (excluding any footnotes and Appendices, and 10% leeway on the word limit). Group or Individual: Individual Optional or Compulsory: Compulsory Due Date/Time: The final paper must be submitted electronically through the Assignment portal on the course website by 3pm on 27 September 2024. You must also ensure that your assignment conforms to academic standards of referencing. (For this assignment, AGLC or Oxford/Cambridge are preferable to APA, which is not well suited to legal writing and research). In addition, your assignment must, of course, be consistent with the University's policies on plagiarism. Assessable content: Topic 1 - Types of Companies; Topic 3 - Internal and External Relationships; Topic 4 - Members, Variation of Members' Rights, Dividends, Meetings; Topics 5-7: Directors, Directors' and Officers' Duties; Topic 8 - Remedies.

Task Instructions This assignment involves a research question which requires you to investigate, synthesise, analyse and evaluate the ways in which Indigenous corporations can be subject to wealth transfers between key stakeholders or stakeholder groups. A key difference between Indigenous corporations and non-Indigenous corporations is that Indigenous corporations, while they have net assets, do not issue shares. As a result, Indigenous community members are typically 'members', but not 'shareholders', of the Indigenous corporation. The next section to this assignment summarises the relevant theory and empirical evidence from the finance, economics and accounting literature in relation to wealth transfers within companies. Part of your task is to understand the concepts in this review of the literature and apply them to the scenario set out below (under 'Practical Application Question') in relation to one key stakeholder who wishes to exercise control over the Indigenous corporation's assets and operations. Background: Wealth and Risk Transfers within Companies In Finance, Accounting and Economic theory, you will study- if you haven't already -the idea that it is not unusual for there to be a 'separation between ownership and control' in firms or companies. There are at least three main groups of stakeholders in a company: shareholders or members (eg. large institutional shareholders and small 'Mum and Dad' shareholders); management (including upper management and the Board), who guide the strategic direction of the company; and creditors (including often large, secured creditors and smaller, unsecured creditors such as suppliers). While shareholders (members) own the equity in the company, they normally appoint management (including Boards of Directors) to act on their behalf - and it is normally management who negotiate loan contracts with secured creditors, and other contracts with unsecured creditors. Thus, management are the agents of members or shareholders - hence the term 'agency theory' in Finance, Accounting and Economics Shareholders or members 'own' the firm's equity; creditors have financial claims (eg. they can sue in court for the debts owed them by the company);1 and upper management typically has, or strives for, 'control' of the company. Each group of stakeholders has an incentive to act in its own interests, rather than the interest of the other stakeholders. In terms of risk/return, this means that each stakeholder group has an incentive to earn a return commensurate with the risk it bears. For example, shareholders (members) have an incentive to maximise their wealth2 by maximising (economic) profits, dividends and/or capital gains for a level of risk with which they are comfortable. Remember that, if under s. 556 of the Corporations Act, the risk of equity is higher than the risk of debt (because debt is paid off before equity if the firm is ever wound up), shareholders or members quite justifiably demand a higher rate of return on equity than creditors demand on debt. Remember too that the incentive to maximise equity value is not necessarily consistent with an incentive to maximise firm value.3 Management has an 1 Consistent with the layout of a firm's balance sheet, the market value of the firm's assets can be attributed to the market value of the equity that finances their acquisition, and the market value of the debt that (ultimately) evidences the creditors' claims on those assets. 2 For the purposes of this discussion, wealth is defined as the value of current net cash flows accruing to each stakeholder group, as well as the value of future net cash flows expected to accrue to that stakeholder group. 3 If you are a Finance student, think about this. If equity is viewed as a call option granted by creditors over the company's assets and the exercise price of that option is the face value of outstanding debt, the market value

