Question:
Please answer properly.
Seminar Problem Set
Topic: Directors duties and the regulation of corporate governance
NB As for most of the problem sets, the set questions this week relate to the companies described in the case-studies set out in [26-001]-[26-080] of CACL (see pages 565-569 of the 2016 edition). For some of the questions you need to be familiar with the information on those pages in order to answer the questions.
1. The failed investment in JV Mine is having a negative impact on GML's financial position. Although Blue Mine Pty Ltd is currently less profitable than it has been in the past, it still has some cash reserves available. To smooth over the current difficulties at GML, Blue Mine makes an unsecured loan of $5,000,000 to GML. Have the directors of Blue Mine breached their duty to exercise their powers and discharge their duties in the interests of Blue Mine? Would your answer be different if Blue Mine's constitution included a provision reflecting s187 of the Corporations Act?
- Adapted from CACL Problem Set 7 [26-400]: Question 2
- Reading: See particularly [13-120], s181 and s187 of the Corporations Act and Equiticorp Finance Ltd (in liq) v Bank of New Zealand
2. XYZ Ltd buys an additional 17.5 million shares in GML, thus increasing its stake in GML to 16%. XYZ's major shareholder, Mr Wu, is also elected to the board of GML at a general meeting. Mr Addis and Mr East become concerned that XYZ Limited may be planning to purchase more shares in GML and that they might end up frozen out of the business they started. For some time, Mr East has been in discussion with another mining industry figure about a highly prospective gold field near GML's mine in the mid-north of Western Australia. East suggests to Addis that GML issue 10,000,000 shares to this person as a means of creating ties with GML that might help it to secure access to the field in the future. Addis and East bring the proposal to the GML board. Mr Xu is furious as he sees it as a ploy to further entrench their control of the company, by putting shares in the hands of a person who is likely to support Addis and East in the future. If the share issue goes ahead, have the directors breached their duty to exercise their powers for a proper purpose?
- Adapted from CACL Problem Set 7 [26-400]: Question 3
- Reading: See particularly [13-200] and s181 of the Corporations Act.
3. For many years, FWPL has had a transport and logistics contract with a company called BigTrucks. That contract is due for renegotiation. Peter O'Donnell, who is a director of FWPL, owns RiverTrans Pty Ltd. He would like RiverTrans to tender for FWPL's transport and logistics business. Advise Peter and the FWPL board on what is required when a company controlled by a director of a proprietary company enters into a contract with that proprietary company.
- CACL Problem Set 7 [26-400]: Question 4
- Reading: See particularly [14-140], [14-200] and [14-320] and ss191 and 194 of the Corporations Act
- NB Although you are not required to write about this before the class, if we get time, in class we will also discuss how the requirements would differ if FWPL was a public company rather than a proprietary company.
4. Pia Galli attends a wine industry conference at which she meets an agricultural scientist who is working on a process to extract value from the waste products of winemaking. The scientist is very keen to enter into a joint venture with a significant wine producer to test and hopefully commercialise the technology. At Pia's suggestion, the scientist prepares a proposal and presents it to the board of FWPL. FWPL is impressed by the technology and the opportunity it presents for the business, but because of the significant investment it is making in the organic vineyard at Robinvale, is not in a position to take it up. After the meeting, Pia phones the scientist and says that she would like to invest her own money in the project. Pia does not tell her fellow FWPL directors of her decision. Is Pia allowed to make the investment?
- CACL Problem Set 7 [26-400]: Question 5
- Reading: See particularly See [14-160] and [14-360], s182 of the Corporations Act and Regal (Hastings) Ltd v Gulliver.