ACC220 - Law Of Business Associations - Business Law Assessment Answer

Assessment Details:

QUESTION 1:
Unique Victorian Arts and Crafts Ltd “UVAC” is a company that sources and distributes unique, hand-made arts and crafts products from creators throughout Victoria. The company was set-up initially as a joint-enterprise by a number of local craft creators in order to distribute products for sale in cafes and gift stores.
The constitution of UVAC provides for two classes of shareholders: Class A and Class B. Whilst both classes hold equal voting rights, Class A shares can only be acquired by those engaged in the business of hand-made craft creation in Victoria. Class B shares are open to acquisition by anyone. The only other difference between the two classes is that the constitution requires that any appointment of a director can only occur after a report and short-listing process completed by an independent consultant appointed by a majority vote of the Class A shareholders.
There are currently 7 Class A shareholders and 26 Class B shareholders (who include a number of competitors to UVAC based in New South Wales). The board of directors is made up of Georgiana Baird, Yasmin Farrell and Norah Lawrence. Each of the directors holds Class B shares, whilst Norah also holds Class A shares (consisting of a 12% stake in the company).
Norah’s term as director is due to expire in September 2019, but Georgiana and Yasmin do not want Norah to be re-appointed. This is in large part because Georgiana and Yasmin want to see UVAC expand beyond Victoria and source a greater range of products. Norah thinks that the focus should remain with the local creators that the company was set-up to serve.
In July 2019, Georgiana and Yasmin (without discussing it with the Class A shareholders) appointed Seek-Easy Consultants to conduct the review and shortlisting process for the appointment of director at the Annual General Meeting in September. They explicitly instruct the consultant not to include Norah on the short-list.
 
At a directors’ meeting on the 2nd of September 2019, a resolution is passed approving the issue of the notice to call an Annual General Meeting to be held on the 13th of September and giving notice of resolutions dealing with the following matters:
-That the shortlist of directors’ (which does not include Norah) be put to the shareholders for consideration and the appointment of a new director from the short-list;
-That the constitution is amended to allow for the buy-back of Class A shareholdings in excess of 10% of the shares of the company, at the discretion of the directors and at a price determined by the directors.
Advise Norah as to:
A. Whether she can prevent Unique Victorian Arts and Crafts Ltd from acting on the shortlist prepared by Seek-Easy Consultants because it was not prepared by a consultant approved by the Class A shareholders; and
B.What the requirements for amending the constitution are, and whether she can prevent the amendment allowing for the buy-back of Class A shares.

QUESTION 2:
Lovely Teas Pty Ltd is a company involved in the importing and distribution of a range of herbal teas throughout Australia. The business returns a modest profit each year which are generally distributed to shareholders in the form of dividends. The directors of the company are Leigh, Anastasia and Rebekah who each own 25% of the shares in the company. The remaining 25% of the shares are owned as follows:
-5% each by two past employees of Lovely Teas Pty Ltd, Elizabeth, and Joan;
-5% each by three outside investors: Boyd, Zander, and Kymani.
Throughout 2019, Lovely Teas has been in a legal dispute with Elizabeth over a claim for wrongful dismissal and appropriate payments in relation to a bonus that she had been promised for developing a successful marketing campaign for Lovely Teas. In July 2019, the court handed down a decision in Elizabeth’s favor ordering Lovely Teas to pay her compensation.
At a board meeting on the 1st of August 2019, Rebekah proposes a resolution to incorporate a separate company, Terrific Teas and Coffees Pty Ltd and to transfer the business of Lovely Teas to it. The resolution is passed unanimously.
On the 10th of August 2019, Terrific Teas and Coffees Pty Ltd is incorporated, the assets of Lovely Teas are transferred to it and all the customers and suppliers are updated with the new details. The shareholders of Terrific Teas and Coffees are its directors, Leigh, Anastasia, and Rebekah, along with Boyd, Zander, and Kymani. The directors left enough funds in Lovely Teas’ bank account to pay the outstanding debts to their suppliers (with the exception of the amount owed to Elizabeth).
Advise Elizabeth and Joan:
A.Whether the directors of Lovely Teas Pty Ltd have breached s181 of the Corporations Act 2001 (Cth) or their equivalent equitable duties and what penalties or remedies might be applicable; and
B.Elizabeth, whether a Court would hold Terrific Teas and Coffees Pty Ltd liable for the outstanding debt owing to her by Lovely Teas Pty Ltd.

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