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Company & Association Law
This case study need to prepare based on Australian Laws. Cited cases
Examination instructions have been deleted, as they will vary from term to term.
The number of questions will also vary from term to term, and individual questions may include multiple sub-questions.
Sample exam questions will never be used in any other exams, so the following questions are just indicative of the types of questions that may be asked, and are provided for practice.
Question 1 (5 marks)
You are approached by three clients, Allan, Betty and Cheryl, who are partners in a business that produces furniture from traditional hardwoods imported from Malaysia and Indonesia. The business sells the furniture direct to retail outlets. The business has become successful, so they have been considering whether they should incorporate, but they don’t know much about it.
You need to explain to the clients the effect of the corporate shield, and compare corporate and partners’ liability to outsiders, but need not go into the indoor management rules. You should do this by using one case as an illustration. You SHOULD NOT discuss their internal rights and duties amongst each other.
Question 2 (5 marks)
On hearing your advice, the clients decide to go ahead with incorporation. You need to explain to them the powers of directors and shareholders. DO NOT discuss the duties of directors here, since they are dealt with later.
Question 3 (10 marks)
Now you should explain the main duties of directors, drawing contrasts between general law and statutory duties. You should illustrate the duties by reference to cases. Statutory duties should be explained by reference to the words in the statute, not just textbook commentaries. It is NOT REQUIRED to consider insolvent trading here.
Question 4 (5 marks)
You set up the company for the clients and they go away happy. Each of them is appointed director. Allan and Betty each have 40% of the shares, but Cheryl only has 20% because she was only a junior partner and made a smaller capital contribution when the partnership was established. Three years later, they make another appointment to see you. The company has become so successful they are thinking of floating on the stock exchange. They seek a BRIEF SUMMARY of the disclosure requirements for making a large share offer to the public.
Question 5 (5 marks)
You also need to give them a BRIEF SUMMARY of the ongoing disclosure and reporting requirements for public companies.
Question 6 (10 marks)
The company is successfully floated and shares are issued to the public. A year later, Allan and Betty come to see you on their own. They, along with Cheryl, remain as directors of the company. They have evidence that Cheryl has been approaching the company’s established customers, tentatively proposing that she set up a business to import foreign-manufactured furniture and sell it to them much cheaper than the company’s products. Advise on the company’s potential actions against Cheryl and include advice on the appropriate remedy. Your answer should be illustrated by cases.
Question 7 (5 marks)
Allan and Betty also want your advice on whether they can pass a members’ resolution to force Cheryl to sell her shares to them, and what are the restrictions on that. You should elaborate your advice by referring to at least one case. It is sufficient to address the common law/equity on this. (NO NEED to consider s.232 of the Corporations Act 2001.)
Question 8 (5 marks)
A year later, Allan and Betty come to see you again. They are now the only directors of the company, as Cheryl was bought out. One of the company’s major corporate customers has gone into liquidation and left unpaid bills of over $1 million owing to the company. They need advice on what action they can take against the company in liquidation for their unpaid bills and what the process is for dealing with the liquidated company’s outstanding debts.
Question 9 (10 marks)
The company has suppliers’ invoices due at the end of the month, and as a result of the customer’s default, there will be insufficient cash to pay them. Betty has an idea that the company will be able to trade out of its difficulties if it orders a large quantity of ready-made furniture from Indonesia on credit terms and sells it quickly at bargain prices to generate fast cash.
You need to advise Allan and Betty on:-
i. their exposure to personal liability in this situation;
ii. legal steps they can take to try to allow the company to trade out of its difficulties without the directors incurring personal liability.