MACQUARIE Wy SEAT NUMBER: ROOM. UNIVERSITY FAMILY NAME. This question paper must be returned. Candidates are not permitted to remove OTHER NAMES, any part of it from the examination room. STUDENT NUMBER........... SESSION 1 FORMAL EXAMINATIONS — JUNE/JULY 2014 EXAMINATION DETAILS: Unit Cod é BUSL301 | Unit Nam Duration of exam (incl. reading time if applicable): Total no. of questions: Corporations Law Two hours (2) plus 10 | There are 2 Parts |. Part A has 2 questions; : Part B has 10 multiple-choice questions _ incl this cover | g Total no. of pages sheet) INSTRUCTIONS: 1. All Parts are compulsory. 2. This exam is worth 60% (60 marks) of your overall assessment. 3. Part A is worth 40 marks and is comprised of 2 questions. Question 1 is worth 30 marks and Question 2 is worth 10 marks. All questions in Part A must be answered within (and must not exceed) the separate 6 page answer booklet. 4. Part B is worth 20 marks and is comprised of 10 multiple-choice questions worth 2 marks each. It must be answered on the Answer Sheet provided. 5. Writing must be legible, answers clearly set out and your details entered as required. For Part A answers must be written in pen (ink), not pencil. For Part B see the instructions on the multiple- choice Answer Sheet. MATERIALS PERMITTED: None This is a ‘closed book’ examination - the following are not permitted: Dictionaries, calculators, books, notes, electronic or written aids of any kind, —_—————————— Candidates are required to obey all instructions provided by the Final Examination Supervisor and must refrain from communicating in any way with another student once they have entered the inal examination venue. ‘= Candidates may not write or mark the exam materiais in any way during reading time. ‘+ Candidates may only access authorised materials during this examination. A list of authorised material is available on this cover sheet. If tis alleged you have breached these rues at any fme during the examinaton, the matter may be repored to the University Discipine Commitee {or determination,PARTA [This Part is worth 40 marks — there are 2 questions in tl is Part] QUESTION 1 [30 marks] Ace Design Pty Ltd was formed in 2009. Its main business is the supply and installation of garden sculptures and water features. It was formed as the result of 2 similar businesses joining forces. One of the businesses, ‘Landscape Ace’ was run by Alex and Bevan, and the other, ‘Garden Design’ was run by Chris, David and Ben. All had experience in garden design and landscaping. For the purposes of start-up capital the company issued 20,000 shares at $2 each. Alex, Bevan, Chris, and David took up 3500 shares each, and Ben took 6000. At the company's first meeting Alex and Bevan were elected directors. Now, in 2014, Ace Design is a successful company with a good reputation in garden landscaping. Alex and Bevan (who are still directors), and Chris and David, have become quite wealthy as a result of the business however Ben has had various personal setbacks and is in financial difficulty. Although the company has not paid dividends for the last 5 years Ben puts a proposal to the board that a dividend be paid. Neither Alex nor Bevan are in favour of the payment of a dividend and reject Ben's request. When the company was formed Chris, David and Ben were very good friends but Chris and David have recently had a falling out with Ben and let it be known that they are of the same opinion as the directors and also do not support the payment of a dividend Ben is surprised to find that Alex and Bevan have decided to issue 300 new shares in the company to ‘each of Chris and David's spouses. Ben tells the directors that he is against the share issue. ‘Ace Design uses products supplied by Nicola Pty Limited (‘Nicola’). Alex and Bevan are in fact shareholders in another landscape supplier, 24 Pty Limited (‘24’), and they, together with Chris and David, want to make 24 the supplier to Ace Design. To achieve this goal, the directors rescind the contract with Nicola and enter an agreement for 24 to supply landscaping products to Ace Design. (i) Discuss whether the directors have breached their duties, the remedies or penalties applicable. How can Chris and David help Alex and Bevan in relation to the conduct outlined above. Your answer should include reference to relevant cases and sections. [15 marks - do not exceed 2 pages] (i) Discuss Ben's position as a shareholder. What are his rights and what orders can he seek. Your answer should include reference to relevant cases and sections and particularly relate to the relevance of any breaches of duty by directors. [15 marks - do not exceed 2 pages] QUESTION 2 [10 marks] Lala Ltd (‘Lala’), an unlisted public company, has 6% of the shares in Shush Ltd (‘Shush’). Shush is @ listed company that has been growing rapidly over the last 2 years. In January 2013 Lala increases its stake in Shush to 16%. Lala has engaged the services of an investment banker, Laura, to advise it on share market acquisitions during 2013 and 2014. Lala’s board has instructed Laura that it has limited cash resources and that any acquisitions would need to be at least partially funded by the company’s (Lala's) own equityOne evening after work in June 2013 Laura is with friends Elise and Lauren at a city bar and tells them that Lala has just asked her to develop a proposal for it to further increase its stake in Shush. About a week later Elise buys $15,000 worth of shares in Shush. In August 2013 the board of Lala decides to go ahead with its plan to increase its stake in Shush from 16% to 27%. News of Lala's plan is released to the market and the next day Shush's share price rises by 15%. Elise sells her Shush shares immediately. (i) Discuss the possible ramifications (consequences) of the conduct of Laura and Elise referred to in paragraphs 2 and 3 of the question [5 marks] (ii) Explain how Lala can achi @ its goal of a 27% stake in Shush [5 marks] PARTB [This Part is worth 20 marks - Chose one questions worth 2 marks each] ternative for each question- there are 10 multiple-choice 4. Which one of the following is false regarding a receiver: A. Areceiver is subject to the duties set out in s.183. B. Receivers have a duty regarding the sale of secured assets under s.420A Corporations Act C. Receivers can enter into possession and take control of company property but can't borrow money ‘on the security of such property D. The legal personality of a company is not affected by the appointment of a privately appointed receiver 2. Which one of the following is correct A. The votes necessary to register a first ‘strike’ in relation to the '2 strikes rule’ are the same as would be required to pass a special