LAWS2203: Corporation Law- Australian Securities Exchange- Case Study Analysis Assignment

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Case Study Analysis Assignment:

Task:

Olivia, Sophie, Zac and Mustafa are four ANU law students. They have been friends since the first day they met and share a number of common interests including Japanese food, watching Nextflix and discussing get rich schemes. Zac in particular is sure he can come up with a scheme that will make them all very rich one day.

After studying Corporations Law in 2015 Zac becomes obsessed with watching share price movements on the Australian Securities Exchange. Then, in 2016, with the turmoil in global politics, Zac becomes convinced that the best investment is not shares but gold. Every time he meets with his three friends he discusses the current state of international economic indicators such as GDP growth rates, inflation, interest rates, productivity and energy prices. He spends his evenings analyzing chart patterns, moving averages, market trends and the economic cycle in order to
speculate on the future price.

In mid-2016 Zac meets with his friends and tells them that he has come up with a fool-proof way to make them rich. He explains that investing in gold is very difficult for “ordinary people” who do not have easy access to dealers. He therefore proposes that the group develop an “app” that can be used by people to buy or sell gold using their phone. After much discussion, the group decide to go ahead with the plan and incorporate a company BSG Pty Ltd (BSG) to get the business started. They adopt the standard constitution prepared through an on-line registration system
they use to set up the company.

Zac, Sophie and Mustafa are appointed directors. Olivia, who is very busy with her new job in a law firm, asks to only be a shareholder. The company issues 120 ordinary shares (30 each), plus 20 “super shares” issued to Zac (as the business was his idea) which give him 2 votes per share on any decision to alter the constitution, plus a right to up to 10 bonus shares each year the company makes a profit in addition to any right he has to a dividend.

As directors, Sophie and Mustafa devote considerable time to get the business started. Mustafa, who also studied finance at university, takes on dealing with the financial side of the business, whilst Sophie makes sure all the administrative and legal requirements are met. In January 2017 the app is released and is an instant success! Zac, Sophie and Mustafa are now even busier with the business and feel annoyed that Olivia is doing nothing to help, but will still get part of the profit when the first dividend is paid in June 2017. As a result, they decide to hold a directors’
meeting to approve the issue of 5 new “super shares” to both Sophie and Mustafa, and 30 new ordinary shares to Zac.

Olivia hears about the decision and is confused as to whether she has any right to complain. She tells you that there are provisions in BSG’s constitution which provide that
1. The directors can cause the company to issue, convert and allot securities with such preferred, deferred or other special rights as the directors determine, provided that at least 14 days notice is given of the meeting at which the share issue will be discussed.
2. If a share issue directly or indirectly varies the rights of a class of shares, the variation must be approved by at least 75% of the holders of shares of that class.

Advise Olivia as to
1. whether the issue of new ordinary shares is valid at common law and/or under the statute;
2. whether the issue of new “super shares” to Sophie and Mustafa an alteration of class rights under s 246C;
3. what remedies Olivia can seek (if any) in relation to the directors’ failure to give 14 days notice of the meeting at which the decision to issue new shares was made.

Furthermore Olivia has just learnt that Sophie has recently leased a small office on behalf of the company and has been purchasing expensive furniture and “décor items” to put in it. She has entered all of these contracts “for and on behalf of BSG Pty Ltd.” As Sophie is named as the company secretary in the company documents lodged with ASIC, Olivia assumes the contracts are binding on the company. Advise Olivia if there are any arguments that could be made by the company that these contracts are only binding on Sophie.

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Posted on : February 09th, 2018
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