ASSIGNMENT
Question One-
Jack is the managing director of Beanstalk Ltd. The company has a constitution which states that the company may only sell agricultural products grown in Queensland. The board of directors have implemented a company policy that all transactions over $100,000 require board approval.
Jack attends a trade fair in Victoria and is so impressed with the quality of the beans grown on a Victorian farm by Giant Ltd that he signs a $150,000 purchase agreement.
The board of directors of Beanstalk Ltd decide that this purchase will undermine the company's marketing campaign promoting Queensland products. They advise Giant Ltd that the company will not make payment under the purchase agreement as:
(i) Jack did not have authority to sign a contract above $100,000;
(ii) Beanstalk Ltd had no legal capacity under its constitution to buy any produce from outside Queensland so the agreement cannot be enforced against it;
(iii) The constitution of Beanstalk Ltd was available in the public record and Giant Ltd had a responsibility to know its contents and comply with it.
REQUIRED:
Advise Giant Ltd by separately addressing each of the three points raised by Beanstalk Ltd. If you consider that the contract is enforceable you should identify in your answer the type of authority that Jack had.
Refer to the CA and cases where appropriate.
Question Two-
Pan Ltd is a company without a constitution. At a members' meeting five items of business were passed as special resolutions and placed in a new constitution of the company. These were:
(a) that dividends can only be paid if they have been recommended by the directors and declared by the members;
(b) that the transfer of shares in the company requires the approval of the directors;
(c) that Wendy Weird be a director of the company for life;
(d) that directors of the company are to be appointed by Wendy Weird;
(e) that the directors may issue the company's shares only with the approval of the members.
REQUIRED:
Applying any relevant sections of the Corporations Act consider the validity of each of the five constitutional rules above.
Question Three
In order to obtain the funds necessary to expand its business Growth Ltd is to make a $M20 share issue. Advise the directors of Growth Ltd over the following matters.
REQUIRED:
(a) Can the funds be raised from existing members or anyone else without a prospectus?
(b) Will the directors be safe from prosecution if they provide to investors in a prospectus everything they know that is relevant about the investment? If the company issues a prospectus and the directors then become aware that there is a false and misleading statement in it, what alternatives are available to them under the CA?
(c) Does the CA provide any protection for directors where funds are raised under a prospectus that contains a misleading statement?