Tutorial Questions PDF

TUTORIAL QUESTIONS TUTORIAL 1 (in week 2) 1. What is the legal tradition on which the Australian legal system is based? 2. What is case law? 3. What is statute law and who makes it? 4. What descriptions are given to t...

TUTORIAL QUESTIONS TUTORIAL 1 (in week 2) 1. What is the legal tradition on which the Australian legal system is based? 2. What is case law? 3. What is statute law and who makes it? 4. What descriptions are given to the parties involved in litigation? 5. What is the difference between a solicitor and a barrister? 6. Explain the court hierarchy in Australia. 7. What is a precedent? And what is the difference between a binding and a persuasive precedent? 8. How does the Constitution divide powers between state and federal government? 9. What is the separation of powers doctrine? 10. Tom was crossing the road in Ryde when he was injured by a vehicle driven by John who is employed by Fast Couriers Pty Ltd. At the time of the accident John was slightly drunk as he had spent his lunch hour at the pub. Sam, a director of Fast Couriers had spoken to John about his drinking previously and John had assured him that he would give up alcohol. Advise Tom. 11. Lucy is crossing the road on a pedestrian crossing when she is suddenly hit by a motor scooter driven by Sally. Sally was riding at such a high speed that Lucy is thrown across the road and the footpath right through the window of the Chanel boutique. Lucy survives with a broken leg but her blood damages several Chanel suits worth $20,000 in total. Who can sue who? 12. Andrew was negotiating to buy a block of land in a new development. He went to the local council and asked whether any road widening was proposed that might affect the land. The council employee said there were no proposals and Andrew went ahead and purchased the land. Later Andrew found that the council employee made a mistake. What is Andrew’s position? 13. Lulu is a gym instructor. She is shopping for clothes when it starts to rain so she decides to go into Coles supermarket and buy something for her dinner. She wants a salad and sees that lettuce is on sale. There are a lot of customers around the shelves where the lettuces are and as Lulu gets there she slips on a lettuce leaf that has dropped on the floor. She breaks her leg and can’t work for 6 months. Advise Lulu. TUTORIAL 2 (in week 3) 1. What are the main elements necessary to establish that a contract has come into existence? 2. Why is contract law fundamental to a market economy? 3. Which of the following do not amount to valid consideration under contract law? a. A offers to buy B’s almost new Ferrari for $1 b. Your house is on fire. The Fire Department sends a team in response. Before one of the firemen will enter your house he requires you to pay him $200. You need the fire to be extinguished and so agree to pay him the $200. 1  c. Alex helps Tina paint her fence. Two weeks later Tina asks Alex if he would like to buy her almost new Smart TV. Alex says he wants to buy the TV and offers as consideration the fact that he helped Tina paint her fence. 4. Xavier is starting an online business called ‘photobook’ that is a social networking website where people post pictures of their books. Xavier has a lunch meeting with Sally to discuss whether she would like to invest $10,000 in the business. He tells her: “if I don’t hear from you by Friday, I will assume you agree to my offer.” Friday passes and Sally has not contacted Xavier. Can Xavier claim the $10,000 from Sally? 5. Sven is an entrepreneur. His main business venture is a health and wellbeing centre in Palm Beach on Sydney’s northern beaches. The business has not been going well and Sven decides he needs to raise extra funds to reverse the downturn. He also has some new projects to finance. To carry out his plans Sven needs to borrow money from the bank. However, as Sven has a poor credit rating and does not own any real property, the bank requires guarantors for any loan. After interviewing Sven as to his finances and any support he could look to, the bank suggests that Sven convince his brother Tomas and Tomas’ wife Inga to use their Rose Bay house as collateral to support the loan. Tomas and Inga are from Iceland and do not speak English, but they do have business degrees from Reykjavik University. Tomas and Inga sign the documents for Sven. Sven’s business does not improve. Owing $240,000 to the bank and having no way to pay back the money, Sven realises that Tomas and Inga will lose their house. Sven disappears and the bank wants to enforce their security against Tomas and Inga’s house. Will the bank succeed? TUTORIAL 3 (in week 4) 1. John entered into a 2 year agreement with the Blue Mountains City Council to lease a café at a popular National Park scenic spot famous for its views overlooking the Grose Valley. The café was very successful but after 6 months a sewerage disposal works was set up near the café. Business suffers badly and after seeing his customers decrease rapidly John leaves the business and refuses to pay any further rent. The Council sues. Discuss. Also, is there any further evidence that may make your decision as to the outcome any clearer? 