School of Law
TAKE HOME EXAMINATION - Semester One, 2018
LAWS3100 Corporations Law
RELEASE DATE: 9 Jun 2018 10:00
DUE DATE: 12 Jun 18 16:00
Your take home exam must be uploaded to Blackboard in the required format by the above date and time or marks will be deducted as per the policy stated in the ECP.
Marks will be awarded for:
• Identification of the issues raised by the question;
• Application of the relevant law, i.e. legislation and cases to the material facts;
• Reference to relevant literature and other legal materials;
• Coherence and persuasiveness of argument or line of reasoning leading to a conclusion; and
• Structure, flow and stylistic competence.
WORD LIMITS AND STRUCTURE
You must answer both questions. Each question should be no more than 750 words long making a total word count for the 2 questions of 1,500 words.
Students must not exceed the word limit and any words over the limit will not be read. The reference list does not count in the word limit.
All work in this assessment must be your own and not completed with any assistance. Plagiarism is the act of misrepresenting as one's own original work, the ideas, interpretations, words or creative works of another. These include published and unpublished documents, designs, music, sounds, images, photographs, computer codes and ideas gained through working in a group. These ideas, interpretations, words or works may be found in print and/or electronic media. Students are encouraged to read the UQ Student Integrity and Misconduct policy (http://ppl.app.uq.edu.au/content/3.60.04-student-integrity-and-misconduct) which makes a comprehensive statement about the University's approach to plagiarism.
In addition to manual checking, all student responses will be run through various plagiarism detection software, including Turnitin. If you are caught cheating you will fail the subject and this may adversely impact on your ability to graduate, be admitted to professional bodies and visa where relevant.
FORMAT FOR EXAM
The answer should not include the questions.
Put each question on a new page with the question number at the top: i.e. “Question One”. If you hit control and enter together that will insert a new page in MS Word.
At the top of each question please include your student number and name. This is to make it easier to mark all the exams.
At the top of each question please include an accurate word count for that question.
You can use either APA, Harvard or ALGC style guides.
The work MUST be spell checked and edited. It is a take home exam so students have the time to present high quality work.
Completed exam scrips with student names and student numbers must be submitted electronically in MS Word via the ‘Online Submission of Assignments’ folder on the course Blackboard site. Blackboard or other sources may mention uploading in PDF, however for this course we request and require the paper is submitted in MS Word.
Hypothetical factual scenario that is relevant for Questions 1 and 2
Darn Good Development Pty Ltd (DGD) was started in the 1960s by Dan Darn and Gerry Good. The 2 cousins started as a partnership but recognised the benefits of a corporation and turned their partnership into a proprietary limited company by registering under the Corporations Act 2001 (Cth) in 2002. The company relies entirely upon the replaceable rules.
Dan and Gerry both had children and gave each child shares in DGD. Following distributing shares to their children, Dan and Gerry each have 40 shares and each of their 10 children have 2 shares each.
All shareholders were also directors of DGD. DGD pays directors expenses but directors do not receive any other income for being a director. As Dan and Gerry dominated the board and did most of the work they did not see the point of paying themselves fees for being a director, as they already received any dividends that were paid and an income for working in the business.
In addition to being directors, 8 out of the 10 children also worked in DGD as follows:
• Barry Darn – Bricklaying and human resources
• Charlie Darn – Carpentry
• Cass Darn – Management and Civil Construction – Design, who also helps with junior management activities
• Eric Darn – Electrician
• Paul Good – Painting & Decorating and Plastering (Solid)
• Patricia Good – Plumbing
• Ronny Good – Roof Tiling
• Wazza Good – Wall & Floor Tiling
All the children that are employed in DGD are paid 30% above market rate and attract bonuses for exceeding budget which usually takes their annual earnings around 40% above market rate.
The other 10 employees of DGD, who are not shareholders of DGD or related to the Darn or Good families, are paid 10% above market rate.
The 2 children shareholders who are not employed by DGD are Wallace Darn, who is a world renowned wine taster, and Basher Bob Good, who owns and runs his own pub.
Dan and Gerry started calling the children that are shareholders, directors and employees “Working Directors” and Basher and Wallace as the “Non-executive Directors”. These labels stuck.
At the end of 2016 the business was valued around $50 million. Dan and Gerry were excited that their business had done so well and decided to pay a dividend of $30,000 per share. They explain that though dividends are normally not paid, this is a special year.
After the 2016 AGM in January 2017, Dan and Gerry hired a helicopter to take them surfing on a remote reef. Due to their age, combined with alcohol consumption, Dan and Gerry managed to both have heart attacks and die on this trip.
Dan and Gerry had wills which transferred their share interests equally between their children so that now all 10 children have 10 shares each in DGD.
