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Do not answer these questions on this question paper. It is vital that you practice
writing out answers by hand in preparation for the final exam. Your tutor will be
checking your work so please ensure that your hand written answers are written in
essay style (no dot points) or IRAC method (where appropriate) on separate A4 lined
paper. Please attempt to use your own words when answering so that your tutor can
gauge your understanding of the law.
It is only possible to cover a limited number of questions in each tutorial. The questions
are intended to reflect major principles where possible, but in some weeks it has been
necessary, due to limited space, to omit questions on important issues.
References to CA are to the Corporations Act 2001 as amended to January 2013.

Explain in your own words the following:
In Australia, the Corporations Act is Commonwealth legislation and yet the Commonwealth
Government does not have the constitutional power to enact this law.
What do the acronyms ASIC and the ASX mean and what roles do they play in company
Relda Insurance Ltd has received an application from Yendor Pty Ltd to take out an
insurance policy covering the motor vehicles driven by the employees of Yendor Pty Ltd.
Using the CA and cases, explain whether a company has the legal capacity to:
own assets (such as motor vehicles);
enter into a contract (such as an insurance policy);
employ people.

Premium Plumbing Pty Ltd (Premium) required further capital for expansion and
borrowed $200,000 from Eastpac Bank Ltd (Eastpac). After a time, an unforeseeable
misfortune occurred causing Premium to suffer a large loss. It immediately advised
Eastpac and stopped trading. Premium is unable to meet the repayments due on its bank
loan and has few assets. Eastpac is considering ways to recover its money.
Would Eastpac Bank Ltd be successful in enforcing its claim against?
the directors,
the shareholders, or
the employees
of Premium Plumbing Pty Ltd?
[Quote sections and cases to support your opinion]
For many years Ali has been the chief chemist with the Pop-a-Pill Drug Company Ltd. His
employment contract in clause 33 requires that in the event of Ali leaving his employment, he
will not work in competition with the Pop-a-Pill Drug Company Ltd for 1 year. Ali
registered an Australian company [Gee Chemicals Pty Ltd] and when he resigned from Popa-Pill he immediately became the managing director of Gee Chemicals.
Pop-a-Pill claims Ali is in breach of contract. Ali says that Gee Chemicals is in competition
with Pop-a-Pill Drug, but he personally is not. Later, Gee Chemicals Pty Ltd is found to be
selling drugs in breach of the law. Ali claims that he is only an employee and that it is the
company that has broken the law, not he.
[A detailed discussion of contract law or criminal law is not required here]

Digger has a new mining venture and he plans to register a company. There are already 40
investors prepared to invest $10,000 each. To commence exploration $500,000 will be
needed and Digger will contribute $300,000 with the remaining $200,000 made up of $5,000
from each of the other 40 investors. The company must obtain a further $500,000 after one
year to complete the geological surveys and register the mining claim with the Government.
At that time Digger will put in a further $300,000 and the company will need the remaining
$200,000 from the other investors.
Digger wants to have sole management control of the company and keep the companys
affairs private and confidential. He also knows that after the claims have been lodged next
year, the growth of the company will require the number of members to at least double.
Diggers accountant has advised him that the company most suited for his needs is a no
liability company. Do you agree with this advice? Are there other company alternatives that
could meet Diggers requirements?
Monty and Mary are the only directors and shareholders of Contrary Pty Ltd. Mary holds
60% of the shares and Monty has 40%. Mary decides she would like to convert the company
to On-side Ltd.
Advice Mary over the following matters:
She hopes that the new company wont have to pay the debts of Contrary Pty Ltd.

She requires your guidance on the steps necessary to effect the conversion she


She wants to know at least five differences in the principal characteristics of the
two types of companies.


Can a proprietary company be registered as large or small? Explain.


What are the advantages of small proprietary companies?

Ben has decided he will register a company to grow grapes and produce wine. He instructs
his solicitor to draft a constitution for the proposed company. Whilst waiting for the solicitor
to complete the work and before the company is registered, Ben meets a landowner who is
prepared to lease suitable land to the proposed company. Ben has to act quickly to secure the
land and so he signs a 20 year lease on behalf of the proposed company.
The company is later registered and at the first directors meeting the ratification of Bens
lease is considered. Another director offers different land which is of a superior quality for
growing grapes.


