You must answer both question One and Two. The word limit is 2,000 words. You will be penalised, at a rate of 5% per 100 words, if you exceed this limit, even by a few words. The word count does not include any title page, footnotes or bibliography. Footnotes, however, must be confined to providing references rather than elaborating upon the discussion in the main text. There is also a penalty for a late submission. Please see the Unit Outline for more information on UNE policies.
Question One (15 marks)
Explain the relationship between a company constitution and the replaceable rules. In your answer, you should discuss the contracts that are formed by the replaceable rules/constitution between the company, its directors and members. You should also discuss the mechanisms and pitfalls for changing corporate constitutions, especially as it concerns minority shareholders.
Question Two (25 marks)
Jonathan Trump is a director of Couples Resorts Ltd. He is also a director and controlling shareholder of Pacific Pty Ltd, a construction company. Jonathan Trump convinces the board of Couples Resorts Ltd that the company could improve its position by renovating and expanding one of its major tourist resorts, and, indeed, his proposal is reasonable given the tourism prospects in the area. The expansion program, however, would require council approval.
Jonathan Trump obtains plans and a written quote for the expansion work from Pacific for $3 million. He obtains quotes from other companies which far exceed the quote from Pacific, because the quote from Pacific is well below the cost of the project. Furthermore, the directors of Couples Resorts are convinced as a result of Jonathan Trump’s representations that the application will be approved by the council and, as a result, they sign the contract with Pacific. The terms of the contract with Pacific require an advance payment of $800,000. Pacific commences building prior to council approval and demands a progress payment of a further $800,000, which is duly paid.
The council does not grant approval because the site is environmentally sensitive. Pacific only has capital and assets worth $1,000 and never had a capacity to complete the project. The advance payments have been used to pay other debts of Pacific and the work done at the site was just a minor demolition. Couples Resorts has now paid 1.6 million to Pacific, has partly demolished premises and no council approval for construction has been granted. Pacific is now in liquidation and being wound up. Couples Resorts Ltd did not know about Jonathan Trump’s relationship with Pacific. The directors of Couples Resorts seek your advice about any action they may take against Jonathan Trump.
Fully justify your answer, citing the relevant provisions of the Corporations Act 2001 (Cth) and case laws in authority.
Advise the Couples Resorts Ltd board of directors as to the following questions:
- Has Jonathan Trump breached his duties as a director at Couples Resorts Ltd under the general law and the Corporations Act 2001 (Cth)? Explain the rationale of your answer.
- If so, what remedy may Couples Resorts Ltd seek against Jonathan Trump?