Law of company
Format MLA Volume of 2500 – 3000 pages (10 pages) Problem-Question 1. Problem-Question 2. Problem-Question 3. Problem-Question 4. Problem-Question 5.
Assignment type : Essay
Mr Eric is a non-executive director of GoldCoin Bank Ltd. He is also a partner of Tricky Partners, a financial consulting firm dealing with GoldCoin. GoldCoin has offered Tricky Partners a permanent consulting service that promises to be highly profitable for the firm. Mr Eric actively promotes the deal amongst his colleague directors at GoldCoin. The directors are unaware that he stands to be paid a large bonus if the deal with GoldCoin proceeds. Mr Morton is a non-executive director on the board of the GoldCoin Bank Ltd. He suspects that Mr Eric is likely to be rewarded for persuading the other directors to accept the deal; however, he feels that the other directors will disregard his objections and side with the more popular Mr Eric when the matter is put to the Board at its next meeting. Mr Morton is convinced that his vote will not be enough to block the deal, so he does not attend the board meeting. The directors who do attend the meeting unanimously approve the deal for the permanent consultancy for Tricky Partners.
Advise both Mr Morton and Mr Eric of any potential breach of directors’ duties. (5 marks).
Bricks Construction Ltd had built several railway lines for the Swift Railway Ltd. Bricks has four directors, each holding 25% of Bricks’ shares. Three of Bricks’ directors, were in dispute with Oistrakh, the fourth Bricks’ director. The three directors decided to exclude Oistrakh, from participating in negotiations to build another railway line for Swift. The three directors did not inform Oistrakh that they had commenced new negotiations with Swift regarding the construction of this railway line. In the beginning, the negotiations were held on behalf of Bricks. However, before a new contract was signed, the three directors decided to set up a new company, Bluffer Ltd. Oistrakh was not a shareholder or a director of Bluffer. Bluffer was the company that was to carry out the building of the new railway. The three directors convened a general meeting of Bricks and used their votes to pass a resolution both declaring that Bricks had no interest in the new railway contract and selling part of Bricks’ equipment to Bluffer at below cost.
Advise Oistrakh on any breach of duties by his colleague directors (5 marks)
Ms Hawker is the CEO, and one of four directors, of Comet Pty Ltd. Each director holds 25% of the shares in Comet. Comet, in turn, owns 50% of the shares in AvantGarde Pty Ltd. Ms Hawker is also a director of AvantGarde. In her role as director she discovers that AvantGarde’s accountant has been embezzling funds to a point that has affected AvantGarde’s cash flow. Ms Hawker is concerned that AvantGarde’s other 50% shareholder might put the company into administration. Ms Hawker is concerned that the potential collapse of AvantGarde would severely damage her reputation as CEO of Comet. To prevent the other shareholder finding out about the cash shortfall, she secretly transfers funds to AvantGarde from Comet’s reserves. Her objective is to cover up the embezzlement until she finds an alternative solution. In the meantime, another project that involves Comet as an investor turns out to be a fiasco, so that Comet is also facing insolvency.
Advise Ms Hawker whether she has breached any fiduciary obligation owed to Comet or AvantGarde both under general or statute law. (5 marks)
The directors of a company involved in shale oil extraction, ShaleRock Ltd, are thinking of investing in the development of a new field in northern Western Australia. The Board’s non-executive directors include a petroleum engineer and a geology expert. The Board delegates to its chief operating officer the task of recruiting a team of experts, including engineers and geologists, to prepare a feasibility study for the new project. The chief operating officer recruits some of her friends to prepare the report. The team includes some bright young graduates, but they are still relatively inexperienced. The team is expected to report not only on technical requirements for the success of the operation, but also on the accuracy of predicted oil reserves in the field. The published report indicates that the investment is going to be highly successful. Unfortunately, key information has been negligently omitted. This information would have cast doubt on the economic feasibility of the project. The Board relies on the report and the expert directors do not identify or draw attention to its underlying flaws, although these should have been obvious to any reasonably competent engineer or geologist. The Board votes in favour of proceeding with the investment, resulting in a substantial loss to ShaleRock.
Task 1: Advise the chief operating officer whether she has breached her duty of care to the company as well as any defences that might be available. (5 marks)
Task 2: Advise the directors (according to their qualifications) regarding any potential breaches of their duties as well as any defences available to them. (5 marks)
The above project failure puts ShaleRock under significant financial stress to the point at which its cash flow position is in peril. The company’s chief financial officer presents a report to the board urging it to take immediate steps to minimise the company’s losses and the risk of insolvency. The Board decides to ignore the advice of the chief financial officer. In the hope of boosting the company’s share price in the short term, the directors vote to transfer company funds to proceed with a joint venture in an extraction and refining project with a major transnational company. The Executive Chairman who had been advising against this joint venture for some time did not attend the board meeting as he was recuperating from recent anti-ageing plastic surgery.
Advise the directors of ShaleRock regarding a potential breach of the statutory duty to prevent insolvent trading as well as any defences available to any of them. (5 marks)