How does corporate law classify the role undertaken by Ben role leading up to the
registration of the company? What are the duties that such a person owes and to whom
are they owed? Is the solicitor classified the same as Ben?


What is the effect on Ben and on the company if the directors decide not to ratify
Bens lease.

Wizard Pty Ltd does not have a constitution.
Mr Henry Potter owns 1000 shares in the company and attends a meeting of members. The
chairperson of the meeting is Wendy Wizard. Henry challenges Wendys right to be the
chairperson of the members meeting and claims that the members should be able to appoint
anyone they chose. Wendy rejects Harrys claim.
Henry claims that the members will remove the directors but Wendy asserts that the members
do not have such a power.
Determine who is correct on each of these matters.
[Clue: Commence by Examining s141 to ascertain the appropriate rule]
Shareholders of Stones Ltd have been selling parts of their shareholdings, thus increasing the
total number of members. The company has no constitution. The managing director, Mick is
unhappy about this trend as the cost of maintaining the share register and sending materials
to members is increasing. He wishes to implement a rule to give the directors power to
control the transfer of shares so that they can restrict the number of members.
Advise Mick if he can successfully achieve his aim.
[Note: Transfer is the term used to describe the sale or purchase of a share from one
shareholder to another.]
Julie has been a shareholder in Indahouse Pty Ltd for some years and is upset to receive a
letter from the company instructing her to transfer all of her 200 shares to Bob Marley. Julie
makes inquiries and discovers that Bob Marley is a close friend of the Indahouse chairperson
Al Gee. She also learns that the companys constitution contains a rule that provides the
chairperson of the company may, as they see fit, order any member to transfer their shares to
any person at a fair market price.
Jimmy, another shareholder, discovers that as the company requires more funds the directors
plan to issue a parcel of shares to a single investor without the members being able to
Julie does not wish to sell her shares. Is she bound to observe the order she has received?
Are the directors correct in issuing the shares, as they plan?

Spears Ltd has a constitution that does not repeal any of the replaceable rules of the CA
but does provide for two additional matters:
(i) an objects clause provides that the companys activities are restricted to the
recording and publishing of music.
(ii) another clause provides: Jackson White is to be the company's Senior Music
Producer at a salary of $200,000 pa.
The directors of Spears Ltd have decided to ignore the constitution and to carry out the
following actions:

to execute a contract with Little Brother Pty Ltd for the release of films on DVD
to insert into the companys constitution a clause so that each member will have to
purchase an additional 1,000 shares at $3,000 to pay for the new business venture;
to appoint Britney Lance as Senior Music Producer.

(a) Spears Ltd loses money under its agreement with Little Brother Pty Ltd and refuses to
pay it a sum owing, arguing that it has no legal capacity to release films and that
Little Brother legally would have known about its limitations from the Spears Ltd
Advise Little Brother Pty Ltd.
(b) Can the directors amend the constitution? What is the proper process? If the
amendment is correctly passed, would the members have to pay for the additional
(c) Jackson White writes to Spears Ltd demanding his job back but is told he has no
contract. He buys some shares in Spears Ltd and writes again, this time claiming he
has a contract.
Advise Spears Ltd.
[Note: You do not have to consider whether the directors have breached their duties
when answering this question.]

Rainbow Ltd is a company that manufactures and sells house paint. Bill Berger is the
Sales Manager responsible for a team of sales representatives.
Last week one of the sales representatives was visiting a hardware store when they
telephoned Bill to ask if Rainbow Ltd would pay the cost of taking the owner of the store
to lunch. Bill gave his approval.
Later that afternoon another sales representative telephoned Bill to advise that he had
learnt of a new chemical process that would reduce the cost of manufacturing paint. Bill
discussed this development with Wally Wattyl, Rainbow Ltds Managing Director. Wally
told Bill to check the process out and if he considered it suitable for the company he
should buy it. Bill purchased the chemical process on behalf of Rainbow Ltd.
The following week Wally went on holiday and the directors asked Bill to look after
anything important that may arise in Wallys absence. Bill signed a lease for a new
factory whilst Wally was away.
The Board of Directors consider the above transactions.