incentive to 'feather its own nest' - for example, in the form of seeking higher salaries or perq's such as the latest luxury company car (with executive carpark), a plush office with executive bathroom, or gym and caf facilities for management. Creditors have an incentive to maximize their returns on the loans or credit they provide the company, again at the level of risk with which they are comfortable. Just as members and creditors have incentives to monitor management to ensure that management does not 'feather its nest' too much at the expense of members or creditors, managers have an incentive to 'bond' themselves to shareholders by accepting shares or share options as part of their salary packages, and similarly to bond themselves to major creditors (eg. by taking individual managers of those banks or credit providers to expensive lunches, the corporate box at the football or cricket, as so on).4 Related to this idea is a debate that you will eventually investigate if you study Finance, about whether firms have an optimal capital structure - for example, whether firms (including companies) have an optimal combination of debt and equity, or classes of debt and classes of equity. If financial capital markets were strictly perfect (eg. there were no taxes; no transactions costs such as bankruptcy costs or agency costs; and no asymmetric information, so that everyone had equal, complete and costless access all relevant information), a firm's market value would be unaffected by its capital structure. This is the basis of the original so-called Modigliani-Miller theorem. But while the way in which a firm's assets are financed may be "irrelevant" to the firm's market value in perfect, informationally efficient markets (Modigliani and Miller 1958), in the real world these choices can and do affect firm value differently, precisely because there are several market imperfections (Myers and Majluf 1984).5 For example, information asymmetries between the different stakeholder groups give rise to what auditors call 'expectation gaps' (eg. if what seems to be an appropriate loan at the time turns out to be highly risky and excessive debt because the lending bank did not fully appreciate the true level of investment risk when it approved the loan to the company). In addition, many stakeholders (and people) short-sighted, often because they figure that in the long run, they won't be with the company anyway. These expectation gaps and this short-sightedness involve obvious risks, which some stakeholders can and do manipulate to their advantage by transferring risk (and therefore potential wealth) from themselves to other stakeholders or stakeholder groups. If expectation gaps (risks) become bad (high) enough, they can ultimately increase the likelihood that the firm will become insolvent, giving rise to what Finance scholars call 'costs of financial distress' (and what the Americans call 'bankruptcy' costs). of equity will be positively correlated with the variability of the earnings. If the variability of the firm's earnings falls, so too cet.par. does the value of equity. Shareholders protect themselves from potential loss by seeking to ensure that any investments with highly variable earnings are financed in the short run primarily by debt, thereby cet. par. transferring risk to creditors (or expropriating wealth from them). In the short run, shareholder-managers are more inclined to 'go for broke' when they have nothing to lose (since, after all, if the project fails, the company goes into liquidation, and it is often the creditors, not the shareholders, who ultimately pay most for the risky investment). In this way, some shareholders have incentive to borrow to acquire risky assets because, if they are successful, the shareholders reap most of the benefits (returns) of investing in assets with highly volatile (risky) expected cash flows. On the other hand, if the project is unsuccessful, shareholders with limited or no liability (in the case of mining and gas companies) avoid most of the insolvency costs insofar as their losses are limited to the paid-up capital on their shares (Jensen and Meckling 1976). It is precisely because shareholders have limited downside risk but unlimited upside potential that equity can be viewed as a call option in terms of financial economics theory. 4 Past a certain point, the incentive of each stakeholder class to monitor and bond with the others dissipates, because the marginal costs of continuing to monitor and bond simply exceed the marginal benefits (at this point, in agency theory, there is said to be a 'residual loss' which is reflected in firm value). Agency costs, which are the sum of monitoring and bonding costs and residual loss, explain how debt can cause some shareholder-managers to take on projects that are too risky and to pass up other less but still profitable investments. They can also explain why debtholders and shareholders may disagree on the decision to liquidate the firm (see below). 5 Tax is an obvious market imperfection, but one that is unlikely to go away.

