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LEGL2002 Law of Business Organisations

Question

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Questions:

This assignment requires you to answer a long problem-type question using the ILAC (Issues, Law, Application, Conclusion) format, a worked example of which is in the Resources folder.
 
Please note that the word limit of 2 000 words is firm, and 1 mark will be deducted if your assignment exceeds 2 000 words. The word limit includes references in the text but excludes the bibliography at the end.  You should be able to answer the problem in far less than 2 000 words.
Coronation Pty Ltd is a building-supply company.  It operates primarily in northern Victoria but the board has recently been discussing the feasibility of undertaking projects in southern New South Wales.  It has 30 shareholders.  The company has been doing well.  It has capital reserves of $ 25 million, far above what is needed for foreseeable operations.  The board consists of four directors, Austen, Bennett, Dickens and Wickham.  Each of them are also employed as executives.  Austen has responsibility for generating new business, Bennett is in charge of asset management and logistics, Dickens, who has a BCom (Insurance Management) degree is in charge of risk control, while Wickham is CEO.  
In 2018, Austen attends a dinner hosted by alumni of his old high school in Albury, just across the border in New South Wales.  One of his old school friends, Sarah, tells him that she knows of a timber milling company, NSW Mills Pty Ltd, whose owners are anxious to sell their business.  She also says that this would be a good time to buy it, as a new housing estate will soon be built in Albury and that there will be a big market for timber products.  Austen thinks about this for a while and a few weeks later takes a personal loan of $ 500 000 and buys NSW Mills Pty Ltd.  Within a few months the mill lands large contracts with builders at the housing estate and Austen makes $ 2 million in profits in the first year of his ownership of the company.
 
During 2017 the company’s insurance policies came up for renewal.  Dickens was in overall charge of the relationship with the company’s insurers, IGT Insurance Ltd, but because she was particularly busy at the time, left most of the work to Gaskell, who was a university student employed as a summer clerk.  Dickens said to Gaskell ‘Have a look at what IGT is proposing and then advise me on what to do’.  Gaskell presented Dickens with a policy sent by IGT to Coronation for signature. Dickens said ‘Look, I just don’t have time to wade through all this – does it meet all our needs?’ Based on Gaskell’s assurance that the policy covered all relevant risks, Dickens signed it.  A few months later one of Coronation’s warehouses, which was packed with tins of paint thinner, burnt down.  The value of the warehouse and paint is $ 500 000.  IGT refuses to pay out, pointing to a clause in the insurance contract which excludes liability for losses in premises where flammable liquids are stored.   
 
One day an employee finds a printout of email correspondence between Wickham and his son left on a photocopier.  The employee gives the email to ASIC.  The emails read as follows:  ‘Hey, Dad, me and some of the guys want to go down to the coast for a fishing trip in December 2019.  Which do you think is the best car hire company?’   The reply from Wickham reads: ‘Remind me nearer the time and I will authorise you taking a corporate ute – much cheaper than hiring a car!  I will also arrange for you to stay in our client accommodation!’
 
In 2018, the board of Coronation became aware that another building supply company, Westbuild Pty Ltd, had approached a number of Coronation shareholders, offering to buy up their shares.  Eleven of the 30 Coronation shareholders had agreed to sell, with the result that Westbuild now controls 40% of the voting strength in Coronation.  The board of Coronation issues $ 10 million worth of shares to one of the existing shareholders, Greybrick Pty Ltd who, like the board, does not want Westbuild to gain control over Coronation.  The minutes of the meeting at which the decision is taken refers to what the board says is ‘the pressing need for our company to build up its capital reserves’.  As a result of the share issue, Westbuild’s share in the company falls from 40% to 28%, and Westbuild lodges a complaint with ASIC.  
 
Assume that it is July 2019, that you are an investigator appointed by ASIC and that all the above facts have become known to you.  Advise on liabilities and arising from them, stating what remedies might be available, citing relevant statutory and case-law authority.  
 
In answering this problem you should confine your research to the law contained in Topic 9 only (Directors / Directors' duties ).

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