They advise that the company will not pay the restaurant invoice for the lunch
as it is company policy that only the Managing Director can approve
entertainment expenses and Bill had no authority.


The chemical process hardly reduces the cost of paint and Bill had no
authority to purchase it.


The company will not comply with the factory lease as it is of a value that
requires Board approval and in any event, Bill had no authority to sign it,
being only the Sales Manger.


Briefly describe the ways in which a company is able to contract with outsiders.


Separately analyse items (i) to (iii) above, describing for each the type of authority (if
any) that Bill may have had and whether the company would be bound by each

Tipsy Ltd is an importer and distributor of French wines. The Managing Director is Marie
and the Company Secretary is Pierre. The company has no constitution and the Board of
Directors exercise tight control over the company. The Board has implemented an instruction
that their approval is required for any purchase of wine in excess of $50,000.
During the last month the following three transactions and developments occurred:

(a) Marie signed a contract to purchase $55,000 of wine. The other directors do not like the
wine and refuse to accept it on the grounds that Marie lacked authority by breaching the
purchasing limit set by the Board.
(b) Pierre, in France on holiday, visits one of Tipsy Ltds suppliers. He tastes and likes a new
wine and signs a contract for Tipsy Ltd to purchase the wine for $10,000. The board of
directors wishes to rescind the contract on the grounds that Pierre had no authority to sign
the contract.
(c) The senior executives of Tipsy Ltd were absent at a management seminar and Renee, the
companys Office Manager, was left to mind the whole office, including the sales
department. When Smashed, a liquor store chain, phoned to place an order, Renee
negotiated a price and sold some wine. Edith, the companys Sales Manager, had planned
to sell that same wine to another customer at a higher price. Tipsy Ltd advises Smashed
that they will not supply the wine as Renee lacked authority.
Analysis each transaction, advising on Tipsy Ltds contractual obligations, if any.
[NOTE: Your answers should include a description of the type of authority (if any) for each
transaction and include sections of the Corporations Act and cases where appropriate.]

Expansion Ltd wishes to raise $11 million from the issue of shares. It does not want to
prepare a prospectus. What are its alternatives?
What effect does section 710 CA have over the content of a prospectus?
What is meant by the defence of due diligence in publishing a disclosure document?
Stuff Up Ltd prepared a prospectus to raise funds for an exciting new venture. Several
days after lodging the prospectus with ASIC in compliance with the Corporations Act, the
directors of Stuff Up Ltd discuss at a Board meeting some information that the Managing
Director believes should have been included in the prospectus.
Discuss the obligations of the company to lodge the prospectus with ASIC, why
lodgement is required and what the directors should do if the information is deemed
material enough to be included in the prospectus.

(a) What are the differences between cumulative preference share dividend rights and
interest payable on debentures?
(b) What are redeemable preference shares and from what source can they be redeemed?
(c) Equality Ltd has issued 5 million class A shares with 2 votes per share and 1 million
class B shares with 3 votes per share. The company has no constitution. At a general
meeting, all members vote and by a majority of 10 million votes to 3 million votes, a
resolution that all shares are to have the same voting rights, is passed. Rupert owns
some class B shares and seeks your advice.
(a) Explain the Doctrine of Capital Maintenance.
(b) Briefly outline the company processes necessary to undertake the following:

Ralph holds 100,000 shares in Rich Ltd and the company wishes to buyback 1,000 of these at $5.00 per share.
Each member of Poor Ltd holds 15,000 shares. The company plans to
offer to buy-back 10,000 shares from each member.
Massive Ltd is listed on the Australian Stock Exchange and has decided to
buy-back 8% of its issued shares through the stock exchange.
Cashedup Ltd issued shares for $1.00 but only called them up to 80 cents.
The company no longer believes it will require the uncalled 20 cents per
share and wishes to write it off.


