QUESTION 1Alana and David are the directors of Chocolate Cleaning Products Pty Ltd (“CCP”), asmall company that manufactures biodegradable and environmentally friendlycleaning products that smell like chocolate. The shareholdings of CCP are asfollows:• 40%: Alana;• 40%: David;• 15%: Sol (an investor and mentor who has significant experience in thecleaning products industry);• 5%: Max.Max was engaged by Alana and David when they set up the company in order todraft the constitution and advise on the initial business structure. In exchange, hereceived a 5% shareholding in CCP. When drafting the constitution, Max included aclause in the constitution appointing himself as the company’s solicitor and that hecannot be replaced except for negligence.Relations between Max and Alana and David have been strained of late becauseAlana and David are taking Sol’s advice in regards to proposed expansion activities.Max thinks that Sol’s recommendations are generally shady, but Alana and Davidare unswayed. Eventually Sol recommends that they fire Max as company solicitorand engage someone with more experience.In addition, David and Alana call a general meeting and pass a special resolution toalter CCP’s constitution, inserting a new clause giving the board the right toexpropriate the shareholdings of members owning less than 10% of the total sharesissued.Q1: Advise Max as to whether he is able to:a) enforce the clause in the constitution making him the company solicitor,and what type of remedy he would need to seek if he could; andb) prevent the inclusion of the clause allowing the directors to expropriatehis shares, even though the other shareholders have passed a specialresolution.QUESTION 2Aussie Boats Ltd (“AB”) is a listed public company that has been supplying custombuiltboats to the Australian market for the past 25 years. Its customer base hasbeen gradually decreasing due to increasing competition for larger luxury yachts withhi-tech fit-outs made by other companies such as Millionaires on Water Ltd (“MWB”).AB had been planning expansion activities into international markets for a number ofyears but has held off due to lack of funds. They have had some initial discussionswith boat consultancy firm La La Loopsy Pty Ltd, but again, have not had the fundsto engage them for a full report and recommendations.The board of AB is made up of Clancy (who is the managing director/CEO), Jack(the Chief Financial Officer) and three non-executive directors, Henry, Banjo andMatilda (the chairperson). At a board meeting held in July 2017 the directorsexpressed their concerns about the difficult financial future facing AB, as well as theirdeteriorating market share. In addition, Clancy and Jack had received notice thatMWB had been buying up stock in AB and now owned 35% with a planned takeoverbid imminent.On the 15th of July, the board resolved to issue $1.5million of shares as follows:• $500,000 of shares to La La Loopsy Pty Ltd, in return for the provision of areport on opportunities for AB to supply boats internationally;• $1 million of shares to the public to be issued for the purpose of raisingadditional capital for expansion purposes.The minutes of the meeting reflected as the reasons for this decision that:1. It is in the best interests of AB that it immediately engages in previouslyplanned expansionary activities so as to improve market share;2. That such expansion should be informed by high-quality consultancy andmarket research.The new issue of shares was completed in September. After the new issue, MWB’sstake in AB was reduced to 18%.Banjo, one of the non-executive directors of AB, disagreed with the resolution andissue of shares, believing that it would be better to enter into discussions with MWBaround the terms of the take-over. He believes that Clancy and Jack are actingpurely out of concern for their own positions as MWB is known to terminate thepositions of executive directors after completing a take-over (whilst generallyretaining non-executive directors).Q2: Advise Banjo as to whether the directors have breached their equitableand/or statutory duties to AB (including any remedies or penalties that mightbe applicable).
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