1. In your own words, explain what is the nature of the fiduciary duties owed by directors towards their companies. Give an actual example of a fiduciary duty owed by directors towards their companies.
2. Answer the following questions relating to the partnership business structure:
(a) What are the 3 elements of the statutory definition of a partnership?
(b) Identify and in your own words, briefly explain the meaning and application of each element.
3. Maya Boyle’s dream is to buy her very own apartment unit in Sydney. After a 6-month search, she’s ecstatic to finally find the perfect unit, a brand new 2-bedroom unit located in Kirrawee. She made an offer. After just a week, she becomes even ecstatic because the developer of the unit accepted her offer, which is actually lower than the advertised price.
On Friday afternoon of that same week, she checked Moonlight Finance’s website and found that the franchise principal for the company in the Northern Beaches is Benjamin Owen. A photo of Benjamin’s dignified face appears in Moonlight Finance’s website, along with his full name ‘Benjamin Owen’ and below it, his title, “Moonlight Finance franchise principal – Kirrawee, Sydney.” Maya calls Benjamin’s mobile number and makes an appointment for him to visit her at her place the following Saturday morning. Unknown to Maya, that Friday morning, Benjamin’s franchise contract with Moonlight Finance had already been terminated by the company for breach; as a result Benjamin was no longer connected with the company.
The next morning, Benjamin drives up to Maya’s house in a Moonlight Finance Company car. When he comes into the house, he is wearing the shirt with the Moonlight Finance logo emblazoned on the left shirt pocket. He hands out his Moonlight Finance business card to Maya, which contains the same job title as that stated in the website. After discussing Maya’s lending requirements and assessing her financial capacity, Benjamin approves a $775,000 loan for Maya. Benjamin and Maya sign the loan contract, which is in the standard form used by Moonlight Finance and bears the company’s name. The following week, Maya pays the deposit and calls Moonlight Finance to draw down on the loan. The company informs her that as of last Friday, Benjamin was no longer connected with the company for the reason stated above. Moonlight Finance tells Maya that the company is under no obligation to honour the loan approval that Benjamin had given Maya, nor the contract that they entered into for that purpose. Maya comes to you for advice.
Advise Maya on the legal issues presented by the above case. Is Moonlight Finance obligated to honour the loan approval and grant Maya the loan? Discuss all your answers citing relevant case law and/or legislation.
4. One of the key duties of a director under the Corporations Act is the duty to prevent insolvent trading under section 588G.
Why is it critical that a director must not allow or participate in any board resolution allowing the company which he or she serves to trade while insolvent? (3 marks)
If charged with breaching the duty under section 588G, what statutory defences can a director raise?
5. Harry McNess is a director and member of Enigma Pty Limited, a private investigation company based out of Brisbane. Apart from Harry, there are three other member-directors in Enigma. The four member-directors each own 25% of the total shares in the company. Enigma’s constitution provides that all company contracts that involve an expenditure of more than $75,000 must be signed by a minimum of three directors.
Harry has worked for 25 years as a director in Enigma. After working this long, Harry now feels that it is time the company appropriately rewards him for his years of faithful service. Harry believes the only appropriate reward is a luxury boat. He visits a boat dealership and buys a 20-foot yacht worth $150,000. He purchases the boat in the name of the company and signs the contract. The other directors find out and they are incensed by what Harry has done. They wish to immediately void the contract Harry signed with the boat dealership. The problem is that the boat has already been delivered and the dealership does not want it back.
Explain whether Harry had the power to sign the contract to buy the boat in the company’s name. Is Enigma Pty Ltd. bound by the contract? If so, what remedies does the company have against Harry?
6. Joshua Fowler is the managing director of a family company, Berrymedia Pty Ltd. Joshua’s other brother, Karl and three sisters Lucinda, Claudia and Eden are the other shareholders and directors of the company. They always disagree and argue when it comes to the management of the company’s affairs.
Berrymedia has never actually held a shareholders’ meeting in the past, since the shareholders, except for Joshua and Lucinda, do not bother to attend these meetings. However, an annual general meeting now needs to be held and Joshua is worried that he needs to call and conduct the meeting.
Explain to Joshua the procedure he has to follow under the Corporations Act both in calling and holding the annual general meeting.
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