Melbourne Concrete Works Pty Ltd Case Study - Law Assignment Help

Assignment Task:

Question One: (30 Marks)

Melbourne Concrete Works Pty Ltd (MCPL) is a construction company that was incorporated in 2005. Its directors were Mr. Richard Stone, Mr. William Marsden and Mr. Joseph Vince. 

By early 2016, MCPL had a negative working capital of approximately $1.3 million. MCPL then entered into a finance facility with Common Australian Bank (CAB) so that operations would not be affected. Within 3 years of the CAB facility, the relationship manager sent a letter to MCPL (dated 23 January 2019) identifying some concerns. It stated as follows: 

“As you are aware the Bank has concerns given the recent decline in profitability, stretched creditor position, ATO arrears and request for increased funding. Accordingly, to assist the Bank in considering how we move forward we will be organising the engagement of an Investigative Accountant’s review of MCPL.” 

The directors consented to this and CAB appointed Mr. John Hope and Mr. Stuart Manning, from the firm Howells Solvency and Forensic Accountants, to conduct the review. Mr. Hope, who knew Mr. Marsden socially, assured them that the review was in the interests of the directors of MCPL. 

While the review was in process, some of MCPL’s suppliers began to insist on cash on delivery. Most notably, Boston Cement Ltd (BCL), a company that supplies cement and lime, and supplied cement to MCPL between July 2008 and July 2018 under an agreement known as the “Bulk Supply Agreement” sent MCPL a demand notice for outstanding payments. BCL claimed that there was an unpaid balance of $11,660,582.86 due and payable by MCPL to BCL as of 30 July 2019. The Bulk Supply Agreement also contained a clause (Clause 9) that allows BCL to terminate the contract in the event that MCPL enters into voluntary administration, receivership or liquidation. 

Fearing that MCPL was likely to become insolvent, the directors decided to enter into voluntary administration. On 14 August 2019, Mr. John Hope and Mr. Stuart Manning of Howells Solvency and Forensic Accountants, were appointed administrators of MCPL. Eventually, MCPL went into liquidation. 

Answer the following questions: 

1. As the corporate lawyer, would you have advised the directors of MCPL that entering into voluntary administration was the best option? What alternatives would you have suggested? (10 marks) 

2. What is the effect of Clause 9 of the Bulk Supply Agreement being triggered? Would your answer be different if the administrators were appointed on 14 August 2018? Do you think the reforms relating to such clauses will help the revival of companies that might otherwise have been liquidated? (10 marks)

3. BCL wants to challenge the appointment of the members of Howells Solvency and Forensic Accountants as the administrators. How would you advise BCL? (10 marks)

Question Two: (30 Marks) 

Mr. Chang and his wife were the only directors of Chang’s Pty Ltd, a fusion restaurant, since April 2019, when it was incorporated. By the end of 2019, a number of other restaurants offering similar cuisines opened in the area and profits started going down. It was at this time that Mr. Chang borrowed from ABC Pty Ltd to pay for the restaurant’s lease. ABC Pty Ltd was run by Mr. Chu, who is a friend of Mr Chang and Mr. Chu regularly got Chang’s Pty Ltd to cater food at ABC Pty Ltd. 

By early 2020, ABC Pty Ltd refused to advance any more money since payments for the previous loan were still outstanding and because hospitality industry was beginning to be  impacted by COVID-19 pandemic. Mr. Chang thought this was unfair because ABC Pty Ltd had not yet paid Chang’s Pty Ltd for some of the catering contracts from previous years. He sent Mr. Chu an email reminder of the outstanding amounts but Mr. Chu did not reply. 

In April 2020, Mr Chang set up an artisan gelato booth in the front of the restaurant to improve profits however, business did not improve, and he was already late in making payments to suppliers. Mr. Chang took on two party bookings for later in the year and used the advance payments from those bookings to pay off a few suppliers that had started insisting on cash on delivery. Mr. Chang also believed that Chang’s Pty Ltd could become profitable again once COVID-19 restrictions lifted.

Unfortunately, COVID-19 restrictions took longer than what Mr. Chang anticipated therefore, Chang’s Pty Ltd entered liquidation and Ms. Philips was appointed as the liquidator. Ms. Philips finds that some of the company’s profits in the initial years are unaccounted for in the company’s books. She also finds that some documents were missing. Mr. Chang and his wife however, refused to help Ms Phillips with her questions pertaining to these matters. 

Answer the following questions:

1. Mr. Chu is worried about Chang’s Pty Ltd becoming insolvent. He believes strongly that Mr. Chang has used restaurant profits to buy himself a car and suspects that Mr. Chang will further divert profits of the company. Mr. Chu wants to ensure that the money owed to him is paid as soon as possible. As Mr. Chu’s lawyer, what advice would you give to him in January 2020? (10 Marks)

2. What options does Ms. Phillips have to get more information about the company’s affairs? What actions can she take against Mr. Chang and his wife? (10 Marks)

3. Mr. Chang comes to you in April 2020 for advice regarding reviving Chang’s Pty Ltd. What option would you recommend and why? (10 Marks)

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