In the short run, each key stakeholder or stakeholder group faces an incentive to do things that cet. par.6 transfer risks onto others and expropriate wealth to themselves and away from others (Copeland, Weston and Shastri, 2005). For example, those shareholder-managers7 who wish to exercise control over a firm cet. par. have face incentives in the short run to: maximise their own voting rights (and those of 'friendly' members) and minimise the voting rights of 'unfriendly' members, perhaps in exchange for rights to increased dividends; make themselves appear indispensable to the company's success, empire- building in the process. In this way, some shareholder-managers entrench their positions in the company, making firm activity inseparable (at least in the short run) from their personal skills and human capital. For example, if they purport to know more than others about what the company needs, shareholder-managers can convince the Board and creditors to invest in 'assets' (eg. construct buildings that expand capacity) which seem a good idea in the short run, but in the long run prove (to the surprise of creditors, minority shareholders and even some on the Board) to be of only marginal value or even of negative (net present) value. This surprise is the expectation gap, and investing in projects which turn out to be overly risky involves what finance scholars call risk-shifting or asset substitution, which acts in favour of majority shareholders but against the interests of the creditors and minority (eg. 'Mum and Dad') shareholders (Jensen and Meckling 1976, Galai and Masulis 1976, Jensen 1986, Stultz 1990); and 'funnel' company cash or assets to themselves for personal gain, through approved but excessive executive remuneration, or company guarantees of their personal loans. In these cases, the risk transferred is cet. par. the likely loss of wealth to minority (eg. 'Mum and Dad') shareholders, the value of whose equity is reduced. Shareholder-managers may even have incentive, if they departure from the company is imminent or pending, to 'funnel' future business to themselves by, for example, acting as external consultants or advisors to the company. If the company is facing the possibility of defaulting on its loans or the likelihood of insolvency, key shareholders and shareholder-managers may face incentives cet. par. in the short run to: under-invest. Because they face only limited liability, key shareholders may find it more profitable cet. par. to stop using their own money (stop investing any more of their equity) and simply pay out any available cash as dividends. Any large, unexpected dividend payouts to shareholders cet. par. reduce the value of creditors' claims against the company's assets. In this way, any projects are funded more by debt than equity. The likelihood of risk-shifting between shareholders and creditors increases with the likelihood of loan defaults (eg. if loan repayments increase unexpectedly and too much for the company to pay);8 Repurchase voting shares in the company to gain control over its strategic direction - this may cet. par. represent a risk to creditors' wealth (eg. if key shareholders and shareholder-managers then vote in a way which erodes the value of creditors' claims; 6 Ceteris paribus (cet. par.) is Latin for 'other things being equal.' In financial economics, it indicates the effect that one economic variable has on another, provided all other variables remain unchanged. 7 Shareholder-managers are managers who have company shares or share options as part of their remuneration packages. 8 There is no underinvestment problem if the firm's level of debt is completely serviceable and there are no unexpected events (Myers 1977).

dilutive claims - if there are synergies between company assets (so the company has more value if all assets are kept together rather than sold or valued separately9), any action by key shareholders and shareholder-managers to borrow from new lenders and grant them mortgage rights over 'crown jewel' (core) assets which are not subject to existing mortgages, cet. par. could dilute the value of the original lenders' claims and, in effect, expropriate a portion of their wealth.10 maximize the dividend payout to shareholders to the point of (almost, but not quite) asset-stripping the company. This may also involve selling non-core assets and distributing the sale proceeds to shareholders as dividends. In the long run, of course, creditors 'wise up' to these techniques and, unless manager- shareholders are assumed to know more about future claims than creditors (and they often do, because they are corporate 'insiders'), creditors will correctly anticipate the probability that their wealth might be expropriated and the loss in debt value that will result. They will either not lend for excessively risky investments, insist on loan covenants (clauses in their loan agreements) which protect their 'priority' mortgagee rights, ensure that management must comply with key accounting (liquidity, debt-equity and solvency) ratios, restrict dividend payouts, or insist - in the context of private companies and trusts - on directors' personal guarantees (cf. Asquith and Kim 1982, Dennis and McConnell 1986). Factual Scenario: An Indigenous Corporation The Wallumbudjera Aboriginal Corporation ("Wallumbudjera Corporation") is a medium- sized unlisted Aboriginal and Torres Strait Islander corporation (a type of public company) regulated under The Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (the CATSI Act). According to sociological and archaeological evidence, the Wallumbudjera people and their ancestors have continuously lived in the same area of remote north-west Queensland for at least 10,000 years, acknowledging their own customary laws and observing their traditions customs and connexion with the land. All members of the Wallumbudjera community automatically become members of the Wallumbudjera Corporation on their fifteenth birthday, as evidenced by their dates of birth in the State's Register of Birth, Deaths and Marriages or formal attestation by a community Elder. Under cl. 2 of the corporation's Rule Book (its company constitution), the Wallumbudjera Corporation's objectives are to provide services to the communities and lands within traditional Wallumbudjera country to: (a) promote the maintenance of language, culture and traditional practices; (b) to promote the sustainable use of traditional lands; (c) to promote community development and welfare through education, employment, business opportunities, economic independence, housing, health, communications and other services; (d) to maintain and manage an investment trust fund known as "The Wallumbudjera Aboriginal Corporation Trust", used to pursue the Indigenous community's ESG (Environmental, Social, and Governance) goals in a manner consistent with the requirements of the Income Tax Assessment Acts 1936 and 1997; and 9 That is, there is value in keeping the company together, rather than selling each of its assets separately. 10 This is why many lenders insist on "me-first" clauses in their corporate loan agreements, so that current lenders have legally enforceable seniority over any future debt claims (Fama and Miller, 1972). If there are no synergies between company assets, pure claim dilution does not affect total firm value.

