1. What statutory protections exist under the Corporations Act 2001 (Cth) for innocent third parties contracting with the company?
2. With reference to Gambotto v WCP (1995) 182 CLR 432, discuss the principle of fraud on minority.
3. Explain, with case examples, director's duty to avoid conflicts of interest.
4. What are the reasons for undertaking share buy-backs and identify the types of share buybacks permissible under the Corporations Act 2001 (Cth)?
5. Explain main types of external administration of a company.
6. What is the legal effect of the corporate constitution?
1. When it was incorporated in 2005, Dotty Pty Ltd borrowed $100,000 from HelpYu Ltd. The loan was secured by a floating charge over Dotty's plant and equipment. The charge, which complied with all the requirements of the Corporations Act, was registered with ASIC within 45 days of its creation. A year later, in 2006, Dotty Pty Ltd required more funds to expand its business. The managing director of Dotty Pty Ltd borrowed $150,000 from GoGo Bank. The bank agreed to lend the money subject to a fixed charge over Dotty's business assets. Again, the charge was registered with ASIC within the required time. GoGo Bank knew of the floating charge granted to HelpYu Ltd.
(a)In the event of Dotty Pty Ltd defaulting on its loans, which company will have priority to enforce their security, HelpYu Ltd or GoGo Bank?
(b)If GoGo Bank's fixed charge was not registered, which charge would have priority?
(c)If Dotty Pty Ltd goes into liquidation and HelpYu's floating charge was not registered, would it be treated as a secured or unsecured creditor?
2. For many years Looney Mooney Ltd ("LM Ltd") has been producing hot and spicy lollies. These lollies contain a particular chemical which makes the lollies spicy hot. If consumed consistently and over a long period of time, a side effect of these lollies is that a person may develop a speech impediment and may lose co-ordination of brain functions. This side effect was known by some directors of LM Ltd. A group of people, who consumed these lollies in the past and suffered speech and brain damage, are suing LM Ltd. The group also wants to pursue LM Ltd's holding company (Killya Ltd). The group alleges that the directors knew about the side effects of the chemical used in the lollies and were receiving a secret commission from the supplier of the chemical to keep quiet about the potential side-effects of the long-term consumption of the lollies on their customers. Advise Killya Ltd as to the following matters:
(a) As to its potential liability for the side effects of the lollies.
(b) As to whether the directors of LM Ltd, who knew about the side effects of the chemical contained in the lollies, have breached their fiduciary duty.
(c) If the Board of LM Ltd refuses to sue those directors, whether Killya Ltd can direct the board to sue the directors.
3. Rita set up her own coffee shop, 'Coffee Means', after acquiring a loan from Nestpak Bank. Rita's shop is at a prime location in a small shopping centre. It attracts many customers from nearby schools and offices. Rita learns from reliable sources that ‘Tarbux', a big coffee giant, will be opening an outlet in the same shopping centre. She is worried that the opening of ‘Tarbux' will adversely affect her business and may eventually destroy her business. She is also concerned that she would face unlimited liability if her business goes into debt.
Rita wishes to form a company but thinks that her business is too small to be converted to a company. She surfs the Internet about her business options but gets totally confused reading about various forms of companies. She is also not sure how the formation of a company may be advantageous for her business.
Worried, confused and concerned Rita approaches you for advice.
Advise Rita about her options and state which type of company is most suitable for her. In your answer, explain why the formation of a company may be advantageous for her.