Tutorial Guide This document contains the tutorial tu torial exercises and learning objectives objectives for each week of semester. The exercises contain a mixture of short answer questions, problem solving exercises exercises and some essay questions. The scope of coverage of the exercises should serve as a useful ‘checklist’ ‘checklist’ for the issues you should understand in order orde r to confidently complete the assessment in this subject. The material for some weeks is more more than can be reasonably re asonably covered in a one hour ho ur tutorial. tuto rial. ccordingly, ccordingly, your tutor will advise you of the questions he or she intends to deal with in detail in the following week’s tutorial. t a minimum you should be prepared to discuss the answers to the questions nominated by your tutor as being the focus of each tutorial. tuto rial. !our !our tutorial participation marks in this subject "#$% of the total mark for the subject& will will hinge hinge on you doing this. This does not mean you you should ignore the other questions and exercises. 't is strongly advisable that you complete all the allocated exercises for each ea ch topic. (ritten (ritten answers to the tutorial tuto rial questions covered in the tutorials tut orials will generally not be made available available as the expectation is that you prepare p repare for, attend atten d and actively participate in the tutorials in which answer guidelines are discussed. 'f you would like answer guidelines for questions not covered in class, please ask your tutor. !our !our tutor tut or will more fully explain how he or she intends to run the tutorials tu torials and assess tutorial tu torial participation.
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Tutorial 1 - Week 2: Topics:
Introduction Legal forms of business and choosing between them
Learning Obecti!es: • • • • • •
)et to know my tutor. *nderstand the way the *nit is administered and what ' have to do to pass. +ecome familiar with the textbook for this subject. +ecome familiar with "or recall from +-& the concept of ‘legal form of business’. (ork out a plan for your approach to studying this subject (ork out how to choose between legal forms of business, including types of company
"uestions#$cti!ities: #. o ' understand the administrative and assessment arrangements for this unit/ o ' understand the expectations on me to prepare for and actively participate in tutorials/ 0. (hat are the materials ' should buy/ (hat are materials which ' should use but do not need to buy/ 1. (hat are the features of the prescribed textbook/ (hat is the best way to use it/ 2. (here do ' find cases on3line/ 4. (here do ' find the 5artnership ct/ 6. (hat 7orporations -aw resources in the library can ' easily access/ 8. (rite out a brief plan for your approach to study in this subject. 9nsure your plan addresses when and how much time you intend to commit to viewing lectures and access the other materials posted on -: for this subject. 9nsure your plan also allocates time for reading the materials, preparing adequately for tutorials and completing assessment items. !ou will be asked in the final tutorial to assess the extent to which you stuck to your plan. ;. (hat do ' know about businesses/
club>charity, how would ' choose what legal form it should have/ ?n the other hand, if someone asked me what legal form of business they should use "a common question for accountants&, how would ' help them to choose/ (hat would ' write in an advice/
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Tutorial 2 - Week %: Topic:
&artnership Law
Learning Obecti!es: •
•
•
To ensure that I know how to write an answer appl'ing rules of law to facts To know what the law is that sol!es the problem of whether a gi!en relationship is a partnership To know when a partner(s actions will be contractuall' binding on the partnership
"uestions: 1) (hat do ' do when ' read material in a textbook/ (hat should ' do/ 2) (hat are the rules ' have to use to solve a question as to whether a particular relationship is a partnership/ (hat is the source of each aspect of the rules/ %) (hen and where should ' put case and section references in my notes, in essays and in problem answers/ *)
&roblem 1: lfred and +eatrice operated a bookshop together, sharing profits equally. They decided to expand. Their friend 7oco offered them @4$,$$$ to help finance the expansion. ccordingly she agreed with lfred and +eatrice that she would lend the money in return for @4,$$$ a year payable from sales less outgoings.