What is the difference between?
(a) a managing director and a chair
(b) a nominee director and an alternate director
Research the case of ASIC v Rich and explain what the judgement stated about the role of a
chair in a listed public company?
At a members meeting of Construction Ltd the shareholders passed 2 resolutions, each with
a 90% majority. The first was that the company should invest its excess cash in the Hong
Kong stock market and the second was to create a constitution with a clause stating that the
companys activities are to be restricted to real estate development and investments.
At their next monthly board meeting the directors voted not to invest in the Hong Kong stock
market. They also decided that the members had no right to create a constitution and restrict
the companys activities, so they would also ignore the second resolution.
Are the directors legally required to observe both resolutions of the members in general


For a company director to satisfy their duty of good faith to their company each action
taken must result in profit to the company and they must only consider the interests of the
company and must ignore those of any other party.
Do you agree with this viewpoint?
The directors of Final Ltd have been monitoring for some time the declining sales and
profitability of the company. They decide the company should change to a new product range
which is predicted to be more profitable. These new products will require an increase in
capital to set up a new factory and the directors make a large share issue to Mick Deadwood
to obtain the necessary funds.
Lee Lion is a shareholder in Final Ltd. He is unhappy that his shareholding, which
represented 26% of the issued shares, has now been diluted to 20% after the share issue to
Mick Deadwood. He claims that the directors have issued the shares with the intention to
dilute his shareholding so that he will not be able to block alterations to the companys
constitution. The directors reject Lees claim asserting that they only care about the
companys best interests. Lee is considering whether a court would find the share issue
Describe the directors duty that is relevant to these facts. Include cases in your answer and
discuss from the facts above those matters that the court would consider important in
reaching its decision.
Bananas Pty Ltd manufactures pyjamas and has a successful export business and
worldwide recognition for the quality of its products. Benita One is the companys nonexecutive Chairperson and Bob Two is the Managing Director. Ted Big is the Marketing
Director of the company.
Benita has a material importing business and sells her products to Bananas Pty Ltd from
which they manufacture their pyjamas. Bob has queried whether this is appropriate but
Benita assures him that she is entitled to retain any profit because the prices she charges
are fair and competitive. Further, that as the companys constitution makes no mention of
this whole subject matter she is not prevented from conducting such transactions.
Ted Big arranges for his partner Jemima to register a company named TJ Pty Ltd and the
company commences to manufacture and sell dressing gowns. Business prospers.
Bananas Pty Ltd expands its activities to cover the full range of sleepwear products but
finds it difficult to succeed with its dressing gowns as its customers around the world

have agreements with TJ Pty Ltd. A company search at ASIC reveals Jemima as the sole
director and shareholder of TJ Pty Ltd. Her home address in the ASIC records leads
Bananas Ltd back to Ted and he is confronted with this discovery.
Ted contends that he has done nothing wrong as Jemima is entitled to do what she
wishes, that TJ Pty Ltd is separate from him, that there was no intention to cause
detriment to Bananas Pty Ltd as it was not trading in dressing gowns at the time when TJ
Pty Ltd commenced business.

Explain whether you agree with Benitas assessment that she is entitled to retain
the profits she has made.


Advise Bananas Pty Ltd whether it would succeed in any action against Ted Big.

QUESTION ONE (this question follows on from last weeks topic)
The directors of Exotica Luggage Ltd are holding their monthly board meeting. In addition to
reviewing the companys monthly financial statements, the directors are to consider two
other matters. The directors of Exotica Luggage Ltd are Louis Viewtown, Priscilla Prada and
Jordan Charles.
The first is a contract with Emu Leather Pty Ltd for the annual supply of emu leather suitable
to be made into handbags. Emu Leather Pty Ltd has a single shareholder Percy Prada, a son
of Priscilla.
The second matter is for the company to employ Camilla Charles to act as a personal
assistant to Jordan Charles (her husband) for 2 afternoons per week. Camilla will be paid
$A200 per week for her services.

The Emu Leather Pty Ltd Contract

Applying the provisions of the Corporations Act, advise Priscilla and the other
directors of Exotica Luggage Ltd of the procedures they should follow when
considering the emu leather contract at the directors meeting.


The Camilla Charles Contract

Applying the provisions of the Corporations Act, advise Jordan Charles and the other
directors of Exotica Luggage Ltd of the procedures they should follow when
considering the employment of Camilla Charles at the directors meeting.