2. Matt runs a jewellery wholesale business from a small factory in Balmain. He contacted Safety Control Pty Ltd on Tuesday and informed the manager that he needed an anti-theft grille replaced on the window on the eastern side of the factory before dark that night. The manager of Safety Control agreed to replace the grille and organised for an employee to go out to the factory. However, the employee had a flat tyre and by the time it got fixed it was 6pm and the employee decided to go home. That night the factory was burgled, and $20,000 worth of jewellery stolen. Discuss the issue of damages and any evidential matters that may be relevant. 3. Alexandra is a new member of the Emirates VIP club, entitling her to use of the Emirates lounge at the at Sydney airport while waiting for a flight. One evening, while Alexandra is getting a drink from the bar, a waiter carelessly spills a tray of drinks onto her expensive laptop, which she left on her seat. When she complains to the club manager, he directs Alexandra’s attention to a sign on the wall that states ‘The 2  management takes no responsibility whatsoever for goods lost, damaged or stolen while using these facilities.’ Does the sign prevent Alexandra from suing the club for compensation? 4. In relation to the Privacy Act: (a) What are 2 of the objects of the Act? (b) What are the Australian Privacy Principles? (c) How does the ability of the Commissioner to investigate not only actual, but also suspected, data breaches, benefit individuals regarding protection of personal information? (d) What are 2 of the Commissioners powers under the Act? (e) Substantial civil penalties exist in s 13G for “serious and repeated” breaches of the Act. What might be a difficulty in the application of the section? TUTORIAL 4 (in week 5) [The 10% Test will be held in this tutorial] 1. A and B are in partnership as accountants. Without B’s knowledge, A, in the name of the partnership, entered the following transactions, although he had no express authority to do so: (i) purchased new office stationery and equipment. (ii) purchased from the Royal Shakespeare Company the rights to produce ‘The Merchant of Venice’ at Melbourne’s Princess Theatre. Discuss the liability of the partnership. 2. Lotti, Pearl and Candy set up an accounting practice and decide on a formal written agreement which contains the following: “This business does not give rise to a partnership between the parties and nothing said or done by the parties to this agreement will result in a partnership between them.” Lotti provides specialist investment advice while Pearl and Candy do regular accounting work for the clients. They all contribute to the business expenses and divide the profits between them. A new client, Mika, seeks investment advice and is seen by Lotti. The advice Mika receives from Lotti is to invest in Chang Ltd. Lotti’s brother Malo is managing director of Chang Ltd. Unfortunately for Mika, Chang Ltd has very few assets and goes into liquidation. Mika phones Lotti to complain but she has left for Singapore permanently. Mika wants to sue the accounting practice, but Pearl and Candy deny any knowledge of Lotti’s intentions and deny they are liable. Discuss arguments for: Pearl and Candy, and Mika. 3. Why do you think that public companies are subject to more Corporations Act regulation than proprietary companies? Highlight the important characteristics of each to support your conclusions. 4. Indri runs a soil testing business. He decides to form a company to take over the business. He is the sole shareholder and sole director. Indri sells his business to the company at an inflated price and lends the company $90,000 to help meet the cost of purchase. As security for the loan, Indri arranges a mortgage over a vacant block of land, which he transferred to the company as part of the business sale. In the first year of operation, the business makes a small profit (after paying both Indri and his daughter’s wages), but by the end of 2023 it is clear that the building industry is going through a major slump. Indri becomes desperate and works even harder. While working late into the night, Indri badly injures his hand and needs surgery. He is away from the business for 2 weeks. His efforts to keep the business afloat are in vain and the company is 3 forced into liquidation. On realization of the assets, it is found that the company has approximately $95,000 to go towards meeting creditors’ claims of $210,000: (i) If Indri is the only secured creditor, will he get his $90,000 back? (ii) Can Indri claim workers’ compensation for the injuries to his hand and his time off work? TUTORIAL 5 (in week 6) (1) Alan and Bill are the only shareholders and directors of Sailaway Pty Ltd (Sailaway) which distributes and sells yachting clothing and equipment. As well as a warehouse and attached shop, Sailaway owns a large block of waterfront land which it uses for storage. Alan is also the chairman and majority shareholder of Broadacres Pty Ltd (Broadacres) which buys rural land for subdivision into hobby farms. Broadacres needs to borrow $1.5 million to fund its latest purchase. It already has a large overdraft and has no unencumbered assets to use as security for another loan. Alan organized a loan of $1.5 million to Broadacres from ABC Bank on the basis that Sailaway would guarantee the loan by executing a mortgage over its waterfront land. Alan signed the mortgage documents as a director of Sailaway and forged Bill’s signature as the other signatory. Tom, the local manager of ABC Bank, had been involved in earlier dealings with Sailaway and knew that its business did not include property development. He was on holidays but had left detailed notes to be used in his absence. While he was away the documents and other matters regarding the loan to Broadacres were organized by a substitute manager, John, who had quickly scanned through Tom’s notes but did not ask Alan any questions about Sailaway’s involvement. Broadacres is now in financial difficulties and has defaulted on the loan from ABC Bank. ABC Bank is now seeking to enforce its rights under the mortgage against Sailaway. Advise Sailaway whether it is bound by the mortgage. (2) Which one of the following is correct? A. Only ordinary shares can be traded on the ASX B. Shares are not transferrable C. Because preference shareholders are a specific class of shareholders their rights as to variation or cancellation of shares are protected in the Corporations Act D. Both ordinary and preference shareholders have the same entitlements in relation to payment of a dividend. (3) What circumstances might cause directors to cancel a dividend that has been declared? Are there any time limitations? (4) Fresh Ltd (Fresh) needs to raise finance for the expansion of its fresh food business. It is considering two options: (a) a public issue of redeemable preference shares: and (b) a loan from Strategic Finance Ltd (Strategic). If it proceeds with option (b), Strategic requires Fresh to provide security for the loan. Fresh owns land, buildings, plant and equipment and trading stock (food for resale). Compare the advantages and disadvantages of both options. (5) Larry Largo started a business in early 2001 involving direct marketing of a range of garden products. He operated through a proprietary company, Largo Larry Pty Ltd. The business was quite successful, aided apparently by a media campaign featuring Larry himself. In 2023 he decided to dramatically expand the business and to change the operation from direct marketing 4 to distribution of products through various retail outlets. In that year he converted the proprietary company into a public company (Largo Larry Ltd). He now wants to raise $15 million in additional funds to assist with the expansion and also to retire some debt. One option that is being considered is to offer shares in Largo Larry Ltd to a number of large institutional investors. An alternative option is to float the business, that is offer the shares to the public and apply for listing on the Australian Stock Exchange (ASX). Larry is very upbeat about the company’s prospects. He believes that with favourable economic conditions the company will double in size within a year. He approaches you and asks you to advise him on the following matters: (a) What are the implications under Chapter 6D of the Corporations Act of the two fundraising options being considered? (b) If a decision is made to carry out a float, what type of disclosure document will be required and what type of information must it contain? (c) If the offer document includes forecasts consistent with Larry’s view concerning the prospects of the company, what consequences could follow if the forecasts are not met? TUTORIAL 6 (in week 7) (1) What powers does the board of directors have? What is the source of its powers? (2) From the information provided, determine the correct title or role of the individual described. a) I draw a wage and work within the company. I do not own shares and take my orders from management. b) At general meetings I can vote and will benefit if the company makes a profit and declares dividends. c) I make strategic decisions about where the company is going. I am not employed full time but rather I am paid a fee for the services I provide. d) I live close to the main factory where the business owned by the company makes its products and I am affected by the decisions made by the company. e) I investigate and enforce compliance of the Corporations Act. If a company or one of its officers contravenes the Corporations Act, I may initiate proceedings and seek a penalty. f) I am the main contact person for those wishing to contact the company. Keeping and maintaining all company records is my responsibility. g) At directors’ meetings I control the agenda that is discussed and ensure all procedures are followed. 