LAW2485 GROUP ASSIGNMENT - SEMESTER 2 2020

GENERAL INSTRUCTIONS:
1. The due date is before 5 pm Saigon time on 26 August 2020 . Please note
that an assignment submitted later than the deadline will receive a penalty.

2. On the assignment cover sheet, you must identify your name(s), a student
ID(s), a lecturer name(s), and the time of your tutorial (e.g., Friday 11.30
tutorial).

3. Electronically submit the assignment through Turnitin on Canvas.

4. The assignment must also contain appropriate referencing in the form of

footnotes and bibliography in conformity with normal scholarly standards. The
bibliography must include all materials that you have cited.

5. You must use the IRAC.

6. The word limit is 2500+/- 20%. The word limit should exclude footnotes and
bibliography. Do not exceed the word limit. If you exceed the word limit, your
lecturer will stop reading at the word limit and mark your assignment
incomplete.

7. See the marking rubric on Canvas for more information for each grade band.
QUESTION
ABC Ltd (‘ABC’) is owned by members of the wealthy Smith family. It operates a successful
chain of hotels in Adelaide and Perth. The company has four directors – Susan, Ben, Proctor,
and Scott. Susan, Ben, and Proctor are executive directors, while Scott is non-executive with
a degree and extensive experience in hotel management. In recent years the company has
been looking for opportunities to expand its business. Susan, the managing director, is
approached by Dickson, the former classmate and now the managing director of Glamour
Ltd, which has a stable of celebrity speakers with the proposal that the ABC’s hotels be used
for regular public readings, lectures and celebrity events involving its speakers. Susan
suggests that she will convey his proposal to the board of ABC. Dickson promises $50,000 in
commissions if Susan manages to persuade the board.

In July 2019, the board of directors convenes a meeting. Susan prepared a report to the board
recommending that ABC enters in a contract with Glamour. At the meeting, Susan does not
disclose personal connection and information about the commission to the board. However,
despite her persistence, the board of directors is unenthusiastic on the grounds that it might
disrupt business. The proposal is not canvassed further in the company, and she tells Dickson
that ABC will not be involved but that she will personally organise for other hotels in
Adelaide and Perth to offer a regular program with Glamour and, if successful, a national
program through her interstate contacts. Unbeknownst to the board of ABC, Susan forms a
joint venture company with Glamour—Celebs Pty Ltd (‘Celebs’) and the venture proves a
great financial success. Celebs is a hotel management company.

Some decades ago, ABC acquired a substantial rural land in Adelaide’s west. In October
2019, the board of directors enters into discussions with a major property development and
construction company – Build Pty Ltd (‘Build’) managed by Westley. Westley proposes to
erect a modern multi-storey building on the land and dispose of the space in it by selling or
letting professional suites, residential units, shops, and offices. At the board meeting in
October 2019, Ben and Proctor propose to accept the offer from Westley. Susan tells Ben and
Proctor that she intends to keep the land for building hotels in the nearest future since ABC
has been looking for opportunities to expand its business. Ben and Proctor, without the
authority of the board, enter into the arrangement with Westley under which they would
personally take a percentage of profits to be realised by the sale of completed residential and
shopping centre units. When Susan finds out, disagreements arise between three directors –
Susan, Ben, and Proctor. Angrily, Susan tells the board of directors that she intends to make
an offer to sell the land to Celebs without further delay. Ben and Proctor reject Susan’s offer
calling it outrageous. Two weeks later, Celebs acquires the land from ABC for $20 million.

It is estimated that the gains ultimately accruing to ABC from the land sale amount to a much
greater sum than that offered and paid by Celebs. Susan failed to account for the company for
sums of money received as the result of the sale of the land. Moreover, she transferred some
of the amounts to her private bank to support her lavish lifestyle. It was later revealed that
Celebs paid $500,000 to Susan to influence her decision-making in ABC to resolve the sale
with the outcome achieved for Celebs. The land is now worth $30 million.

Evidence reveals that Ben and Proctor purchased a freehold property that included a boarding
house and restaurant business on their name by using ABC funds. Their business was funded
by ABC by way of interest-free and unsecured loans to the directors. These loans followed
earlier correspondence between Ben, Proctor, and Scott, and were made with their
knowledge. Some of the amounts were later utilised in part in the purchase of various venture
capital unlisted investments for Ben and Proctor. However, the business collapsed, and it is
unlikely that the loans will be repaid.

Scott did not attend any of the board meetings. He is 55 years old and enjoys life to the
fullest. He never felt under any obligation to make any inquiries and inform himself about all
aspects of the company business. He often travels and invites Ben and Proctor to play golf in
his luxurious resort-style mansion. Evidence suggests that when Ben and Proctor informed
Scott about purchasing the freehold property with ABC’s funds, Scott joked by saying ‘that is
why people manage companies, right?’

As a result of the above transactions, ABC is facing financial troubles struggling to pay its
creditors. However, it is not insolvent.

REQUIRED: Advise ASIC and ABC Ltd if the directors breached their duties.
Refer to relevant Australian law. (40 marks)