+)
&roblem 2:
drian and +rian intend to start a business selling second hand cars.
drian and +rian decided to use a partnership, as business structure to operate their second hand car business. 7onsider the following scenarios. ,cenario 1
There is no agreement between drian and +rian as to their respective authority to contractually bind the partnership with regards to third partiesA a. +rian tells 7olin that he is contracting on behalf of the partnership and purchases a second hand car from 7olin for @#$ $$$B b. +rian contracts with 7olin but does not disclose that he is acting on behalf of the partnership, and purchases a second hand car from 7olin for @#$ $$$B c. +rian tells 7olin that he is contracting on behalf of the partnership and purchases a leather jacket from 7olin for @# $$$B
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d. +rian contracts with 7olin but does not disclose that he intends to act on behalf of the partnership, and purchases a leather jacket from 7olin for @# $$$. ,cenario 2
There is an agreement between drian and +rian as to their respective authority to contractually bind the partnership with regards to third parties. 'n terms of this agreement, +rian may not purchase cars on behalf of the partnership if the price is in ecess of .1/0///: a. +rian tells 7olin that he is contracting on behalf of the partnership and purchases a second hand car from 7olin for @0$ $$$. b. +rian contracts with 7olin but does not disclose that he intends to act on behalf of the partnership, and purchases a second hand car from 7olin for @ 0$ $$$. c. drian informs 7olin of the agreement between +rain and drian. +rian tells 7olin that he is contracting on behalf of the partnership and purchases a second hand car from 7olin for @0$ $$$. d. +rian contracts with 7olin but does not disclose that he intends to act on behalf of the partnership, and purchases a second hand car from 7olin for @ 4 $$$. ,cenario %
There is an agreement between drian and +rian as to their respective authority to contractually bind the partnership with regards to third parties. 'n terms of this agreement, +rian may purchase an' item whatsoe!er on behalf of the partnershipA a. +rian tells 7olin that he is contracting on behalf of the partnership and purchases a leather jacket for himself from 7olin for @# $$$. b. +rian contracts with 7olin but does not disclose that he intends to act on behalf of the partnership, and purchases a painting to put in the partnership office from 7olin for @# $$$. c. +rian contracts with 7olin but does not disclose that he intends to act on behalf of the partnership, and purchases a second hand car from 7olin for @ 4 $$$. Required:
dvise drian, +rian and 7olin whether the partnership will or will not be bound and give reasons for your answer.
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Tutorial % - Week *: Topic:
Introduction to orporations orporate &ersonalit' and ompan' Organs
Learning Obecti!es: •
*nderstand the key elements of corporate legal personality
•
*nderstand the concept of the corporate veil and when the veil might be lifted
•
Cnow the organs of a company and the division of powers between those organs
"uestions: #.
(hat is '7 and what does it do/
0.
(hat 5arliament passed the Corporations Act 2001 / oes it have the power to do so/ (here does the power come from/
1.
(hat are the legal attributes of a company/
2.
istinguish betweenA a. 5ublic and 5roprietary 7ompanies b. -arge and mall 5roprietary companies c. -isted companies and companies that are not listed d.
4.
(hat is the ‘corporate veil’ and under what circumstances is an ustralian court likely to lift it/
6. 8.
(hat are the specific powers of a body corporate and where are they located/ Dame the two organs of a company. (hat determines the division of power between these organs/ (hat will a company’s internal governance rules typically deal with/ (hen will the replaceable rules apply to a company/ (hen will they not apply/ (hat will the members in the general meeting be able to do where they disagree with management decisions legitimately made by the board/ cientists employed by a large agricultural company discover a new genetic modification to rice. This modification would make the rice fungus and pest resistant and as a result increase yields dramatically in areas of the world where there are chronic food shortages. 7ommercial production of the strain of rice would be very profitable. *nfortunately, however, if not carefully controlled, the rice could cross3breed with various weeds resulting in a ‘super’ weed, the spread of which would wreak havoc on all sorts of crops. ubstantial liability might fall on any producer of the rice. 'n order to limit this risk to company forms a subsidiary to produce and sell the rice. 's this an appropriate and lawful use of the principle of
;. =. #$. ##.
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limited liability/ iscuss.
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Tutorial * Week + orporate ontracting and &r-registration ontracts Learning Obecti!es: •
•
To know the principles of and to be able to appl' the law as to criminal and tortious liabilit' of companies and as to contracting b' companies) To know the potential liabilities of compan' promoters for preregistration contracts
&roblems: #. 0. 1. 2. 4. 6.