5  h) I am not appointed to any official position in the company, yet my instructions are followed, and I make decisions about issues related to the strategy and management of the company. i) I manage the day to day running of a company. I was elected to my position. I am responsible at the strategic level and the management level. j) I am a member of the board of directors of AB Pty Ltd. AB is a subsidiary of XY Ltd. I was elected by XY Ltd. (3). Mr Shift, Ms Avid and Mr Margin seek your advice on establishing a new company. You advise them not to bother with their own constitution, but instead to rely on the replaceable rules in the Corporations Act. Advise who should be appointed as directors of their company in view of the following information: (a) Mr Shift states that he does not want to be appointed a director or secretary. He suggests instead that his family company be appointed as a director; and that the company not have a company secretary. (b) Ms Avid is currently unavailable for meetings as she has five months still to serve for her last conviction for falsifying company accounts. (c) Mr Margin is 80 years old, left High School in year 10 and has no qualifications. (4) Elisha is a director of a family company EliCo Pty Ltd. Not long after the company is formed an industry downturn causes financial problems and EliCo subsequently goes into liquidation. In her report to ASIC, the liquidator states that the secured creditors have been repaid in full, but the unsecured creditors will not receive more than 20 cents in the dollar. The liquidator does not find any evidence of wrongdoing on Elisha’s part or any of the other directors. However, ASIC records show that Elisha has, over the last nine months, had a similar track record with two other small proprietary companies. What (if any) ramifications does this have for Elisha? (5) Do you agree with the proposition that “non-executives don’t run the company’s business from day to day and only ever contribute at board meetings and for this reason they serve no real purpose.” TUTORIAL 7 (in week 8) (1) Roberta is the managing director of EY Pty Ltd, a profitable company specializing in buying and selling anti-aging cosmetics and shampoos for sensitive hair. The market for EY’s products is women between the ages of 40 and 70 years. While at the hairdresser’s Roberta chats to her hairdresser, Leonardo. Leonardo asks Roberta whether her company would be interested in helping him to market a new organic hair soap called “Wonder Bar”. Leonardo claims that the soap prevents male hair loss. Roberta tells Leonardo that her company would not be interested because it sells women’s products only. She offers to help Leonardo herself. Leonardo agrees. Roberta and Leonardo set up a company called Wonder Hair Soap Pty Ltd (WHS) and become its directors and members. Roberta is the majority member. The business of the company is an overnight success. 6  At a board meeting of EY six months later, Roberta proposes that EY enters into a long- term contract with WHS to buy supplies of the organic hair soap for re-sale. The board agrees and as part of the contract Roberta negotiates with the board that she will be paid a small commission on each sale because she drew the board’s attention to this new product opportunity. EY makes large profits from selling the soap overseas. EY now learns that Roberta is the majority member in WHS. The directors are angry and want to know what can be done. (a) Has Roberta breached her duties as a director. Which (if any) has she breached and explain how she breached has them? (b) What general law remedies (if any) should EY seek against Roberta? (c) What statutory penalties (if any) can be imposed against her? Who can impose them? (2) Growfast Pty Ltd (Growfast) operates a wholesale nursery growing and selling garden plants. Sam, Peter, and Rose are the only shareholders and directors. Sam manages the company’s day-to-day operations. Peter, who left school at 14 and has no tertiary qualifications, is in charge of the nursery. Rose is a non-executive director who does not take an active part in the management or operations of the company. Until recently, Growfast has been very profitable. However, six months ago, a competing business opened nearby and since then Growfast’s profits have dropped considerably. Sam thinks that Growfast should move to larger premises in a different area. Without consulting Peter or Rose he starts looking for new premises and he decides the first place he inspects is perfect, although the price is more than Growfast can comfortably afford. Sam does not think this will be a problem, because there is no competition nearby and he expects that profits will recover immediately. Sam calls a board meeting and tells Peter and Rose that moving will solve all the company’s problems and that this property he has seen is absolutely perfect for Growfast. He says they will have to act quickly as there is another interested purchaser. Sam does not tell Peter and Rose that he only looked at this one property. He is so enthusiastic that both Peter and Rose agree to the proposal even though Rose is doubtful, feeling that they are being rushed into making a decision without being given time to consider other alternatives. Peter agrees to Sam’s proposal without really understanding the financial implications. Growfast purchases the new premises but, because of continuing dry weather, its profits remain low. Rose is becoming worried about her obligations as a director, especially if Growfast’s financial position deteriorates any further. Advise Rose about: (i) Her position in respect of any breaches of her statutory duty of care and diligence as a director; (ii) Whether her decision to agree to the purchase of the new premises would be protected by S.180 (2) (3) What is the rationale of the business judgment rule – does it allow directors too many opportunities to avoid the consequences of poor business decisions? 