Totally made-up fact pattern: In 2018, A University formed AU Sharetraders Pty Ltd (hereafter AUS) a proprietary company with liability limited by shares, for the purposes of investing in the share market and making a profit from $10m in excess student tuition. Three staff members at A University, Rahat, Mark and Bob assisted in setting up AUS, helped to negotiate the terms on which AUS got access to the excess tuition from A University, and helped register AUS with ASIC. AUSs registration documents disclosed that it issued 100 shares in total, one each to Mark and Bob for their roles in promoting AUS in addition to their normal (quite significant) staff pay from the University, 51 shares to A University in exchange for the seed capital for AUS (the $10m excess student tuition), 10 shares each to four directors (Rahat, Steven, Lisa and Tom, all heads of departments in A Universitys Business School, and each of which agreed to be listed on the registration documents), and the remaining 7 shares to be held by the company for securing future investment or contributions. AUS appointed an external auditor. AUSs constitution states that it will pay an annual divided each year on the anniversary of its registration, in the amount of 10% of the net profits of the company calculated one week before the end of each year of trading. The constitution also provides that AUS can enter into contracts with the signature of at least one director, and it requires monthly meetings of the directors. In the initial directors meeting, Rahat, Steven, Lisa and Tom elect Rahat managing director, and task him with the duties of running MQUSs day-today operations. Rahat uses some of the seed capital to rent space for a full year at WeWorking Park with rent payable in monthly instalments, to purchase computers, and to hire and retain 100 students from the A University Business School to start trading shares and options on the ASX for AUS. At the second meeting of the directors, Rahat proposes and the directors all vote in favour of establishing a bonus scheme to be paid out every six months for the AUS employees (the share traders), on top of their usual pay. The bonus scheme is designed to encourage the employees to purchase highly risky investments in an attempt to increase AUSs potential return on its investments, and higher return payouts if possible to AUSs shareholders. In the first three month of operation, the investment choices of AUSs employees are wildly successful, doubling its assets, and returning huge profits for the company. On the basis of these profits, AUSs managing director Rahat goes out and secures even more capital ($100m) from a similar excess tuition fund operated by B University in the form of a debenture, with 3% interest per year, payable in monthly instalments. Rahat does this without consulting the other directors and without securing shareholder approval. With the additional capital, AUSs successes grow exponentially for another three months, and AUS pays its employees a first huge six-month bonus. Low and behold, a few months later (9 months after registration with ASIC) disaster strikes and soon every single one of MQUSs high-risk investments tanks, reducing AUSs business value to more than a peppercorn, but not much more. AUS is unable to pay for its super-fancy WeWorking space, to pay its employees, or to pay even the interest on the debenture to B University. Directors Steven and Lisa issue public statements that they did not know about the loan from the B University. A University and the B University deny having excess student tuition funds.

Your Assignment: As the only person in your class not to have accepted an offer of employment with AUS, you first read about these facts in the Australian Financial Review while sitting around with your new start-up venture, Prudence Pty Ltd. Your mates turn to you with the following five questions. While there is no one right answer, there are a few likely next steps, and a few unlikely scenarios given what you know about business law. In 1,000 words or less, explain to your mates: (i) what is likely to happen next, (ii) who is likely to take those steps, (iii) who if anyone is likely to be held liable and why (what legal theories), (iv) what if any defenses are likely to be raised and are they likely to be successful, and (v) what are the likely outcomes for the relevant parties?