BAA215 Business and Corporate Law
Assessment task 2: Case Study number 2
This case study is worth 20 per cent of the marks for this unit.
Your report in answer to the questions in the case study is due to be submitted no later than 11.55pm on Thursday 5 December 2019.
Morgase Bronze Products Pty. Ltd. (MBP) was incorporated in Tasmania in 1989 and at that time it adopted the statutory Table A as its Articles of Association. In 2001 when the Corporations Act 2001 (Cth) was introduced, MBP elected to adopt the Replaceable Rules as its internal administration constitution.
Today in 2019, the company has business in all parts of Australia and its latest financial report shows assets of $23M and turnover of $15M. It has 65 employees of whom 12 are also shareholders in the company. The Share Register shows that there are 65 shareholders 34 of whom hold “A” class ordinary shares and the others hold non-cumulative, convertible preference shares – the date for conversion into “A” class ordinary shares is 1st July 2020.
A search of the Register reveals that the company has given a debenture and fixed charge for $10M to Generous Bank Ltd to secure its current overdraft and long-term borrowings from the Bank. In addition, it has given a circulating security interest over its stock, plant and equipment in favour of Suppliers Ltd for $3.5M.
The company’s board of directors comprises –
Anthony Eager, an aeronautical engineer aged 69;
Jessica Morgase, a member of the family which has a controlling interest in the company, aged 21;
Ben Innocent, an elected employee representative aged 45;
Gwen Jupps, an accountant aged 56;
Imre Thomas, a lawyer aged 32;
Jo Beamish, the Managing Director, aged 52.
The company secretary is Petula Smith who is aged 34. She lives in Launceston but is absent from Australia on frequent occasions when she is travelling with a concert party, of which she is the principal violinist. The company believes that it is important that it contributes to society and for this purpose it holds sessions periodically at schools in different parts of Australia. In each such session, the school children ask questions. The Board members sometimes do not know the answers and therefore they have asked you to advise them of the most likely correct answer to each of the first five questions requiring answer at the end of this scenario –
In August 2019, the company suffers a major fall in revenue due to external economic conditions and a reversal in trade opportunities. As a result, the board is advised at its December meeting that projections for the next 6 months show that the current bank account will go into deficit to the extent of $12.5 million. The business for the board meeting included the following items –
- The Managing director delivered the finance and prospects report. The Managing director also reported that the Bank will not permit the company to exceed its current level of borrowing which is $10 million.
- The Chief Executive officer, who is not a member of the board, reported that there is an excellent opportunity for the company to invest in the purchase of another company which has a complimentary business which is earning substantial profits. She proposed that the company should –
- Enter into a contract to purchase the business of the other company for $5 million and agree to pay the purchase price by a deposit of $ $2 million and instalments of $1 million in each of the next 3 years.
- Retain the CEO of the other company at a salary of $700,000 pa and to commence immediately after the purchase contract is signed.
- Pay her a spotter’s fee of $500,000 for negotiating the opportunity.
- Another submission to the board is that the date for conversion of the preference shares be extended to 1 July 2023 and that the holders of parcels of less than 200 preference shares should no longer be permitted to convert their preference shares to ordinary share but must accept full redemption in cash on the due date.
- One director stated that the company’s financial state indicates that it should look for external administration.
- At the meeting the directors are asked to approve the purchase of a second-hand helicopter for $$950,000. The seller is the wife of Ben Innocent. Another of the directors asks the chairman whether this would be in breach of section 588G of the Corporations Act 2001 (Cth).
Required.
Answer each of the following questions and give your reasons supported by reference to relevant cases and sections of the Corporations Act 2001 (Cth).
- By what process would the Company have arranged to replace its articles of association with the replaceable rules? Give details. 5 marks
- Is this company a large or a small proprietary company? How would
you determine this? 5 marks
- What authority does the company secretary have to make contracts on behalf of the company? Explain why. 5 marks
- What are the duties of the board members? Do they each have the same level of responsibility? 5 marks
- How will the Chairman be selected and appointed? 5 marks
- If the Bank should decide that MBP has breached the terms of its arrangements with the Bank, what type of external action might the Bank take to enforce its fixed charge?
5 marks
- What issues might the item proposed by the Chief Executive officer be likely to cause the board members to consider? 5 marks
- What approval processes would be necessary for the board to consider if item C above is approved? 5 marks
- Explain the relevance of the issue raised in item D above. What sort of external administration might be appropriate? Describe. 5 marks
- What approach might the Board adopt in relation to item E above? Discuss. 5 marks
(Total marks for the case study 50 marks)
You are required to answer each of the foregoing questions.
•The form of your answer should be as a report. Information on report writing is given in the attachment to this assignment.
•In total your answers should not exceed 1500 words. Word count does not include list of references but may exceed the limit by 10%.
•Your report must include a list of references – case citations, text references, sections of legislation, journal articles etc.
•You may use dot points and you are encouraged to compose your report using short paragraphs. This is not an essay and does not require any introduction more than a brief identification of the nature of the arrangement and the problems.
•Whenever you make statements as to the law or reach conclusions remember that you should at the same time provide sources for your statement or conclusion.
•In writing your report imagine that you are asked by the Secretary of the Company MBP to explain to her, the answer to each of the questions as she is to advise the Board.
• Using the approach suggested by PIRAC in answering the questions may not be appropriate to this set of questions but in thinking through each question it would be wise to follow the approach suggested by PIRAC and to clearly identify the issues involved and the relevant legal principles and if appropriate, relevant sections of the Corporations Act 2001 (Cth).