7  TUTORIAL 8 (in week 9) (1) Can a small-holding (minor) shareholder have an influence on how a company is managed? What are the main restrictions and are the number of shares held relevant? (2) Morris, John and Paul are directors and shareholders of Noosa Property Developments Pty Ltd (NPD), a property development company which owns and operates a restaurant. Morris and John are brothers. John and Paul are friends and partners in an accounting firm. Morris is an unemployed artist and sole parent of three young children. The total number of issued shares in NDP is 6,000 ordinary shares. Each shareholder has 2,000 shares. All the shares are fully paid. NPD has been very successful but has not paid any dividends to its members for the last two years. Profits have instead been invested in further development projects. Morris’ wife has recently passed away and he is very short of money to look after his family. He approaches John and Paul and asks them to consider whether NPD could begin to pay dividends again to its members. John and Paul refuse to consider Morris’ request as it would upset the “long-term goals of NPD.” Morris is upset by this response and announces that he wants to sell his shares. John and Paul refuse to buy him out and demand that Morris resign as a director because he has lost his objectivity. Morris resigns reluctantly. He asks to see NPD’s most recent set of financial statements. John and Paul refuse to provide the information. Morris discovers accidentally that NPD has been paying large “management fees” to John and Paul’s accounting firm. Morris consults you as his legal adviser. He wants to know: (i) Discuss whether Morris can bring a derivative action (proceedings on behalf of the company) and explain the relevant law applicable. (ii) Discuss Morris’ right to bring a personal action, and particularly look at his rights under the Corporations Act, including s 232. What evidence in the question is relevant to deciding if oppression exists? (iii) What orders should he seek? TUTORIAL 9 (in week 10) (1) What is a company takeover? What interests does the Corporations Act seek to protect? Does it make any difference to the operation of the law if a takeover is conducted via the stock exchange? (2) What legal obligations apply to directors during a takeover? Does liability attach to other persons whose statements appear in a takeover document. (3). A Ltd has held 19.9% of B Ltd (a company listed on the Australian Stock Exchange) for two months. The directors of A Ltd wish to gain control of B Ltd as soon as is possible and are considering making an offer to the shareholders of B Ltd. The offer they wish to make is one share in A Ltd plus $1.00 in cash for each share in B Ltd. What issues concerning the law in relation to takeovers do these facts raise and what must the directors of A Ltd do to achieve their aim? (4) Solly is a well-known investment adviser. He is selling his luxury motorboat to Mr Lock, the CEO of a large public company. Solly phones Mr Lock and threatens to sell his boat to someone else unless the deal is done soon. Mr Lock says to Solly “Don’t say anything but our company is just about to be taken over by Telstrate the largest communications company in Asia, once that is done I will have the $10 million in cash” The next day 8  Solly buys $100,000 worth of Telstrate shares at $5 per share. When news of the successful takeover is publicised the shares rise to $10 per share. Solly sells and makes $5 profit per share. Is this insider trading? Explain your answer. TUTORIAL 10 (in week 11) (1) In relation to Voluntary Administration: (a) Who appoints an administrator? (b) What is the rationale behind administration? (c) How could it be useful to directors? (d) What are the possible outcomes of administration? (e) Is a restructure always the best for creditors? (g) Are all creditors treated the same? (h) What company debts is the administrator liable for during the administration? (2) What is the effect of the stay (moratorium) on proceedings during administration and what do you think are the reasons the Act enables certain creditors to avoid the stay (be exempted from the stay). (3) What are the 2 phases of the restructuring process under Pt 5.3B? (4) Can any company enter a Pt 5.3B restructure? (5) What role do the directors play in a Pt 5.3B restructure? (6) How are receivers appointed, and what are their duties? (7) What matters are relevant in an assessment