BUSN2042 – Corporations Law - Case Study - Law Assignment Help

Assignment Task

Scenario
Brendan, Kevin and Ryan meet each other on the first day of their innovation and entrepreneurship course. They soon discover that they all follow the same Low-FODMAP (“Lo-Fo”) diet because it promotes digestive balance, and according to them improves overall well-being. They become good friends, and upon completion of their course they decide to start their own business responding to growing demand for Lo-Fo eating options. Brendan, Kevin and Ryan struggle to make up their minds
about whether to open a restaurant in the city, or whether to conduct a catering business. They are not sure about committing to a commercial lease and therefore initially decide to open a homebased catering business.

Brendan, Kevin and Ryan decide to conduct the catering business through the following company which they register with ASIC:
Name: Lo-Fo Friends Pty Ltd ACN 888 888 888
Share Information: 15 Ordinary shares (ORD) issued.
Members (ie shareholders):
- Brendan - 5 Ordinary shares (ORD)
- Kevin - 5 Ordinary shares (ORD)
- Ryan - 5 Ordinary shares (ORD)
Directors:
- Brendan
- Kevin
- Ryan

The company is registered without a constitution.

The catering business grows slowly and after 12 months has a steady flow of customers with a modest income stream. At this point, Brendan, Kevin and Ryan reconsider their Lo-Fo restaurant idea, and soon realize they will need some outside investment to get the restaurant up and running.
Brendan’s neighbor, Caleb, is an experienced restauranteur and expresses interest in investing in the company as a shareholder. Brendan, Kevin and Ryan are very happy when they hear about the opportunity to raise some much-needed capital, as they have been struggling to get a loan from the bank. However, Brendan, Kevin and Ryan wish to retain control of the company by holding a majority of the shares. Caleb agrees to this so long as he is appointed to the board of directors.
Brendan, Kevin and Ryan all agree to Caleb becoming a director. Brendan, Kevin and Ryan also wish to make it clear that the company will only provide Lo-Fo dishes, and Caleb agrees to this. Following these preliminary discussions, Brendan, Kevin and Ryan register the following company with ASIC, as a new entity for operating the restaurant business:
Name: Lo-Fo Dining Pty Ltd ACN 444 444 444
Share Information: 20 Ordinary shares (ORD) issued.
Members (ie shareholders):
- Brendan - 4 Ordinary shares (ORD)
- Kevin - 4 Ordinary shares (ORD)
- Ryan - 4 Ordinary shares (ORD)
- Caleb - 8 Ordinary shares (ORD)
Directors:
- Brendan
- Kevin
- Ryan
- Caleb

The Constitution for Lo-Fo Dining Pty Ltd comprises the following two clauses only:
1. The company is committed to fostering community-wide digestive health and wellbeing.
2. The object of the company is to conduct the business of a restaurant with an exclusively Low-FODMAP menu.

The new restaurant business goes ahead as planned; however, it doesn’t take them long to realise that running a restaurant requires skills that are very different from those that are needed to run a catering business. They feel very fortunate, however, to have Caleb on board. Caleb is a shrewd businessperson and does not mind assisting with business decisions. Over time Caleb takes on more and more responsibility insofar as the managing of the restaurant is concerned, much to the relief of
Brendan, Kevin and Ryan who prefer to focus their time and attention on sourcing high quality ingredients and creating new Lo-Fo dishes.
Although the restaurant had some moderate initial success, being the first of its kind in Adelaide, profits begin to decline after the novelty of a Lo-Fo restaurant runs off. In fact, a number of customers begin to inquire about more traditional menu options (which are high in FODMAPs). Until this point Brendan, Kevin and Ryan had insisted on only using flour that was certified by the Bowel Foundation, which is a national health promotion charity that provides its tick of approval to certain Lo-Fo
products. The cost of Bowel Foundation approved Lo-Fo flour had proven to be substantial, compared to normal flour. Further, its composition and texture were also unsuitable making many traditional high-demand dishes.

Questions

You are to provide advice on the scenario above by addressing the following issues:

A. Whether the contract made with Feel-Good Food Ltd will be enforceable.

B. The proposal to remove Caleb as a director of Lo-Fo Dining Pty Ltd.

C. The extent to which cl 1 and cl 2 of Lo-Fo Dining Pty Ltd’s constitution protect Brendan, Kevin and Ryan’s desire that Lo-Fo Dining Pty Ltd only sells Lo-Fo food options.

D. Brendan and Ryan’s plans to alter the constitution to prevent Kevin from selling his shares to Caleb Note: for Questions A, B, C & D you must use the IRAC method, and you should disregard the additional information for Part E.

E. Imagine now that Feel-Good Food Ltd’s board of directors begin to suspect that the synthetic protein used in its Lo-Fo flour not only causes mild joint inflammation, but in rare cases causes a severe auto-immune disease. Although the scientific evidence is inconclusive, and there is no hint of any pending litigation, the directors of Feel-Good Food Ltd are thinking about how to mitigate the risk and cost of any potential future litigation against the company by people who have consumed their Lo-Fo flour and developed the auto-immune disease. The board of directors are looking at potentially setting up a new company and transferring assets to that new company to shield against future compensation claims. Discuss with reference to both law and wider ethical considerations what professional advice you would give the board of directors in relation to creating a new company for this purpose.

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