Cash Bank Ltd Case Study - Partnership Act 1958 (Vic) - Generosity to Shareholders - Law Assignment Help

Assignment Task :

QUESTION 1 

1. Joint stock companies, charter corporations and corporation sole were the earliest corporate structures. Explain what each type of corporation is and explains its historical development.

2. Jackson and his girlfriend Jenna agree to enter into a partnership to run a café business. Jackson takes out the lease of the café and pays all the set up costs but does not take an active role in the running of the café. As part of setting up the business, Jenna enters into a contract to buy a coffee making machine from Coffee Machines Pty Ltd (Coffee Machines). The machine was worth $12,000 but Jenna purchased it for $6,500 as part of a package under which Coffee Machines supplies coffee to the business for the first 12 months. 

Jackson and Jenna have a disagreement about the contract with Coffee Machines as Jackson thinks he could have obtained a better deal through a friend of his. Jenna runs the business for about 5 months but the issue about the coffee machine is not resolved which leads to a breakdown of their relationship. As a result their partnership and the future plans for running the café business come to an end after Jenna just walks out of the business leaving Jackson to run the business himself. Jackson terminates the contract with Coffee Machines to save costs.

Jackson finds that he cannot cope with running the business because of his lack of experience and other commitments so he decides to sell the café. When Jenna finds out about what Jackson proposes to do she sues Jackson claiming they are partners.

Required:

Advise Jackson and Jenna whether there is a partnership and of the liability for terminating the contract with Coffee Machines. Your answer should refer to the provisions in the Partnership Act 1958 (Vic) and the relevant case law.

Question 2

PART A

Eastfarmers Ltd is a listed public company conducting various businesses including a supermarket chain, coal mining and an insurance business. Its share capital is currently comprised of six million $5 ordinary shares and three million $10 preference shares. The board of directors of Eastfarmers Ltd have decided on the following courses of action to protect the company’s interests in the current economic conditions. 

Proposal one:  

To issue additional shares to the general public on the ASX (Australian Securities Exchange) to the value of $15M (fifteen million dollars).

The directors seek your advice as to whether a disclosure document must be prepared on behalf of Eastfarmers Ltd before the shares are issued.  If so, what type of disclosure document is required and what are the content requirements? 

Proposal two:

As part of the share issue outlined in proposal one, new preference shares to the value of $8M (eight million dollars) will be offered. The directors intend to rank the newly issued preference shares equally with the existing preference shares.

Advise the directors of Eastfarmers Ltd of any legal procedures under the Corporations Act 2001 that must be complied with before issuing the new preference shares. 

Proposal three:

The directors of Eastfarmers Ltd also believe a restructuring of the existing share capital of the company should be considered.  They believe a share buy-back would be appropriate, although this would lead to a reduction in the company’s share capital.  The directors are of the opinion that the reduction in share capital will be offset by the issue of new shares, as outlined in proposal one.

The share buy-back will be offered to all holders of ordinary shares and the company will offer to buy-back 15% of each ordinary shareholders’ shares. 

Advise the directors of Eastfarmers Ltd of the legal procedures under the Corporations Act 2001 that must be complied with to accommodate the share buy-back.  

Question 3.

Chris is the founder and managing director of Mega Co. Ltd (MCL).  Amongst other clauses, MCL’s constitution also contains the following clauses:

Clause 6 Chris is to be the Managing Director appointed for life of MCL, removable only upon death, retirement or misconduct.

Clause 9 MCL’s constitution may only be altered by a vote of 80% or more of the shares in the company.

Clause 12 The company can only borrow money with the approval of the Board where the borrowings exceed $500,000.00. 

In addition to the constitution, MCL also has a separate employment contract with Chris.

In February 2012, Chris arranges a loan for MCL of $750,000.00 with his friend Albert, the manager of CashBank Ltd. Albert and Chris are childhood friends and while Albert knows the money is for Chris's personal business purposes, he is satisfied that Chris will get the Board's approval as he has done in the past. Chris returns the signed loan documents signed by him and apparently by Betty the company secretary. 

When the directors and shareholders of MCL found out about Chris's actions they seek to have Chris removed as the managing director. 

It also transpires that the board refuses to approve the loan because of Chris’s total disregard for proper procedure and the fact that the loan documents were not signed by Betty, and it appears that her signature may have been forged. Accordingly, MCL denies any liability under the loan with CashBank Ltd. 

REQUIRED:      

(i) Advise Mega Co Ltd whether it can remove Chris as the managing director.  

(ii) Also advise whether CashBank Ltd can enforce the loan contract against Mega Co Ltd.
 

Question 4.

The board of Waldo Ltd proposes to issue bonus shares to existing shareholders as well as increasing the dividend to shareholders to $1.25 cents a share which is a rise of 25% on last year’s dividend. It appears that the reason for this generosity to shareholders is because the shareholders overwhelmingly rejected the Remuneration Report at last year’s AGM and the company received a first strike. The constitution of Waldo Ltd gives the board the power to issue bonus shares and the board is confident that what they are offering to shareholders by way of the shares and the dividend should please shareholders enough to make the first strike a non-issue at the next AGM.  In a separate letter to shareholders the board have set out their views on the justification for the report and the importance of shareholders approving the remuneration report and the reasons for arguing that it was not excessive. 

Jim Smith is the manager of Better Super Ltd which holds 4% of the shares in Waldo Ltd. Jim and a number other shareholders are unhappy with the proposal put by the Waldo Ltd. Better Super Ltd and the other investors are of the view that the bonus share issue is unnecessary and the increased dividend is most unwise in these unstable financial times.

Required:

Better Super Ltd and the other shareholder seek your advice as to the following:

1. Does the board of Waldo have the power to issue bonus shares and can the shareholders at the upcoming AGM legally compel the board not to issue the share?

2. Can the shareholders stop the directors from increasing and paying the proposed dividend because it is commercially unwise to do so?

3. If shareholders vote against the remuneration report and a second strike is achieved, what will be the consequence of Waldo Ltd and its director?

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