of whether a company is insolvent and why is the issue of insolvency an important factor in the regulation of business relationships? (8) Liquidators have both powers and duties – what are their duties and what is the rationale behind the imposition of these duties? (9) Explain how a liquidator will divide and distribute assets of a company in liquidation – why do you think a hierarchy of creditors exists as concerns distribution? (10) What is required for a company to be eligible to enter a simplified liquidation process? TUTORIAL 11 (in week 12) (1). Mr T and Mrs T are directors of P Pty Ltd which trades as “Fluffy Donuts of Manly”. Mrs T makes the donuts and serves in the shop while Mr T attends to financial matters. In fact, Mrs T was attracted to Mr T before they were married because he was an accountant, and could, she believed, provide her with the financial guidance she lacked. The business operates from leased premises. The company owns certain stock and fittings valued at $15,000 but other than this has no assets of value. Bad weather has slowed business, however, Mr T’s spiritual advisor says the weather will get better. With 9  this in mind Mr T decides to invest a substantial amount in advertising the business so that when the weather gets better he will sell more donuts than before. Accordingly, Mr T approaches the company’s bank and borrows $50,000 on behalf of the company. He then hires an advertising company (at a cost of $50,000) to put up billboards along the beach at Manly advertising Fluffy Donuts. However, he doesn’t pay the advertisers but instead uses the $50,000 he borrowed from the bank to install a new donut making machine. Suppliers are owed $60,000 but have held off enforcing their debts because they also believed the weather would get better. There is group tax outstanding for two part time employees. Mrs T trusts Mr T’s judgement. The rain stops but the customers do not return. The advertising company (owed $50,000) winds up P Pty Ltd and a liquidator is appointed. Discuss the liability of Mr and Mrs T under s.588G. (2). This question asks you to advise Albert about possible issues that arise from these facts – these issues are: receivership; voluntary administration; liquidation; insolvent trading; voidable transactions. Can you see where these issues arise in the facts? Albert Side took over his father’s funeral business, The Other Side Pty Ltd (TOS) in 2005. The directors of TOS are Albert and his wife. TOS has: - 3 funeral parlours in NSW, all of which are rented; - A substantial quantity of equipment (including hearses and cremators) leased from finance companies and secured by personal guarantees from Albert and his wife; - 3 subsidiaries as follows: Dearly Departed Pets Pty Ltd (Pets); Creative Coffins and Stonemasonry Pty Ltd (Coffins); and TOS Embalming and Cryogenics (Cryogenics). Pets has been running at a loss for several years. Coffins is a profitable business and operates out of a factory in Geelong that it owns outright, but most of Coffins’ profits have been drained off to cover the losses in Pets and to fund the start-up costs in Cryogenics. However, Cryogenics is one of the few suppliers of its type of services in Australia and there is a prospect that in 2 or 3 years, the investment in Cryogenics may pay substantial dividends. TOS itself is only barely profitable. It is suffering from the drain on funds caused by Pets and Cryogenics and even though Albert has tried to update the company’s image it continues to lose market share to its rivals. The group is financed by loans totalling $10 million from Eastpac Bank (Eastpac). Eastpac has security over all the assets of each company, except the Coffins’ factory site. The loans from Eastpac are also secured by a personal guarantee from Albert and his wife. Albert is concerned that he may not be able to keep things alive long enough for the profits from Cryogenics to eventuate. He is particularly worried about his personal exposure under the guarantees he and his wife have given and about the welfare of his employees who have been very loyal during difficult times. The cash flow problems of TOS have meant that it has been late in the payment of rent on its main 2 funeral parlours in Sydney each month for the last seven months but has just managed to find the necessary funds, usually at about the time the second threatening letter has arrived. On more than two occasions the transfer of funds by TOS to the landlord to cover rent have been rejected for lack of funds. A debt of $4,090 to the local church choir, who often sing at the funerals, is way overdue. The church has served a statutory demand. The 21 days expired yesterday. 10 Albert has approached an insolvency practitioner and sought assistance about what he should do. One option he is considering is selling the Geelong factory site to his family company for less than its full market value. Advise Albert about his options, liabilities and what factors might influence the ultimate outcome of any decision he takes. TUTORIAL 12 (in week 13) [The 20% Test will be held in this tutorial] 11