The directors of Brazil Coffee Ltd are to hold their monthly board meeting next week. There
are 3 directors: Ronald Oh, his brother Robert Oh and Carlos Pele. Ronald Oh has informed
the other directors that he will not be able to attend the meeting as he will be representing the
company at a rugby tournament in Hong Kong, which is sponsored by Brazil Coffee Ltd.
At the board meeting Robert Oh and Carlos Pele decide that the company will enter into its
biggest ever contract - a $1 million purchase of coffee beans. The transport insurance
premium is so high that it is decided the coffee beans will be shipped from Africa to Australia
uninsured. Ronald is advised of these developments upon his return.
The coffee bean supplier was paid $500,000 as an initial payment with the remainder payable
within 6 months of delivery. The ship carrying the coffee beans sinks and an examination of
the contract reveals that ownership of the goods passed to Brazil Coffee Ltd when the ship
was loaded and that insurance was the responsibility of the purchaser. The coffee bean
supplier has demanded the remaining $500,000.
Brazil Coffee Ltd is unable to pay its debts and a liquidator is appointed. The liquidator is
considering whether he should cause Brazil Coffee Ltd to sue its past directors to contribute
to the payment of the debt. He is contemplating whether Ronald has responsibility even
though he did not attend the directors meeting; that such a large purchase contract should not
have been approved by the board; and, that the shipment should have been insured.
With respect to the above facts, discuss:
(a) Directors duty of care and diligence [Include in your answer, any defences available
to the directors];
(b) Whether in your opinion the directors have permitted the company to trade when
insolvent [include in your answer, details about the offence of insolvent trading and
the defences available].



Describe the legal significance of both a share certificate and an entry in a companys
share register. Do share certificates have to be issued for all shareholdings?


How does a transfer of shares differ from a transmission of shares?

Five years ago, Jumbo Pty Ltd borrowed $1million from Aus Bank. Aus Bank secured the
loan by taking a non-circulating security interest over the motor vehicles and machinery and
a circulating security interest over all the inventory and debtors of Jumbo Pty Ltd. Maggie, a
director of Jumbo Pty Ltd, advised Aus Bank that she will register the interests on the PPS
Register. Maggie, by mistake, registers the circulating security interest but overlooks the
registration of the non-circulating security interest.
Two years ago, Jumbo needed extra funds to expand its business. It borrowed $500,000 from
New Bank, secured by a circulating security interest over all its assets. New Bank registered
the circulating security interest on the PPL Register. Jumbo has now become insolvent.
Advise whether Aus Bank or New Bank has a right to Jumbos assets.

What is a dividend and in what circumstances may a dividend be paid?


The members of Revolution Ltd are dissatisfied with rule 15 of the companys constitution
which gives the directors the power to issue shares to any person as they see fit. The
members wish to amend this clause so that the directors must offer any new shares to them
The directors refuse to hold a general meeting to consider the amendment.

Are the directors entitled to refuse to hold the general meeting?

Describe the alternative methods provided in the Corporations Act for the members to
place this matter before a members meeting for consideration.

Hiphop Pty Ltd (a company without a constitution) distributes music CDs. Its directors
are Spike Hip and Chelsea Hop. Its members are Spike, Chelsea and Fred Flop.
One day Fred hears some exciting new music and inquires into its source. He discovers
that the music producer was Rage Records, an organisation that usually used Hiphop Pty
Ltd to distribute its music. However, these CDs had been distributed by a company
called SC Pty Ltd. Fred searches company records at ASIC and finds SC Pty Ltd has
Spike Hip and Chelsea Hop as its directors.
Fred writes to Hiphop challenging the directors over their conflict of interest, claiming
that they should give the company the profits SC Pty Ltd has made from their diversion
of Hiphops business. Spike and Chelsea call a general meeting of Hiphop Pty Ltd and at
the general meeting have the votes to successfully pass a resolution approving their
actions, authorising them to continue to divert Hiphops business as they see fit and to
retain any profits therefrom.
Advise Fred on the validity of the resolution passed at the general meeting and whether
there is anything a minority shareholder can do.
Under the proper plaintiff rule the members of a company can sue the directors for
breach of duty so the statutory derivative action of the CA is unnecessary.
Do you agree with this viewpoint? Explain the statutory derivative action as provided in
the CA.