Corporate Law

| April 21, 2014

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What you need to demonstrate in this assignment:
The aim of this assignment is to apply your knowledge of corporate law from the first half of semester to a factual scenario and demonstrate the following skills:
Identification of important legal issues;
Correct application of relevant cases and statutory materials;
Clarity of writing, structure and grammar;
Keeping within the word limit;
Management of competing arguments, in other words, presenting both sides of the argument in a balanced way before coming to a conclusion; and
Appropriate legal referencing (but note that full case and statute citations are not necessary: you can simply cite short case names, e.g. Salomon, and abbreviated statute names, e.g. CA s.127 (when referring to the Corporations Act).
The maximum length of your answer is 1500 words, including footnotes (if any).
How to hand in your assignment:
Student answers must be submitted both in hardcopy through the Law Reception and online through the Turnitin application on UTSOnline by the due date: see the tab under the Corporate Law site entitled Lodge Take-Home Problem Turnitin, then click on View/Complete and follow the instructions to submit your assignment. All student answers will be subject to an originality check through Turnitin and the results may be used in the assessment of the essay. In other words, students whose work is substantially the same as another student?s work will be penalized.
Important Note: Student Answers to the Take Home Legal Problem lodged by students after the due date and time will be rejected without assessment (see default rule from UTS Law Subject Information Booklet 2014).
Read the following facts and then answer both parts of the question below:
Ivan is the managing director of X Pty Ltd. Ivan?s brother, Boris, who has been employed by the business for 10 years, was recently appointed to the position of company secretary. Boris?s wife, Anna, was the previous company secretary of X Pty Ltd. The ASIC records were never updated and still state that Anna is the company secretary. Between them Ivan, Boris and Anna each personally own an equal number of the shares in X Pty Ltd. X Pty Ltd is engaged in the business of manufacturing confectionery which it supplies to an independent grocery retailer to be sold as the home-brand lollies of that retailer. X Pty Ltd is the registered owner of a factory and land lot at Mount Kuring-gai, a suburb of Sydney. It also owns another small block of land that adjoins the factory land. In June 2013, Ivan leaves for an overseas trip to Russia. Ivan says to Boris before he leaves ?Keep in contact via email. But, if there is a buyer for the adjoining land, don?t bother contacting me, you can sell it.? Boris sells the land for $300,000 soon after Ivan leaves. In Ivan?s absence, Boris runs the confectionery business without consulting Ivan.
Ivan?s daughter, Tatiana, is good friends with her uncle, Boris, but Ivan and Anna have little time for Tatiana as she is always asking for money. Tatiana asks Boris if he will guarantee a home loan of $350,000 from a community credit union for the purchase of an apartment in Kellyville, Sydney. Boris agrees to help Tatiana by offering that X Pty Ltd would guarantee the home loan. Victor, a family friend, who works for the community credit union, draws up the guarantee. He spoke to Anna when she was in the credit union a few days before. Anna said to Victor: ?Ivan has gone away and Boris is running the company?. Victor emails Ivan to ask about Boris?s current role but does not hear back from Ivan. Victor decides to proceed with the guarantee. Amongst other things, the guarantee provides that X Pty Ltd will be responsible for loan repayments if Tatiana fails to make the payments. The community credit union requires two signatures for a guarantee from a company. Boris signs the guarantee as director of X Pty Ltd and forges the signature of Anna for the company secretary signature.
In the meantime, X Pty Ltd receives from the usual independent retailer a larger, ongoing order for confectionery. Boris wishes to increase the productive capacity of the factory but is concerned about the current liabilities of X Pty Ltd (due to its guarantee of Tatiana?s loan). Boris decides to use Y Pty Ltd to purchase from an importer, Z Pty Ltd, further factory equipment. Y Pty Ltd was registered by Boris and Anna 5 years ago. Boris and Anna control the management of Y Pty Ltd as Boris is the sole director and Anna is the company secretary of Y Pty Ltd. X Pty Ltd owns all of the shares in Y Pty Ltd. Y Pty Ltd had made a small profit out of buying and selling second hand furniture 2 years ago and that profit was held by Y Pty Ltd and paid in wages to Boris and Anna. Now Y Pty Ltd currently has no tangible assets. Y Pty Ltd enters into an agreement with Z Pty Ltd for the purchase of the factory equipment. (Boris validly signs the agreement as director of Y Pty Ltd and Anna validly signs the agreement as company secretary of Y Pty Ltd.) The representative from Z Pty Ltd had phoned her supervisor the day of signing the agreement to ask about Y Pty Ltd. Her supervisor at Z Pty Ltd told her: ?that?s ok: it?s essentially the same confectionery business.? X Pty Ltd pays the deposit for the equipment which will take 8 weeks to arrive at the confectionery factory after it is ordered by the importer and shipped from overseas.
A couple of days after the signing of the agreement, Ivan arrives back from overseas. Ivan (who has a poor relationship with the independent retailer), assumes the role of running X Pty Ltd?s confectionary business again. The independent retailer soon after advises they have decided to order at least 60% of their home-brand confectionery from overseas and cancels the large ongoing order from X Pty Ltd. Therefore, it turns out that the confectionery business does not need the extra factory equipment.
Give your opinion on both (a) and (b) below, referring to statute and case law where relevant. In your answers do not consider directors? duties or shareholder remedies.
a) Tatiana has failed to make 3 home loan repayments and the community credit union calls on X Pty Ltd to pay the loan repayments. Boris confesses to Ivan that he arranged for X Pty Ltd to guarantee Tatiana?s loan. Ivan does not wish to assist Tatiana with the loan. Advise Ivan if X Pty Ltd has to make the loan re-payments to the community credit union. (15 marks)
b) Soon after these events, Boris and Anna go away indefinitely to the Ukraine without causing Y Pty Ltd to pay Z Pty Ltd for the equipment. Z Pty Ltd invoices X Pty Ltd for the amount owing for the equipment. Ivan wishes to limit the company?s liability for the equipment purchase. Advise Ivan if X Pty Ltd is in any way responsible for paying the importer the rest of the money for the factory equipment. (10 marks)
do not mention shareholder remedies or director duties AT ALL
please present both sides of the arguments
draw out the main issues
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