Company Law Assignment -
KELLY'S FARM
Al Gorey owned a profitable farm growing organic fruits and vegetables. He was proud of the fact that customers bought his produce because they knew he did not use pesticides. He wanted to give up the reins of the business to his children. To achieve that objective, he arranged for a new company called Fresh Pty Ltd ("Fresh") to be set up to purchase his business and the land which it occupied.
On 3rd May 2017, Fresh was incorporated and its constitution is a combination of all the replaceable rules and the following provisions:
"Clause 1 - The sole object of the company is to carry on organic farming.
Clause 2 - Al Gorey shall be director and Chairperson for life.
Clause 3 - Tipper Gorey shall be employed as a Farm Consultant until 2025 at a salary of $50,000 per annum."
The company issued 10 shares each to Tipper and Bud (Al's wife and son) and 80 shares to Kelly (Al's daughter). Kelly was going to appear in all the advertising for Fresh promoting the benefits of buying organic fruits and vegetables. In the ad, she would attribute her glowing skin and bountiful energy to her diet of fruits and vegetables. However as she did not like being involved in management, she declined the position of director. In the application for registration, the directors were listed as Al, Tipper and Bud. Tipper was appointed as Managing Director and Al was appointed the Chairperson of the Board.
On 5th May 2017, Fresh entered into a contract with Al to purchase the business and the land at an overvalue of $700,000. Tipper signed the contract as Managing Director.
On the basis of the above, answer all of the following parts giving full reasons for your answer and referring to relevant cases and statutory provisions. Restrict your discussion to topics covered in Lectures 1-8 as listed in the Lecture and Tutorial Programme. Marks will not be given for discussion of issues outside these topics.
Part A. Advice to Al
Al is unhappy about the following events:
(i) On 10th August 2017, Kelly requested the Board for an extraordinary general meeting, which was refused. Without giving any notice to Al and Tipper, Kelly conducted a General Meeting on 20th August 2017, which was attended by Bud and herself. She named herself Chairperson and proposed and declared that three resolutions were passed at the meeting. Bud did not vote on any of the proposals. The first resolution deleted Clause 2 from Fresh's constitution, and the second dismissed both Al and Tipper as directors. The third resolution appointed Kelly to the Board of Directors. Advise Al and Tipper on their dismissals.
(ii) Also, as Managing Director she sought legal advice as to the propriety of the 5th May contract to purchase Al's business and land. Tipper argued with Kelly and said that the family should not begrudge Al from receiving extra money as he had worked hard all his life for his family. Kelly told Tipper that if she did not keep quiet she will get the lawyers to sue her as well. Advise Al of any liability he may have incurred. (Do NOT discuss Tipper's liability)
Part B. Advice to Kelly
Kelly seeks your advice on the following matters:
(i) On 2nd April 2017, Kelly was asked by Al to purchase some computers for a new company that he planned to incorporate. She negotiated a contract with Office works. She had signed the contract "for and on behalf of Fresh Pty Ltd". After the company was incorporated, it made no payment to Office works despite the computers being delivered. Kelly is worried that Office works will sue her.
(ii) On 23rd August 2017, Kelly held a Board meeting which was also attended by Bud. At that meeting, Bud agreed to Kelly being the Chair. Kelly then dismissed Tipper from her post as consultant despite Bud voting against the proposal. Tipper wants to sue for compensation.
(iii) Bud wishes to give 1 share in Fresh to Jennifer, his longtime girlfriend. However Kelly refuses to register the transfer as she dislikes people who live together without being married. Advise Bud on any action that may be taken to have the share registered in Jennifer's name.
(iv) Kelly plans to hold another extra-ordinary general meeting to amend Fresh's Constitution to enable "any owner of more than 79% of the shares in the company to compulsorily acquire the shares of other members". Discuss whether she will be successful.
(v) Fresh tendered for a contract to supply fruits and vegetables to a leading restaurant. However Fresh lost the tender to a company called Jenny's Produce Pty Ltd. On checking ASIC's database, she finds out that the shareholders are Jennifer and Bud and that Bud is listed as the sole director of the company. She wishes to recover compensation from Jenny's Produce for the lost contract.
(vi) Kelly wants to expand the business and issued more shares only to herself and her friends. The register shows that she now owned another 80 shares and that her close friend Bob owned 40 shares. Discuss whether the issue of these extra shares can be challenged.
(vii) As Bob is a famous chef, Kelly plans to run a Restaurant on the premises which she believes will be more lucrative than merely farming. Advise Kelly on whether she needs to delete Clause 1 of the Constitution.
Attachment:- Assignment File.rar