(hat is the indoor management rule/
8. 5eter is bankrupt and therefore cannot act as a director of a company. Devertheless he does so. +ruce is the managing director of the same company. +ruce represents to an outsider that 5eter has authority to enter into a contract but privately confines 5eter’s authority to negotiating the contract. 5eter purports to enter into the contract. 's the company bound/
;. Fohn enters into a contract on behalf of a company he is yet to register. The company is registered a month after the contract is executed. (ill the contract be binding on the company/ (hat steps should Fohn take to ensure that he will not be personally liable for the actions of the company under the contact/
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Tutorial + - Week 3 Topic:
4eetings and 5irectors
Learning Obecti!es: •
• •
To know how general meetings must be called and the procedures associated with calling meetings and making decisions at meetings To know the effect of a procedural irregularit' To be able to sol!e problems relating to the appointment and remo!al of directors
&roblems: #.
0. 1. 2. 4. 6. 8. ;.
(hat type or resolution is required toA "a& adopt or modify or repeal a company constitutionB "b& change the company’s name or change the type of company/ (ho may convene>call a general meeting/ (hat is a procedural irregularity/ (hat is the effect of a procedural irregularity/ (ho must receive notice of a meeting/ (hat must be contained in a notice of meetings of members/ (hat extra requirements apply to listed companies/ (hat is the quorum for a meeting of the company’s members/ (hat can a member do if he>she can’t attend a meeting in person but still wants to vote/ (hat is the difference between the definition of a ‘director’ and an ‘officer’/ Ciewa 5ty -td has 1 shareholdersA . #$ shares +. 0$ shares 7. 8$ shares 7 wants to appoint his daughter, nne, as the sole director of the company. nne is currently living in 'srael. nne was recently released from prison after serving a 6 month sentence for stealing money from her former employer to pay her gambling debts. 7 also wants to change the company constitution to provide for any directors to only be able to be appointed with his consent. + is unhappy about 7’s plans and instead wants 7 removed as a director of the company. "a&
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Tutorial 3 - Week 6: Topic:
5irectors 5uties &art 1
Learning Obecti!es: •
To gain an understanding of director duties of care and diligence
•
To gain an understanding of the dut' to pre!ent insol!ent trading
&roblems: #. (hat are the sources of the directors’ duty of care to his or her company/ 0. 's there any difference between the statutory duty of care and the general law duty of care/ 1. (hat is the standard of care expected of a company director/ "give a case as authority for your answer& 2. (hat happens if a person to whom a director has delegated responsibilities does not take reasonable care, skill or diligence in fulfilling those responsibilities/ 4. To what extent is it reasonable for a director to rely on information provided by others/ 6. (hat is the business judgment rule/ 8. (ho owes the duty to prevent insolvent trading/ ;. (hat are the elements of the duty to prevent insolvent trading/ =. (hat defences are available for breach of the duty to prevent insolvent trading/ #$. (hat are the consequences of contravening the duty to prevent insolvent trading/ ##. &roblem: Ered was appointed as managing director of a wind3turbine manufacturing company "(T: -td& in Eebruary 0$##. 't owns a factory that makes wind turbines. Ered is in day3to3day control of the company. uring the time Ered is managing director, the +oard of irectors comprisesA •
•
•
•
Ered, who is an engineer and experienced manager. )erald, Ered’s stay3at3home partner. )erald seldom comes to meetings because he is too busy cleaning their house.
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The board’s function in (T: is to set the policies of the company for Ered to carry out and to approve major transactions t the time of Ered’s appointment (T: was in a strong financial position. +ut by ugust 0$## it is insolvent. liquidator is appointed. ?n investigation, the following matters are discovered. #. (T: purchased a new yacht worth @#$ million in :arch. The yacht has experimental sails. These sails prove to be inefficient and the yacht needs a @# million refit with normal sails. s it is, it is only worth @# million and even after refitting it would be worth only @4 million. 0. (T: has loaned @# million to a company which has now gone into liquidation. The company was well known to be in trouble and perusal of its last set of accountant would have revealed significant cash3flow problems. The +oard of (T: had approved the loan. dvise the liquidator whether any of the directors has breached their duties of care and diligence.
