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Hypothetical Assignment instructions 1. The hypothetical assignment is based on workshops Weeks 1 to 5. 2. You must use the ILAC method when answering the question. 3. There is no absolutely right or...

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Hypothetical Assignment instructions
1. The hypothetical assignment is based on workshops Weeks 1 to 5.
2. You must use the ILAC method when answering the question.
3. There is no absolutely right or absolutely wrong answer to this assessment. This is the beauty (and frustration) of the law. I do not have a set marking guide which states what a 35/35 answer will look like. Students may rely on different (but relevant) law but come to a different conclusion. Provided that your application is supported by relevant law and is persuasive, then two students could have different answers but still receive the same high mark.
4. The
eakdown of marks in Parts A, B and C give you an idea of the words (and time) you need to devote to each Part. In other words, Part B is likely to have more legal issues and require more Law and Application than Parts A and C.
5. You do not need to provide a reference list and you do not need to provide a full case citation in ‘Law and Application’. Case name and a
eviated name of the legislation (with relevant section numbers) is fine. For example Donoghue v Stevenson and Civil Liability Act 2003 (Qld) (‘CLA’) (legislation).
6. The facts, times and persons are “mixed up” for a reason – clients do not approach you with the perfect set of facts that answer each of the issues neatly. You need to pull the facts apart (deconstruct) and attach the relevant facts to the relevant law to answer the issues. This is an analytical skill. Drawing diagrams and a timeline of events is a good idea.
7. Your final submission will be assessed according to the criteria sheet available on the L@G course site. The marking scheme follows the ILAC method. Students should scrutinise the scheme before submitting their assignment to ensure they have covered all relevant requirements.
8. I encourage you to discuss the question in groups (many hands make light work). However, your final answer must be your own work. Harsh penalties apply for plagiarism. Plagiarism basically means copying another person’s work and claiming it as your own.
Word limit
There is a maximum word limit of 2,500 words for this assessment. If you go over the word limit, the marker will not read any of the words that exceed the maximum word limit.
Additional Research
I would suggest the following texts and online resources for further research (in addition to your prescribed text, legislation and workbook):
· CCH Intelliconnect suite of databases, in particular: “Australian Company Law Commentary Premium”. You may also wish to search for relevant cases in the CCH databases. Type ‘CCH intelliconnect’ when conducting a li
ary catalogue database search;
· The video resource entitled, “Research and using the ILAC process: 2106AFE Company Law” in the assessment folder;
· Recommended and further readings under the “Readings” tab on L@G.
Due Date and time: Monday, 27 August 2018 at 23:59:59 (Week 7)
ASSIGNMENT QUESTION
Rosta Pty Ltd (“Rosta”) was incorporated on 1 July 2017 by James and Vicky, who are also Rosta’s directors. Rosta does not have a constitution. James has 450 “A” class ordinary shares and Vicky has 450 “A” class ordinary shares with an issue price of $1.00 per share (fully paid). As a condition of the share issue and to prevent a deadlock at directors’ meetings, Vicky and James agree to appoint Vicky as chairperson.
Vicky had an idea to create a comprehensive workforce IT platform for businesses that included on-boarding, payroll, rostering, HR services, education and training. After hearing Vicky’s pitch in April 2017, James (an experienced finance executive) agreed to partner with Vicky and introduced Kevin (a start-up investor) to Vicky. Unknown to Vicky, Kevin also agreed to a $5,000 “Investor Success Fee”, payable to James on registration of Rosta. Kevin initially invested $50,000 in Rosta by way of convertible note, with the investment able to convert to a 10% shareholding in Rosta (100 fully paid “A” class shares) at any time at the direction of Kevin. The convertible note has been set up this way for tax reasons (Kevin wants Rosta to be deemed an Early Stage Innovation Company by the Australian Taxation Office).
