PART A
Question 1
The board of Alexa Ltd, a large telecommunications company listed on the Australian Stock Exchange, comprises five directors, three of whom are executive directors and two of whom are non-executive directors:
- Edna is the managing director of Alexa. She has been on the board of Alexa Ltd for several years.
- Harvey is a well-qualified accountant and is a chief financial officer at Alexa Ltd. He is one of the executive directors of Alexa Ltd.
- Frank is an executive director of the board who has substantial experience in the telecommunications industry.
- James is a non-executive director who sits on several boards of large publicly listed corporations in addition to the board of Alexa Ltd.
- Alan is a non-executive director who rarely attends board meetings.
The board of Alexa has recently entered into a number of investments, some of which have been losing large sums of money. At a board meeting in February 2015, the board considered the company's in-house financial statements relating to the loss making investments. The financial statements have been negligently prepared and show a profit instead of a loss.
During the board meeting, Harvey failed to draw the errors to the attention of the board, while James failed to ask any questions about the financial statements, and was is absent on this occasion. Due to time constraints, Edna failed to read the financial statements, believing that Harvey would discuss the statements with her if there were any important matters requiring her attention.
The board directors do not identify the mistake and authorise further investment in the loss-making business ventures. By December 2015, Alexa Ltd is insolvent.
Discuss any liability of the directors of Alexa Ltd in relation to these events. What are the consequences, if any, of a breach of the Corporations Act? Refer to relevant legislative provisions and case law in your answer.
Question 2
Glen Brothers and Len Brothers have inherited the Brothersglen Winery from their Great Uncle Fred. Glen and Len have continued to run the winery as a going concern. They share profits equally.
As the years progress, Glen and Len find that they do not have enough working capital to keep the winery going. In addition, Uncle Fred had allowed the winery to become a little run down and large amounts of money need to be spent to restore the winery to its former glory.
Glen and Len are approached by Pierre Vigneron, a well-known French winemaker, who wishes to buy part of the Brothersglen Winery and work there as the chief winemaker.
Len and Glen are delighted as both Pierre's money and expertise are sorely needed at the Brothersglen Winery. Glen and Len visit your office and ask your legal advice as to:
a) what type of business organisation Glen and Len are currently operating; and
b) whether their current business structure is the most suitable vehicle for selling part of the Brothersglen Winery to Pierre or whether they should consider another form of business structure, and, if so, which one?
Question 3
Peter is a director of Leap Research Pty Ltd, an innovative pharmaceutical company. The company's primary business is research into and development of new medications and medical devices. In January 2014, Peter is contacted by an employee of a rival company and asked for information regarding a new drug being developed by Leap Research. He accepts $2000 in cash for each piece of information regarding the new drug and the process to develop it. In fact, to date he has received more than $40,000 for the information. Leap Research has just found out that Peter has been secretly giving the rival company information.
What legal remedies are available to Leap Research Pty Ltd in corporations law? Can Peter be charged with a criminal offence?
Question 4
Life Boost Pty Ltd is a health drink business controlled by various members of the Boost family. The directors of Life Boost are John, Carol and Ken. The company was established to provide for the economic well-being of the Boost family. John and Carol own the majority of the shares in Boost. Together, they own 90% of the shares. Ken owns 10% of the issued shares.
The corporate constitution of Life Boost Pty Ltd allows for the directors to pay a dividend to shareholders at their discretion. Over many years, the company had paid dividends to shareholders. However, the board of Life Boost Pty Ltd resolves not to pay a dividend to the shareholders this year, and instead, to retain earnings to fund the development of several new Boost shops.
At the next board meeting of Life Boost, Ken questions the board's restrictive dividend policy. However, the board of directors refuses to change its dividend policy for the year.
Subsequently, the board proceeds to exclude Ken from the company's decision making process. Ken is not informed about company affairs and he is refused access to the company's financial statements. Ken asks John and Carol, the majority shareholders of Boost, to buy his shares, but they refuse.
What legal action, if any, can Ken take under the Corporations Act?
PART B
Essay Question
Question 5
Disclosure of information is one of the underlying policies of the Corporations Act.
Disclosure is designed to increase investor confidence by ensuring that current and potential shareholders make informed investment decisions.
What are the different contexts in which the Corporations Act promotes timely disclosure of relevant information? Which types of companies are subject to the highest levels of disclosure and why is this so?
Discuss.