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Tutorial 6 - Week 7: Topic:
5irectors 5uties &art 2
Learning Obecti!es: •
To gain an understanding of director duties of lo'alt' and good faith
•
To gain and understanding of directors( fiduciar' duties and the interpla' between ethical beha!iour and director duties of lo'alt' and good faith #. 0. 1. 2.
(hat is meant by good faith/ (hat are the company’s interests/ (hat are proper purposes/
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Tutorial 7 - Week 8: Topic:
5irector 5uties &art III
Learning Obecti!es: •
To gain an understanding of the dut' of directors to a!oid conflicts of interest
•
To gain an understanding of the different conse9uences which flow from breaches of both general law and statutor' duties #. (hen must a director of a company who has a material personal interest in a matter that relates to the affairs of the company give the other directors notice of the interest/ (hat are the requirements of the notice/ 0. :ay a director of a proprietary company that has a material personal interest in a matter that relates to the affairs of a company vote on matters that relate to the interest/ 1. :ay a director of a proprietary company that has a material personal interest in a matter that relates to the affairs of a company be present at the meeting of the vote on matters that relate to the interest/ 2. (hich of the following actions will be considered as a breach of a director’s duty to avoid conflicts of interest/ "a&
company is a construction company. + company is a railway company. company enters into negotiations with + company for a possible contract. company has three directors "H, ! and I&. H and ! form company 7. 7ompany 7 takes the contract with company +. 'n the general meeting of members of company , H and ! use their majority vote to declare that company has no interest in the contract and to sell ’s equipment to company 7.
"b&
7ompany is a mining company. + makes an offer to sell mining rights to company . 7ompany rejects the offer. ?ne director of company "H& forms a syndicate to buy the rights from +. H did not disclose this to company .
"c&
7ompany owns a cinema and has 4 directors. The directors of company form company +. 7ompany + obtains cinema leases from company 7. The directors of buy shares in company 7 "either directly or via other companies or persons&.
"d&
7ompany is makes maps> H is president and 79? of company and ! is executive vice president of company . H and ! are involved in a proposal of company to work for +. H and ! resign and form company 7 and obtain the contract relating to the proposal with +.
"e&
H is the managing director and 79? of company and a director and shareholder in company +. + loans money to company 7 "that holds #$$% of the shares in company &. 7ompany buys all the shares in #0
company for more than their market value. 7ompany 7 uses the proceeds from the sale of company ’s shares to pay off its loan with company +. 4. :artin is one of the directors of +etta3Tea -td.
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Tutorial 8 - Week 1/: Topic:
4ember emedies
Learning Obecti!es: •
#. 0. 1. 2. 4. 6. 8. ;.
=. #$.
To gain an understanding of the rights of shareholders and how the' are enforced) -ist the statutory remedies of members. (hen will the court grant a member a remedy against oppression/ -ist the persons who may apply for the oppression remedy/ -ist 4 examples of oppressive conduct. -ist the orders a court can make for oppression of a minority shareholder. (ho can apply to a court to have a company wound up and when can they apply/ )ive examples of ‘just and equitable grounds’ -ist the persons who can apply for a statutory injunction. (ho may bring a derivative action on behalf of a company/ (hat are the criteria for bringing a derivative action/ (hat is the difference between a derivative action and a personal action/ (hat are the principles to emerge from the Ga!otto case/ &roblem: ticky (eb 5ty -td owns and rents out the apartments in an apartment block. The company had been started by :r pider and :s Ely when they got married. :r pider and :s Ely each owned one share and each was a director. ?n the birth of their first child, +uKK, :s Ely and :r pider changed the constitution of the company so that each share had the right to occupy an apartment. :r pider transferred his share to +uKK. new share was issued to another child, Tarantella, on her birth. :any years have passed and +uKK and Tarantella have grown up and moved into their apartments. :r pider has died. The apartment block has become decrepit. +uKK and Tarantella want to redevelop the building. t a general meeting +uKK and Tarantella vote themselves in as directors, denying :s Ely, their mother, a place on the board. cting as the board of directors, they then organiKe the renovation and redevelopment of all the apartments in the block. :s Ely’s furniture is taken out of her apartment and put into storage. The locks are changed. Do more dividends are paid as, according to +uKK and Tarantella, the company has no income during the redevelopment, although it still has large amounts of retained profits. :s Ely is forced to find alternative accommodation but she does not like it and thinks it is beyond her capacity to afford. 7onsider each of the following set of eventsA "a& :s Ely offers to sell her share to +uKK and Tarantella so she can herself buy something much better, but they refuse to buy it saying they have no money. They also refuse to allow her to transfer the share to anyone #2
"b&
##.
