ohn, Paul, George and Ringo were brothers and directors of Beatles Ltd (“Beatles”), a manufacturer and retailer of small boats and yachts. Ringo was managing director,

AUSTRALIAN COMPANY LAW

ASSIGNMENT

Question 1

John, Paul, George and Ringo were brothers and directors of Beatles Ltd (“Beatles”), a manufacturer and retailer of small boats and yachts. Ringo was managing director, John was chair and Paul and George were non-executive directors.  Ringo was an accountant and had some 20,000 shares in Beatles. John, Paul and George had 5 shares each.  John and Paul were lawyers. George was a ship builder.  In addition Epstein was the father of John, Paul, George and Ringo and they always followed his instructions on company matters though he did not attend board meetings.

Beatles Ltd was considering going into a joint venture with Pepperland Ltd, a sailing co-operative company under which Beatles would build small exploratory two-seater yellow submarines in return for referral on an exclusive basis of sailing members of the cooperative to Beatles for their boating needs.  It was anticipated that Beatles would pick up substantial business which this arrangement. Under the proposed joint venture Beatles would pay Pepperland Ltd $10,000 a month as soon as the submarines were built.

Two years ago, Beatles had a board meeting to consider the joint venture with Pepperland Ltd. John did not attend that meeting as he had a medical appointment.  Paul was asked by Ringo to present a report on the joint venture proposal and give his opinion on whether the referral strategy was legally sound and binding on the members of Pepperland Ltd.  Ringo told the directors that the joint venture was financially sound but did not provide a feasibility analysis. George expressed his opinion that Beatles’ submarine and boating equipment prices might be too high to attract small sailing business but still supported the proposal.

At a later board meeting, which all directors attended, Paul reported that the referral strategy was sound and legally binding on the Pepperland Co-operative members. Prior to this meeting Epstein strongly told his sons to agree to the joint venture proposal.

Unknown to the board and not discovered in Paul’s report was the fact that Ringo owned a substantial parcel of shares in Pepperland Ltd.  Ringo did not disclose this to either board meeting.

The joint venture deal went ahead and Beatles started building four yellow submarines with equipment purchased on credit from a number of suppliers.  Unfortunately for Beatles, the suppliers had recently raised their prices so that the cost of building the submarines proved to be more expensive than was originally anticipated with the result that Beatles had difficulties paying the debts owed to suppliers according to the agreed credit terms.  Beatles also had difficulties paying its employees’ wages on time.

In addition, members of Pepperland did not give their business to Beatles as its prices were too expensive.  Beatles consulted lawyers about whether to sue Pepperland and its members but the advice was that the attempt to make the Pepperland members do business exclusively with Beatles was anti-competitive and an unreasonable restraint on trade.

The whole exercise ended up costing Beatles a fortune with the result that it became insolvent and was placed in liquidation in December 2015.  The liquidator noted that of the debts owed to the suppliers of submarine equipment, $2 million was still outstanding.  The liquidator also observed that Beatles’ financial records were a hopeless mess.

Advise the liquidator whether there have been any breaches of directors’ duties as well as director personal liability for the company’s debts to the submarine equipment supplier?

Question 2:

The Australian Securities Exchange (ASX) Corporate Governance Principles and Recommendations appear to be drafted to suit the needs of large listed companies with a widely dispersed shareholding spread.  For example, it is recommended that listed companies have a majority of independent directors with the chair being an independent director. To what extent are the Principles and Recommendations relevant for family controlled listed companies? Discuss.

INSTRUCTIONS :  should include in their answers the following:

  • A demonstrated knowledge of the academic research in this area;
  • A discussion of various points of view that have been put forward on the issue
  • Your own opinion with an explanation of why you formed that opinion (your opinion must be derived from the academic research in the paper).

NOTE: This is a research question.  It is expected that you will use academic research and not put forth your opinion without any supporting research.  The assignment should be structured in essay format: introduction, body, conclusion, etc. Students can use sub-headings if they wish.

NOTE: You are not confined to these references but are encouraged to do further research.

WORD LIMIT: Approximately 2000 words. Roughly 1000 words per question.


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