Your clients incorporated Speciality Shoes Pty Ltd in 2005. Melanie, Matthew, Jonathon and Patrick are the directors of Speciality Shoes Pty Ltd which manufactures ladies shoes. Melanie is the manager of manufacturing and Patrick is the managing director of the company and has been running the day-to-day operations of the company for the last 6 years.
The company has a constitution with an objects clause and also uses RR’s.
1. Objects Clause ‘Speciality Shoes Pty Ltd can only manufacture ladies shoes.’
2. ‘All contracts over $250,000 require approval and signature of the managing director.’
Whilst Melanie is on a business trip she meets Mary Jones who has invented a machine that could increase productivity by 20%. Melanie is very interested in this machine and asks Mary to give her more details and the price of the machine. Mary gives Melanie detailed information on the capabilities of the machine and says that the price of the machine is $500,000. Furthermore, Mary tells Melanie that this machine can also manufacture men’s shoes with some slight adjustments.
Melanie is very excited about this machine, not only can the productivity of ladies shoes be increased by 20% but the company can now also manufacture men’s shoes. The next day without consulting the managing director (Patrick) Melanie, signs a contract agreeing to buy the machine on behalf of Speciality Shoes Pty Ltd for $500,000.
Patrick believes that Speciality Shoes Pty Ltd cannot afford to buy this new machine for $500,000 at this time and does not want to go ahead with the purchase. Patrick also is aware that Speciality Shoes Pty Ltd has an objects clause stating that the company can only manufacture ladies shoes, therefore manufacturing men’s shoes would be beyond the objects clause.
With reference to the Corporations Act 2001 and case law read the facts carefully and advise:
a) The directors of Speciality Shoes Pty Ltd to the extent (if any) to which they are bound to comply with the company’s constitution (800 words); and
b) Whether Speciality Shoes Pty Ltd will have to honour the contract over as it is over $250,000 that has not been approved and signed by the managing director (1,700 words).