School of Law
Faculty of Business and Law
Law of Business Organisations
Wollongong and Sydney CBD campuses
Trimester 3, 2020 – Remote Delivery
Exam duration 3 hours
Items permitted by examiner Open book
Aids supplied Nil
Directions to students 1. A total of THREE (3) questions are to be answered.
2. Part A: Students must answer ONE question (either A1 OR A2). Part A is worth 15 marks in total. It is suggested that you spend approximately 50 minutes on this question.
3. Part B: Students MUST answer BOTH questions. Each question in Part B is worth 20 marks. Part B is worth 40 marks in total. It is suggested that you spend approximately 65 minutes on each question in Part B.
4. Answer ALL questions in the one file. Make sure you clearly identify each question in your answer file.
5. Please name the file with the subject number eg “LAW9302 Final Exam 2020”
A centralised phone number has been established for students to call if you have any issues during the exam. Staff from the Exams team will respond to the calls and escalate them to the Subject Coordinator as appropriate. If you have any issues that impact your ability to complete the exam, please call the Exam Support Hotline on 02 4221 3000. If you are unable to get through to that number for any reason, send an email to the Subject Coordinator for the exam you are sitting as soon as possible.
This exam paper MUST NOT be shared or distributed in any way
PART A (15 Marks total)
Students are required to answer ONE of the following two questions in PART A. Each question is worth 15 marks.
An auditor’s role is to check company accounts so that any irregularities are exposed. Both outsiders and the company’s shareholders rely on the information contained in an audit and the fact that the auditor remains independent is an essential factor in this reliance. Explain what auditors’ liabilities are in contract, in tort and under the Corporations Act 2001 (Cth). Give reasons for your views, including reference to cases and/or legislation as relevant to your argument.
‘Companies are artificial. They need internal rules that assist in both procedural and substantive functions. Members of a company can enforce their rights under the company’s constitution and replaceable rules. Members are entitled to rely on the company functioning in accordance with its internal rules.’
Explain if you agree with the above statement and why. Give reasons for your views, including reference to cases and/or legislation as relevant to your argument.
Part B begins on next page…
PART B (40 Marks total)
Part B is worth 40 marks and BOTH questions below MUST be answered.
Question B1 (20 Marks)
A listed public company, Peters Co Ltd, owned land which was valued at historical cost in its balance sheet at $2 million. The directors were advised that the land was worth in excess of $60 million. Daren, a substantial shareholder in the company, advised the Board that he intended to make a takeover bid for the company, offering $10 per share. The Board believed that in light of the value of the land, shareholders should be advised not to sell at that price. However, they feared that because shares were trading at 85 cents, shareholders would accept the bid. The company’s financial adviser suggested that the company should arrange for an alternative bid at a higher price and that it should develop the land. The Board agreed and a scheme was proposed whereby the land would be sold to a wholly owned subsidiary of the company, which would enter into a joint venture with another company, Chase Finance.
The managing director of Peters Co Ltd was involved in the negotiations with Chase and decided to make his own takeover bid, offering $12 per share. Chase agreed to finance his bid on favourable terms if the joint venture proceeded. He did not disclose details of the arrangement with Chase to the Board, though directors suspected there was a secret arrangement with Chase. At a board meeting, which the managing director did not attend, the directors approved the joint venture scheme with Chase.
Advise Daren what action, if any, he can take to reverse the Board’s decision as to its approval of the joint venture scheme with Chase. Include in your response an assessment of how the managing director’s conduct is relevant for determining whether Daren would have a remedy, where Daren is a member of the company.
Give reasons for your answer referring to the Corporations Act 2001 (Cth) and/or cases as relevant to support your arguments.
Question B2 (20 Marks)
Vandalay Chocolate Sprouts Pty Ltd, operated its business from a factory it rented from Industrial Park Ltd. Since the significant economic down turn as a result of the worldwide pandemic, Vandalay Chocolate Sprouts Pty Ltd had been experiencing extreme financial difficulties and its financial records were a hopeless mess. It was continually late in paying debts owed to its suppliers and paying employees’ wages. With Christmas coming up, its directors were uncertain whether the company would be able to pay its employees their holiday entitlements.
The company’s main creditors were:
• Its bank, which is owed $1 million. This loan was unsecured but was guaranteed by the directors of Vandalay Chocolate Sprouts Pty Ltd;
• Industrial Park Ltd, which was owed $75,000 arrears of rent; and • Its employees, who were owed $350,000 unpaid wages.
About three months ago the company was paid $100,000 from one of its customers. This was deposited into the company’s bank account, reducing the amount due to the bank. Your Task:
Advise each of the creditors referred to above how they would be affected if Vandalay Chocolate Sprouts Pty Ltd were placed in voluntary administration. Give reasons for your answer referring to the Corporations Act 2001 (Cth) and/or cases as relevant to support your arguments.