(e) to, in all its activities, promote the common good and mutual benefit of local traditional Indigenous community members through fair, equitable and representative action and enterprise. Under cl. 3 of the corporation's Rule Book, in order to be eligible to become members of Wallumbudjera Corporation, people "must: (a) Be aged 18 years or more; and (b) Be an Aboriginal person who is normally and permanently resident in Wallumbudjera lands and communities serviced by the corporation, and recognised by the Wallumbudjera community as such." In recent years, the economic and financial prospects of the Wallumbudjera Corporation and its members have soared to new, hitherto unexpected heights. A native title application is pending and likely to succeed, and there is high overseas demand for local Indigenous artwork, music, and cultural items, which Wallumbudjera Corporation is currently in the process of commercialising. The company's strategy is to channel all accumulated profits into local Indigenous education and preservation of local culture. Within the next 5-7 years, the value of the Corporation's net assets are anticipated to be worth some $500 million. Magnus Magnuson is a millionaire corporate raider who claims Aboriginal heritage from Tasmania, and has a letter from Great Aunty Milly, an elder of Tasmania's Indigenous Falawa peoples, stating that he is a Tasmanian Aboriginal man. Since writing the letter, Great Aunty Milly has sadly passed away and, strangely, no one in the Tasmanian Indigenous community knows anything of Magnus' links with their people. A number of Magnus' recent corporate ventures have fallen victim to Magnus' ego and greed, and have proven financially disastrous. Attracted by the prospect of a new source of wealth to keep him in the style to which he has become accustomed, Magnus is seeking to acquire control of the Wallumbudjera Aboriginal Corporation in order to divert much of its substantial income and financial assets to his own commercial enterprises for his own benefit. Five years ago, Magnus was accepted as a member of the Wallumbudjera Corporation and, six months ago, was elected to serve as one of its directors. Magnus has made no secret of his lofty ambitions for Wallumbudjera Aboriginal Corporation and for increasing the wealth of its community members. Dakala is a proud Wallumbudjera man who, at 40 years of age, is now an Elder and also serves as one of the three directors of Wallumbudjera Corporation. Both he and his family have lived on Wallumbudjera country for as long as anyone can remember, and Dakala thoroughly embraces his people's laws and observes their traditional customs. Dakala wants to preserve the traditional ways of his local community, and fears that these will be lost if Wallumbudjera Corporation is effectively 'taken over' by someone like Magnus Magnuson, whom he views as a selfish 'outsider' with no links to Wallumbudjera culture or country. Practical Application Questions: Answer the following questions, stating explicitly any assumptions you make in your advice, noting that any assumptions must be consistent with the questions asked. Format your advice for each group of stakeholders (Dakala and his fellow community members, and Magnus and any people associated with his financial interests) using the ILAC methodology of 'Issue, Law, Application of law and Conclusion'. (a) Although Wallumbudjera Corporation has members, directors, officers, a constitution, general meetings and directors' meetings, as an Indigenous corporation it does not have shares as such: see eg. Note to s. 689-1 of the CATSI Act (Cth), and the Overview of CATSI Act in Part 1-2, Division 6 of the Act. The equity in the company

is simply accumulated profit reserves and retained earnings. If he cannot acquire shares in the Wallumbudjera Corporation, how else could Magnus Magnuson and his associated financial interests seek to seek to channel resources from Wallumbudjera Corporation to their own financial interests (ie. divert Corporation wealth to themselves)? (20 marks) (b) Assuming Magnus Magnuson and his associated financial interests obtain control of Wallumbudjera Corporation and are able to transfer wealth to themselves, could any asset or dividend stripping involve a breach of directors' or officers' duties? Why? What remedies could be available to members? (10 marks) (c) Using the mechanisms of Australian company law, how might Dakala and other Wallumbudjera community members seek to prevent Magnus Magnuson from expropriating the wealth of other Wallumbudjera Corporation stakeholders? (20 marks)

Can you please give me this one exact answer