ACCG2051 Business and Corporations Law- Prevent Insolvent Trading

ACCG2051 Business and Corporations Law- Prevent Insolvent Trading

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Questions

1. Below is one of the articles that had been placed on iLearn during the session. Read the article and answer the questions following it, using the article to illustrate relevant issues where appropriate.
 
On the basis of the ASIC media report outlined here, you are Required to answer the following questions.

Explain the financial reporting obligations of these companies under the Corporations Act (Cth.) 2001. [5 marks]

What are the consequences of the breach of these obligations? [5 marks]

2. Choose either True (T) or False (F) for each of the following questions – put your answers in the answer space below:

i)If a company has retained the replaceable rules, its directors will have authority as to the issue of dividend. 
 
ii) If a shareholder wants to bring an action under s 236 of the Corporations Act 2001 (Cth) regarding a transaction the company is involved in, the issue of whether the directors have a material personal interest in that transaction is not relevant. 

iii) Among the officers of a company, only the directors of a company owe the duty to prevent insolvent trading as per the provisions of the Corporations Act 2001 (Cth). 

iv) In the ASIC v Adler (2002) 41 ACSR 72 case, Mr Rodney Adler was not the director of HIHC, the HIH subsidiary that advanced the $10 million to Pacific Eagle Equity Pty Ltd (PEE). 
 
v) A company will be directly liable for all crimes committed by its employees. 
 
vi) Once a company is deregistered under the Corporations Act 2001 (Cth.), it can never be reinstated. 

vii) Ordinary shares can be traded on the ASX. 

viii) Proxies cannot be ‘directed’ to give specific instructions on how to vote on the resolution.

ix) Public companies can have a governing director.

x) The Corporations Act 2001 (Cth) prohibits the reduction of share capital. 

3. What do you mean by a ‘company takeover’? What are the interests that the Corporations Act, 2001 (Cth.) seeks to protect by regulating the ‘takeover’ process? What are the fundamental differences between a ‘market-bid’ and ‘off-market-bid’? [10 marks]

4. Computeq Ltd is a listed company incorporated in NSW with an issued capital of $20 million. It is mainly a computer hardware company which produces computer equipment and supplies the parts to globally renowned and branded computer companies.  Mints Ltd holds 40 per cent of the issued capital of Computeq. Miles Ltd holds 35 per cent and the remaining 25 per cent is held by a diverse group of shareholders. All of these shares are ‘ordinary’ shares, holding same rights, privileges, burdens and liabilities to all members. The company is located in North Ryde due to its proximity to the Macquarie University Research Park and the fact that the business advice they received suggested that the area is good for Computeq’s type of business. Other than the directors, there are 56 employees at Computeq.

Very recently Computeq tendered for the construction of a large hardware production plants in Parramatta and is likely to be the successful bidder. It will need an injection of funds to construct the production plant. The directors of Computeq are concerned that Mints Ltd, which also owns a different hardware production plant in Perth, will launch a takeover of Computeq.

At a board meeting, the directors of Computeq resolve to allot a substantial number of shares to Miles in consideration for a promise that Miles will arrange finance for the construction of the Parramatta hardware production plant. The allotment to Miles varies the shareholding power of Computeq such that, after the allotment, Mints Ltd will only command 10 per cent of voting power in Computeq.

On the basis of the facts outlined here, you are Required to:

Advise the directors of Computeq about the possibility of any legal challenge to their actions and describe all possible legal consequences. What laws and procedures may apply in this case? [10 marks]   

5. Pat and Lily are friends and decide to start up a retail nursery business. On advice from their accountant, they incorporate a proprietary company called LilyPat Pty Ltd. The nursery was very successful, and Lily commences serving refreshments in the nursery shop. Pat always resisted the idea of serving refreshments in the nursery because it was not part of their main business plan. He alleges that this refreshment service diverted resources away from the nursery. Lily argued that it enhanced the business by drawing more customers and that potentially the income from the refreshments would outstrip the nursery revenue. Gradually, their differences in opinion have grown, and their relationship has become very difficult. Decisions about the management of the business are difficult to achieve. A deadlock situation is continuing in the company.

You are the adviser of the company, and therefore, Pat and Lily have approached you for advice regarding the future of the company.

On the basis of the facts outlined here, you are Required to:

Suggest ways to keep the company running, if possible. If it is impossible for the company to continue to trade, then what are the options for closing down the company and how will that be done. Your answer should include references to relevant cases (if any) and appropriate provisions of the Corporations Act 2001 (Cth).

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