The shareholders meet in March 2017 and appoint Cass and Barry to run the business. They were directed by the meeting to adopt a low risk approach which is what they do. All the other shareholders are also directors of DGD.
An AGM for the calendar year 2017 was held in February 2018 where all shareholders attended. The minutes of this meeting provide:
Barry and Cass report that profits were down but the company has not made a loss. Accounts unanimously accepted.
Wallace and Basher proposed a motion that all directors receive an income for participating on the board. This was voted down by the other 8 shareholders.
Barry and Ronny moved a motion that DGD not pay a dividend in 2018. They argued that DGD should consolidate following the death of Dan and Gerry and retain all moneys. This motion was successful 8/2, with Wallace and Basher dissenting.
Cass and Patricia moved a motion that all employees working for DGD have a pay increase of 4% per year, which is higher than CPI in 2018, which for Brisbane was 1.8% for the year. It is also higher than the pay increases in the construction area. Wallace and Basher argue against the increase and instead request that the pay increase be paid in dividends. Eric noted that the pay increase would apply to employees who were shareholders and employees that were not shareholders and the point was not to pay shareholders money, but instead to motivate employees working in the business to achieve more. This vote proposal passed with Wallace and Basher dissenting.
Barry moves a motion that DGD offer Basher and Wallace apprenticeships so they can get more involved in DGD. Barry suggested they be paid twice normal apprentice wages. Wallace pointed out that this would require him to change careers and start at a 60% pay cut and Basher said he would have to sell his pub and take an 85% pay cut and made some more colourful comments. The motion was passed by the Working Directors voting for it and the Non-Executive Directors voting against it.
Cass asked if Basher might be interested in working fulltime in junior management until he turns his skills managing a pub into something more relevant for the business.
Everyone, including Basher, is opposed to Cass’s suggestion.
Wallace asked in the meeting at what price his shares be bought out. The meeting resolved unanimously to have the shares independently valued.
An independent valuation priced the shares prior to the deaths of Dan and Gerry at $500,000 per share. Considering the loss of the driving mind behind DGD, uncertainty how 10 equal shareholders will run the company opposed to 2 major shareholders, the lack of dividends paid in the past, the lack of remuneration for directors and the need for a shareholder to work in the business to gain returns, the valuation in March 2018 set the price at $250,000 per share.
In April 2018 Wallace wrote to the other 9 shareholders of DGD who all agreed to buy his shares at the price set in March 2018. This would mean the other shareholders would each acquire an additional 1.1 shares. This transaction was finalised on 1 May 2018.
Wallace and Basher approach the firm where you work and ask for advice under the Corporations Act 2001 (Cth). Basher feels unfairly treated and Wallace feels oppressed and ripped off. Using the IRAC method, please provide them a letter of advice focusing exclusively on legal options that are sourced in the Corporations Act 2001 (Cth).
In 2015 DGD had purchased a large piece of land in Cairns (North Queensland) from a failing land speculator for $5 million. The speculator had obtained approval to develop the land but then been unable to develop the land as there was an adverse environmental ruling. Dan and Gerry backed themselves and purchased this land and several neighbouring blocks for a further $5 million. This was a good price even if the land was not developed. If the land development approval went ahead, then the price of the land would increase around 40%. If DGD went ahead and developed the land then the profits would be far greater.
Dan and Gerry set about trying to have the environmental restriction lifted.
On 3 May 2018 DGD received a letter saying the development approval could progress and all restrictions were lifted. On receiving this notice, Cass and Barry commence reviewing the work Dan and Gerry had done on how the land could be developed, as well as exploring other options. They decide to inform the other directors of the positive outcome in a detailed report that they should have ready by 10 May.
Question 2 continued next page
Unbeknown to the other directors of DGD, on 4 May the Queensland Police Service execute a warrant on Basher’s business and residential premises and take computers, documents, money and some personal items. On 5 May Basher is charged with a range of criminal offences, including fraud, extortion and theft and is released on bail. On 6 May Basher advises the other directors of DGD of his situation. 2 hours later Eric and Paul jointly move that an extraordinary general meeting is held of DGD on 28 May at which a motion is put to amend the constitution to empower the other DGD shareholders to forcibly purchase Basher’s shares at the March 2018 independent evaluation price that Wallace sold his shares at.
Cass and Barry come to your firm seeking advice on their legal position based upon the facts given under the heading “Question 2”. Using IRAC, please analyse legal issues that arise under the general law.
The term “general law” is used in this question in the same way used throughout the prescribed text for LAWS3100. HRS divides law by reference to laws found in the Corporations Act 2001 (Cth) and laws that are not. Laws that are not found in the Corporations Act 2001 (Cth) are referred in the HRS text as laws coming within the general law. So common law, equity, the law of contract etc are all within the term “general law” in the text and for this question.
END EXAM SCRIPT