In August 2017, James (on behalf of Rosta) decides to lease office equipment from Leasetech Ltd (LT) for a period of five years at $10,000 per year with an option to purchase the equipment. LT is aware that Rosta is a “start-up” company and James is named as a “Co-Founder and Chief Financial Officer” on company materials. James signs the lease agreement with his name and title of “Director” below his signature. At no time did James seek Vicky or Kevin’s permission to enter the contract, although James had previously discussed with Vicky the urgent need to find equipment so that their employees could start developing the Rosta App. During a job interview with Rosta, Sally is injured when a chair supplied by LT collapses. Sally starts legal action against LT. The lease agreement contains a requirement that Rosta will indemnify LT for any losses associated with the operation of the equipment. Vicky is furious, refuses to make future lease payments and argues that the indemnity does not apply because the lease was not authorised by Vicky.
To preserve cash flow and to incentivise staff to join a start-up company, James and Vicky decide in September 2017 to offer key IT employees shares in the company in return for a lower salary. Under their employment contract, employees will be entitled to 10 “B” class ordinary shares at the start of employment, with an option to purchase an additional 20 “B” class shares after six months’ employment, and on meeting performance targets. James and Vicky propose that the “B” class shares will ca
y priority dividend rights compared to the class “A” shares, but no voting rights. Kevin is unhappy with the proposal arguing that it “dilutes my shareholders’ rights!” and immediately converts his $50,000 investment into a 10% shareholding.
Part A: Advise Kevin whether the proposed issue of “B” class shares is permitted and what Kevin can do (if anything) to prevent the issue of the “B” class shares XXXXXXXXXX10 marks)
In addition to the facts above:
Raising debt and equity capital is harder than what James and Vicky anticipated. By December 2017, Rosta’s liabilities exceeds its assets, the App will not be ready for release until September 2018 (at the earliest) and without revenue, Rosta is likely to run out of cash by the end of the XXXXXXXXXXfinancial year. In these circumstances, Rosta’s accountant advises Vicky to sell Rosta as soon as possible. Vicky has a buyer in mind, Keywest Ltd, which is 60% owned by a company controlled by Vicky’s father, Bruce. Bruce, a director of Keywest Ltd, tells Vicky that Keywest will not purchase Rosta’s shares, but only its assets because of potential future claims that creditors may have against Rosta, including LT, suppliers and employees.
Vicky proposes an alternative - to set up a wholly owned subsidiary company PayPerWork Pty Ltd (PPW) in April 2018 and transfer all employees and Intellectual Property of Rosta to PPW. PPW does not have a constitution. James disagrees with the proposal (prefe
ing Bruce’s suggestion), but Vicky uses her casting vote as chairperson to pass a resolution to proceed with the registration of PPW and asset transfer. Vicky and James appoint their fathers, Bruce and Steve, as PPW’s directors. When Bruce and Steve ask what they need to do, James and Vicky reply with, “relax you do not need to do anything, we will tell you what to do”. James, Vicky, Bruce and Steve attend a local Sushi Train restaurant in June 2018 for a meeting to finalise the sale of all PPW shares to Keywest. Vicky and Steve sign the sales agreement as “directors of PPW”, Bruce signs “on behalf of Keywest”, and James witnesses all the signatures. Settlement of the share sale (payment in return for shares) is August 2018.
By July 2018, Rosta is insolvent and its creditors appoint a liquidator to take control of Rosta. The liquidator lodges a report with ASIC that creditors will be paid back just 10 cents in each dollar of debt. The liquidator also reports that PPW will not be ca
ying on a business and will be left with outstanding debts if the share sale to Keywest does not proceed.
Part B: Advise Rosta whether the share sale and lease agreements are valid, as well as the potential actions and remedies that Rosta and ASIC may pursue against PPW, James and Vicky (and their prospects of success). XXXXXXXXXX18 marks)
Part C: What steps could Kevin have taken to stop the registration of PPW and transfer of Rosta’s assets to PPW?                                 (7 marks)
Using the ILAC method, explain your answers in Parts A, B and C with references to relevant sections of the Corporations Act 2001 (Cth) and case law.
DO NOT discuss the statutory duties of officers under Part 2D.1 of the Corporations Act, or the equivalent common law duties, in your answers.
