NORTH SYDNEY – SEMESTER 1

NORTH SYDNEY – SEMESTER 1
This is an individual assignment. Answer both questions.
All assignments must be typed in Arial, size 11, 1½ spacing, justified (align to
both left and right), have the standard cover sheet and be signed by the
student(s) stating that the work is original. While referencing sources used for
this assignment, you must follow the Australian Guide to Legal Citation (AGLC)
(the footnote system).
The maximum length for this assignment is 2,000 words.
Students are advised that any materials submitted for assessment may be
subjected to electronic checking for originality. The software used for checking
originality compares works submitted by students with published material from
a variety of sources, including the Internet. Students must submit an
electronic copy in Microsoft Word format to the lecturer via LEO assignment
submission feature no later than 10:00pm of Tuesday 5 May 2015 (week 10).
Question 1
Smith Ltd is a listed company. Colin Ltd holds 45 per cent of the issued shares in Smith
Ltd. Note Ltd holds 30 per cent of the shares. The remaining 25 per cent is held by a
diverse group of shareholders.
Smith has tendered for the construction of a large timber mill and is likely to be the
successful bidder. It will need an injection of funds to construct the mill. The directors are
concerned that Colin Ltd, which also has other timber milling interests, will launch a
takeover of Smith Ltd and they will lose their positions. They are also concerned that
Colin Ltd will terminate the employment of many of workers now working for Smith Ltd.
Indeed Colin Ltd has a reputation of using foreign workers rather than local workers.
At a board meeting the directors resolve to allot a substantial number of shares to Note
Ltd in consideration for a promise that Note Ltd will arrange additional finance for the
construction of the mill. The allotment to Note Ltd varies the shareholding power of Colin
Ltd such that, after the allotment, Colin Ltd will only command 10 per cent of voting
power.
Advise the directors about the possibility of any legal challenge to their actions
under the Corporations Act 2001.
Question 2
The Timber Works Pty Limited (in liq) (the “Company”) was wound up in December
2011. The Company conducted a family business with Jacob and his wife Marie as the
sole Directors of the Company. Jacob and Marie were the sole Directors of the Company
since its incorporation and were its Directors at the time the Company was wound up.
Tania was employed by the Company as its Financial Officer, but was not a director of
the Company.
Page 2 of 2
The liquidator now seeks to recover from Jacob and Marie the sum of $600,000, being
the amount which corresponds with the total of some debts incurred by the Company
between 2010 and 2011. The liquidator alleges that when each of the debts were
incurred the Company was insolvent.
Both Jacob and Marie allege that they had reasonable grounds to expect that
the Company was solvent at the relevant time and that it would have remained solvent
even if the Company had incurred those debts and any other debts at that time. In
support of this contention Jacob and Marie state that throughout the relevant period the
debts incurred and which would continue to be incurred by the Company could have
been paid by recourse to the sale of the assets of the Company and that Jacob and
Marie believed it was possible that those assets could have been sold over a 90 day
period.
Further, Jacob and Marie state that they were advised by Tania during the relevant
period that the Company was solvent and was able to meet its obligations because most
of the creditors did not press for payment within the normal trading terms and because
there was an understanding that the creditors would not take recovery action against
the Company provided that the Company paid within a reasonable time after a 30 day
notice was given. Tania says that she was never asked to monitor solvency and that her
job was more akin to being a bookkeeper and that she did what she was told by Jacob
and Marie.
Advise Jacob and Marie of their prospects of resisting the liquidator’s action.
Your answer should include an analysis of the essential elements (under s588G of the
Corporations Act 2001) that are necessary to be shown by the liquidator to be
successful and an analysis of any such defences (under S588H) that Jacob and Marie
may have to any such application.

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