TABL 5503 - Avengers Pty Limited (“Avengers”) Is A Company That Operates In The Mining Sector - Management Assignment Help

Assignment Task

Avengers Pty Limited (“Avengers”) is a company that operates in the mining sector. It has three main types of operations. First, the company has acquired a number of mining leases on as yet un-mined land, and conducts surveying and exploration of this land. Its business model involves selling these leases should any deposits be found. Second, the company owns a large amount of mining equipment, which it leases to exploration and mining ventures. Third, the company is engaged in trading of mining products, and has contacts both in Australia and overseas. The company also has a 70% share in a contract processing company (Assemble Pty Ltd – “Assemble”), which converts Bauxite into Alumina on a contract basis for large mining ventures. 
The company has the following major shareholders: 
• Stark Enterprises Ltd, an ASX listed company: 20% 
• Shield Pty Ltd (a private company with three shareholders, Rogers, Nick and Natasha): 20% 
• Four retail superannuation funds (Thor, Hulk, Hawkeye and Wasp), each owning 5% (totalling 20%) 
The remaining 40% of the shares in Avengers are owned by 50 different shareholders. Ten of these shareholders are business associates (small mining enterprises) of Avengers or Assemble; these ten shareholders own (through family companies, or family trusts that satisfy the definition of “family trust” in section 995-1 of the Income Tax Assessment Act 1997) 20% of the shares between them; none of the shareholders own more than 3% of the shares. The final 20% of the shares are owned by the remaining 40 shareholders, who are employees or past employees of Avengers or Assemble, and who have bought into the company at various times. None of these 40 employee shareholders own more than 1% of the shares in Avengers. 
Avengers has incurred tax losses of $50,000,000, and intends to restructure its business in order to begin making profits. The only profitable business that it operates is the trading business (although Assemble is also a profit-making entity). Of the mining leases, Avengers sells all such leases, except for two in NSW that appear promising (there have been traces of vibranium in these leases). It begins construction and development of these vibranium mines, using equipment that it had in its leasing business. Any equipment that it does not need, Avengers sells to other mining ventures, many of which were using the equipment already under leasing arrangements. 
Staff that had previously been used in exploration and surveying are retained. Avengers begins to offer their services, on a contract basis, to independent exploration ventures, including working on some leases that had been owned Avengers before being sold off. 
In addition, Assemble will be liquidated and its business transferred to Avengers, to bring this profit-making business fully in-house. Avengers intends to raise finance in order to expand the processing facilities and to build additional facilities. These 
funds are obtained by issuing new shares to a retail superannuation fund, Asgard. After the issue of shares, Asgard owns 15% of Avengers, and all other shareholdings are diluted accordingly. 
Avengers will change its name to “Avengers Assemble Pty Ltd”. 
Nick and Natasha do not want to be part of this newly focussed business, so they intend to sell their shares in Shield Pty Ltd to two other interested parties: Sam Wilson and Bucky. The four superannuation funds will sell their interests: Thor and Hulk sell to Asgard, while Hawkeye and Wasp sell their interests to Shield Pty Ltd. With the change in nature of the businesses, the shares held by the business associates and the employees will be sold off to new employees and/or business associates. There are still 50 shareholders owning these shares (formerly 40%, but now diluted to 34% after the fresh issue to Asgard), none of these shareholders owns more than 10% of Avengers Assemble Pty Ltd, and they are all either individuals, private companies, or family trusts that satisfy the definition of “family trust” in section 995-1 of the Income Tax Assessment Act 1997. 
The additional funds needed to expand the operations that had formerly been in Assemble, are made through a further offering 
Required: 
Part A 
Analyse the fact pattern and determine whether Avengers Pty Ltd satisfies the continuity of ownership test contained in Divisions 165 and 166 of the Income Tax Assessment Act 1997, after the changes in the shareholding. (15 marks) 
Part B 
Analyse the proposed changes to Avengers’ business operations. Assuming that Avengers fails the continuity of ownership test prior to implementing these changes, analyse whether Avengers will be able to rely on the business continuity test in relation to its losses incurred prior to breaching the continuity of ownership test. Would your answer be different if Avengers implements the changes to its business prior to changing the shareholding? (20 marks) 
 

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