TO BE BASED ON AUSTRALIAN LAW

Mrs Donovan bought shares worth $170 000 in Digi-money Enterprises Pty Ltd when the company was incorporated by her friends John and Jessica Rych. At the time this was equivalent to 10% of the issued shares. John and Jessica Rych took up 35% each and the remaining 20% was were taken up by their son Paterson.

Digi-money Enterprises Pty Ltd was run very profitably for several years. Dividends were regularly paid out of the profits of the company for the first 4 years. In the fifth year, there was a disagreement between Mrs Donovan on the one hand and John and Jessica Rych on the other.

Subsequently, the company paid no dividends. The company however paid hefty salaries, bonuses and directors fees to the Rych family. They retained additional funds in the Retained Earnings account, and did not allow Mrs Donovan to inspect the records of the company. This effectively ensured that the Rych family received a steady income stream, while Mrs Donovan received no funds from the company for the next 3 years.

She has tried to sell her shares but under the constitution of the company, the Rych Family are the only ones she is permitted to sell to, and they offered her $17,000 for her investment.

It is now four years since Mrs Donovan received a dividend from the company, and she has come to seek your advice as to her position. She believes that the company is being run solely to benefit the Rych family and that she has been oppressed by their actions.

REQUIRED:

With reference to relevant sections of the Corporations Act 2001 (Cth) and appropriate case law, use the IRAC legal problem-solving approach to advise Mrs Donovan whether she has any recourse.

Your answer needs to clearly include 5 requirements:

1. ISSUE: Identify the legal issue(s) arising from the facts of the case study
2. RULE: Identify the appropriate legal rules that requires discussion in the case study
3. ANALYSIS: Apply the law to the facts of the case study
4. CONCLUSION: Reach a conclusion/ give practical advice to your client.
5. List appropriate case law used to support your answer.