Sections of the Corporation Act 2001 to be used (not limited to):
S 124 – legal capacity and powers of company
S 46, 47, 50 – subsidiary company, Bluebird Investments Pty Ltd & Ors v Graf
S 125, 136 – constitution adoption
S 135 – replaceable rules (applied when no constitution made)
S 140 – replaceable rules, Eley v Positive Government Security Life Assurance Co*
S 127 – signing contracts
S 246B – varying and cancelling rights
S 246C – certain actions taken to vary rights
S 246D, 246E – varying and cancelling without unanimous support
S 246F – companies must lodge resolutions with ASIC
S 256C – shareholder approval
S 256D – consequences of failing 256C
S 249C, 249CA
Answered Same Day Aug 21, 2020 2106AFE Griffith University

Solution

Akansha answered on Aug 24 2020
142 Votes
Assignment question – Corporations law
Name
Class
Subject
Professor’s Name
Unit Code
Date
Contents
Part A    3
Part B    5
Part C    9
References    10
Part A
Advise Kevin whether the proposed issue of “B” class shares is permitted and what Kevin can do (if anything) to prevent the issue of the “B” class shares.
Issue - The cu
ent issue at hand is whether the directors of the company can issue additional class B shares to the employees and in such a case that these shares are issued, what legal right does an investor have? The facts of the case are that two partners Vicky and James own 450 shares in a company Rosta which they have founded. These 900 shares are equally divided between both the partners but Vicky is pronounced as the chairperson. There is an investor by the name of Kevin who has invested about 50,000$ in the company with the option of converting his investment into 10% shareholding right in the company. The directors namely Vicky and James want to offer the employees Class B shares as incentives. The question in this case is whether they are allowed to offer the shares to employees? One important thing to note here is that the company Rosta has no constitution to its name.
Law/Rule – Section 124 of the Corporations Act, 2002 talks about the company’s capacity to do a number of things. Section 1(A) of the said section states that a company has the legal capacity similar to that of an individual which includes the power of issuing or cancelling shares. Section 2(c) of the said section, 124 also states that the company has rights over the unissued shares of the company. Section 2(E) of the said section also states that a company can a security, interest in the unissued capital of the company. In this relation it is important to look at Section 254A of the said act which talks about the issue of shares. Section 254A when it is read with section 124 reads that the company under section 124 has the right to issue shares including shares which are bonus shares, preferences shares and party paid shares. This can be done in accordance to Section 254A(b) of the act which sets out the conditions according to which the preference shares can be issued – if its mentioned in the constitution of the company or if its passed by a special resolution by the company.
It isn’t mandatory by Law to have a constitution for the company. It is also to be noted that just because there is an act done which isn’t in accordance with the constitution, the act by itself becomes invalid. (Funston, et al 2007). Mostly a ratification by the board members can deem an act against the constitutions as valid.
Application – The first question that the problem poses is about who decides what a company does? It is valid legal knowledge that a company is a separate legal entity from its owners. A company where is formulated by individuals, it adopts a separate legal existence in eyes of law after constitution. A company appoints directors who may or may not come from the shareholders who take decisions in good faith on company’s behalf. A company is basically run by its directors. In this case, there are two directors who are running the company namely Vicky and Kevin as mentioned. These two own the majority of shares in the company. Kevin, the primary investor has invested about 50,000$ in the company with the option of converting his shares into 10% shareholding in the company. Even after that the majority stake in the company and the decision making abilities lie with Vicky and James. The company doesn’t have a constitution which defines what a company can do or can’t do. A lack of constitution gives wide discretionary powers to the directors of the company to take decisions. There are certain things that a company still can’t do with or without a constitution. In this case as seen by the sections mentioned above namely Section 124 and 254A of the Corporations Act, it can be clearly seen that the directors have a right to issue shares to the employees. This needs to be ratified in the shareholders meeting but it is to ne noted that Vicky and James are the primary shareholders in this case. This means that they can allot those shares (Tomasic, et al 2002). The nature of these shares is that the shareholders don’t have...
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