else, saying they need to retain the company as family3owned. Dow :s Ely has come to you for advice. 's there anything she can do to regain occupation of her apartment and to force the company to pay her dividends/ +uKK and Tarantella offer to buy :s Ely’s shares and a fair valuation. The fair valuation is more than enough to buy a much better apartment than her old one. he is not interested. +uKK and Tarantella then alter the constitution of the company to permit the compulsory purchase by majority shareholders acting jointly of minority shares at a price assessed by a qualified valuer plus 0$%. They then send a cheque in the appropriate amount and alter the share register accordingly. :s Ely wants to keep her shares. (hat should she do/
Fane and +ob had been running a boat3building business through a company LDational +oat +uilders 5ty -tdM for over 04 years. +oth +ob and Fane were directors and shareholders with +ob holding 86 of the #$$ issued ordinary shares and Fane holding the remaining 02 issued shares. -ast year +ob died, leaving his shares to his son :ichael. :ichael is not a ‘hands on’ manager like his father and Fane is concerned that the business is rapidly deteriorating through :ichael’s neglect. Fane also suspects that the company is paying :ichael a large management fee which the company can’t sustain. Fane can’t verify either of these concerns as :ichael refuses to give her access to the company books. :ichael has indicated to Fane that he has negotiated the sale of the boat building business of the company to another company. :ichael is the majority shareholder of the proposed purchaser. Dational +oat +uilders will then switch its focus to aircraft detailing "a hobby of :ichael’s, but an activity in which the company has never been involved&.
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Tutorial 1/ - Week 11: Topic: apital aising and Transactions as to ,hare apital Learning Obecti!es: •
To learn what constitutes a reduction in share capital
•
To learn what constitutes a !ariation of share rights
•
To understand and criticall' anal'se the polic' behind the legal rules concerning the treatment of reductions in share capital and !ariations of share rights
"uestions: #. 0. 1. 2. 4. 6. 8.
(hat is a reduction of share capital/ (hat is the general legal attitude to reductions of share capital/ (hat is the difference between a share buy3back and a capital reduction/ (hat is the difference between a selective and equal share buy3back/ (hy is the distinction important/ (hat is the #$>#0 limit/ (hen is a company allowed to give financial assistance for the purchase of its own shares/ ummarise the situations where s0267 deems there to be a variation of share rights in relation to a company with a share capital. 5repare a list of the types of legal action open to a shareholder to a challenge a variation by a company of the rights attaching to his or her shares. ‘?ne of the objectives of corporations law is to protect creditors and shareholders by requiring companies to maintain their capital’ N iscuss the effectiveness of the relevant provisions.
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Tutorial 11 - Week 12: 5I;I5<=5, > LO$= $&IT$L ?@=5$I,I=G Learning Obecti!es: •
@nderstand basic concepts associated with loan capital fundraising including concepts introduced b' the &ersonal &roperties ,ecurities $ct 2//8AthB
•
@nderstand the new rules relating to when a di!idend can be paid
•
Learn when disclosure documents are re9uired and the ramifications of defecti!e disclosure
"uestions: #. 0. 1.
2. 4. 6. 8.
(hat is a debenture/ (hat is a fixed and floating charge/ Oisit the 5ersonal 5roperties ecurities Gegister website "www.ppsr.gov.au& and answer the following questionsA a. (hat are ‘personal property securities’/ b. (hat is a security interest in a ‘circulating asset’/ c. (hat is the priority in which security interests will be enforced/ (hen does a dividend become a debt/ -ook at section 042T and advise when is a company will be prohibited from paying a dividend/ (hen is a disclosure document required for the issue of securities and what are ‘excluded offers’/ 'f a disclosure document contains defective information what type of liability can arise and who can be liable/
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Tutorial 12 - Week 1%: $,,IG=4<=T
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