resolution. B. The rationale behing the '2 strikes rule’ is that if two 25% votes arose at consecutive AGM's then by the second AGM the shareholders have enough in total for an ordinary resolution to remove the directors C. The percentage of votes necessary to record a first ‘strike’ in relation to the ‘2 strikes rule’ is the same as the threshold at which acquisition is prohibited under s 606 Corporations Act D. None of A, B or C are true. 3. Ms Audrey Hellicat the chair of Carbol Liquor Ltd (‘Carbol’) has been widely regarded as responsible for a steep rise in the company's share price over the last five years. However she was not re-elected as a director, being removed on May 12” 2014 at the company's AGM. Pressure Cooker Ltd (‘Pressure Cooker’), which holds 42 per cent of Carbol shares, opposed Ms Hellicat’s re-election. The director of Pressure Cooker, Clinton Dodger, released a press statement saying Hellicat failed to give adequate ‘support to an earlier attempt by Pressure Cooker to sell its stake in Carbol. Which one of the following is true in relation to the above facts:‘As chair Ms Hellicat would have a casting vote and will be able to successfully appeal the result of the vote There is a mistake in the facts as it is not possible for a shareholder with 42% of the shares of the ‘company to remove a director Ms Hellicat’s removal from the board could yet be reversed if 75% of the remaining board members voted in her favour If all of the other shareholders in the company except Pressure Cooker would have voted to re-elect Ms Hellicat she would have remained a director. 90 7 > Questions 4 and 5 relate to the following facts: Collette is a director of Eurovision Pty Ltd, a party hire company that has retained the replaceable rules. While she is shopping on a Saturday morning in Surry Hills she sees rental premises that she thinks will be perfect for Eurovision. She contacts the lessor of the premises and expresses her interest in leasing them for Eurovision. The lessor says that there is another interested company who is also in the party hire business and that if she wants the premises she must act immediately. The lessor informs Collette that the lease must be for an initial period of 2 years. Collette feels she is being rushed but agrees and accordingly signs the lease on behalf of Eurovision before she has been able to raise the matter at the directors meeting, 4. If Eurovision can't actually afford to enter the lease, and Collette wishes to defend an action brought in relation to a breach of her statutory duty, which of the following is false: ‘A. She could seek to rely on the Business Judgment Rule in relation to any action brought against her under s.180 (1) of the Corporations Act B. She would hope that her defence would not have the same result as the defence of Rodney Adler to the action brought against him under s.180 (1) in ASIC v Adler [2002] NSWSC 171 C. If itis found by the court hearing the matter that Collette did not act in good faith she therefore could rot benefit from the Business Judgment Rule D. She could use the Business Judgment Rule as a defence if an action was brought against her for a breach of s.181 of the Corporations Act. 5. For this question only, presume these further facts: Just before Collette signs the lease the lessor makes an offer to her that if she agrees on behalf of Eurovision to a 2 year rental period and does not attempt to negotiate then he will give her a Tiffany diamond bracelet worth $10,000. Collette takes the bracelet and tells no one. Which one of the following is false: Collette could go to jail and be fined Collette could go to jail or be fined but could not be subject to both because Schedule 3 of the Corporations Act does not provide for both fines and imprisonment in relation to the same offence, If Collette is found to have breached s.183 and s. 184 of the Corporations Act she could be disqualified under s.206C ASIC could begin criminal proceedings against Collette even though a civil penalty order has been made against her. 9 9 D> 6. Which one of the following is false: ‘A. Ifa person is appointed as the liquidator of a company that person will be the agent of the company. B. Section 5886 Corporations Act concems the situation where a director incurs a debt and at the time there are reasonable grounds for suspecting that the company is insolvent. C. Service of a statutory demand on a company is accomplished by posting the statutory demand to the registered office of the companyD. Where a resolution is passed at a general meeting the shareholders who voted in favour of the resolution are referred to as a ‘quorum’ 7. Which one of the following is true: A. Directors cannot delegate tasks to others B. A director is, but the company secretary is not, an officer pursuant to s.9 of the Corporations Act. . Areason for the existence of the Business Judgment Rule is to encourage risk-taking by directors. D. Shareholders can be given notice of an extraordinary general meeting at any time prior to the meeting. 8, Owo Records produced some of India’s greatest musicians. Its Australian outlet, Owo Records Australia Pty Ltd has recently been placed into administration. The administrators told creditors that the company had been insolvent for about 3 months before directors appointed an administrator. Speaking at the final meeting of creditors owed $4.2 million the administrator said the company was insolvent from at least 20" February 2014. The meeting voted to wind up Owo Records. Having regard to these facts which one of the following is false: A. An assumption that could be drawn from the extract is that from 20” February Owvo Records could not pay its debts as they fell due. B. At the meeting referred to in the extract the creditors could have decided not to wind up Owo Records but rather they could have voted to enter a Deed of Company Arrangement C, Because Owo Records went into administration prior to being wound up none of its creditors could enforce their claims until the meeting referred to in the extract. D. As Owo Records went into administration prior to being wound up some of its creditors could have already enforced their claims. 9. Which one of the following is false: ‘Only secured creditors will have rights in a liquidation Section 95A Corporations Act sets out when a person is solvent Administrators must be registered liquidators Section 588H provides a defence to insolvent trading where a director had reasonable grounds to expect solvency. gOp> 10. Which one of the following sections of the Corporations Act is the least relevant to a breach of the duty of care and diligence by a director: A. Section 206C B. Section 180 C. Section 184 D. Section 9.