Tutorial 3
pdf
keyboard_arrow_up
School
Western Sydney University *
*We aren’t endorsed by this school
Course
MISC
Subject
Law
Date
Jan 9, 2024
Type
Pages
5
Uploaded by tamine99
1 Tutorial 3 Question 1 •
Has the principle in Salomon case been incorporated in the statute? •
What are the advantages of incorporating a company? Question 2 Which of the following statement is the most correct relating to the judgment of the House of Lord in Salomon
case?
The company is a valid entity.
The company structure, incorporated under the Companies Act 1862
, was invalid because there was not a minimum of seven members; in effect only one member existed.
The company was indeed a valid association of persons although one person was the sole beneficial owner of all the shares issued by the company; a company need not be an association of independent persons.
The company structure was valid because the members are not in control of the company. Question 3 Melissa is running a busy clothing shop business in the form of a sole trader. She decides to incorporate her business. She wants to become an employee of the business so that he can be covered by workers’ compensation and superannuation. She also wishes to stay in control of the management of the company. a.
What type of business organization should Melissa choose? Explain why. b.
What are the formalities that Melissa needs to complete to be able to create a company? c.
Assuming Melissa decided to incorporate a proprietary company, how many directors does the company need to have? Does the company require a company secretary? d.
Will Melissa be able to register the company with the name ‘Zeus Pty Ltd’? Search the National Name Index on ASIC website and determine if it is possible to register a company under the proposed name. If such a company already exists find out as much information as you can about it from the site. e.
Melissa decides to register the company under the following name: ‘Melissa’s Chic Pty Ltd’. Is the name available? If so, how can she ensure that no one else uses it before her company is registered? f.
Is Melissa required to have a registered office? And if so does it need to be open to the public?
2 Question 4 Mac runs a soil testing business. He decides to form a company, Test Pty Ltd, to take over the business. He is the sole shareholder and sole director. Mac sells his business to the company at the price of $200,000. Further, he lends the company $100,000 and make sure his loan is secured by a charge over all the company’s assets. He and his daughter, Melissa, become the only two employees in the company. In the first year of operation, the business makes a small profit (after paying Mac and his daughter’s wages). However by the end of 2011 it became clear to Mac that the agricultural industry was going through a slump and as a result the company’s business suffers. Mac becomes desperate and works even harder. While working late into the night, Mac badly lacerates his hand and needs micro-surgery. His efforts to keep the business afloat are in vain and the company is forced into liquidation. The liquidator discovered that the company has approximately $150,000 worth of assets and owes around $535,000 to 15 creditors. Mac was the only secured creditor the company had. However the liquidator rejected Mac’s claim. Mac decided to challenge the liquidator’s decision. He also initiated action to claim compensations for the injury that he suffered as an employee of the company. Advice Mac on these matters.
Question 5 Eric and Matilda are married. They also are the only members and directors of Swim Pty Ltd. They have three kids aged 9, 18 and 20. Eric and Matilda were traveling and they were both tragically killed in a car accident. Discuss the legal implications of these facts on the existence of the company. Question 6 Jennifer was working for Cyrano Pty Ltd, a company that buys and sells second hand books. Her employment contract stated that Jennifer should not compete with the company for two years after she leaves her position. Jennifer has a fight with the management of Cyrano and she resigns on the spot. The next day she was talking with her friend Sarah, telling her about what happened to her and how afraid she is because she might not find a new job and that under the employment contract she cannot compete with Cyrano. After discussing the matter, Jennifer and Sarah decide to create a company, called “Books Pty Ltd, to run a competing business to Cyrano. After the new company was created (the company was created one month after Jennifer’s resignation), Cyrano Pty Ltd discovers that Books Pty Ltd is stealing its customers. Advice Cyrano Pty Ltd.
3 Question 7 Buster Crabbe is a scallop fisherman at Lakes Entrance. Each fisherman has a quota of so many tonnes of scallops per week. A fine of up to $100,000 is prescribed for fishermen, who are caught exceeding the quota. This is to deter people from fishing out the shell-fish. Buster would like to harvest more scallops but fears being caught and penalised. Buster’s daughter, who has studied company law, suggests that if Buster formed a company, with himself in control, he would effectively double his catch without breaking the law. Explain the legal basis for Buster’s daughter’s suggestion and comment upon the likelihood of success of such a scheme. (
You must support your answer with both Legislation and/or case law.) Question 8 Jack owned a parcel of land, which he decides to sell to Property Tycoon Ltd. A long settlement was negotiated. After Jack had entered into a legally binding contract with Property Tycoon Ltd to sell the land but before he had actually transferred the title of the land to Property Tycoon Ltd, the regulations in relation to the land changed. Now the property can be used for land development, which wasn’t possible, when he agreed to sell the land to Property Tycoon Ltd. This change has significantly increased the value of the property. Jack no longer wants to sell the property to Property Tycoon Ltd but legally he is obliged to, as he has already entered into a valid contract of sale with them. Therefore, Jack decides to create a company, called ‘My Property, Not Yours Pty Ltd’ and transfers the land to the new company. At this time, the land was still registered in Jack’s name. Jack believes by doing this, he can get around the contract with Property Tycoon because now ‘My Property, Not Yours Pty Ltd’ is the registered owner of the land and as he, Jack, is no longer the owner he cannot perform the contract with Property Tycoon Ltd. Is his reasoning correct? (You must support your answer with both Legislation and/or case law.) Question 9 Shark Ltd was running a financial business that involved two departments: one department insured risky loans, while the other department lent money. In September 2002, Shark Ltd received a report from its financial adviser that noted that its insurance departments may suffer a huge loss due to rising claims. The report was correct and Shark Ltd ended up paying a number of claims worth $10 million. In February 2003, Shark Ltd registered Safe Pty Ltd. The new company was a wholly owned subsidiary of Shark Ltd. (see Corporations Act
for definition). Shark transferred its insurance department to the new company. The new company was running its business from premises leased from Shark Ltd.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
4 Often, the board of directors of Shark Ltd were heard bragging that now they could access all the funds and profits of the new company, Safe Pty Ltd., without being responsible for any of its liabilities. Safe Pty Ltd had a policy to pay monthly dividends to Shark Ltd. Shark Ltd also appointed all the directors of Safe Pty Ltd. In fact, two of the directors of Shark Ltd (Sam and Jack) were appointed as the only directors of Safe Pty Ltd. Shark Ltd usually devised the policies of Safe Pty Ltd and Sam and Jack implemented these policies. Shark Ltd also provided the initial capital needed for the business run by Safe Pty Ltd. to proceed. The employees in Safe Pty Ltd were allowed to use some of the financial records held by Shark Ltd to assess whether or not they should accept or deny an insurance application. In 2009, the market suffered huge losses and as a result of this downturn a number of insurance claims were made. However, Safe Pty Ltd had insufficient money to cover all these claims and consequently, the company went under liquidation. The policy holders would like to know if they can take action against Shark Ltd. Advise the policy holders. Question 10
1
Jasper is a qualified yet inept electrician, and the sole director and shareholder of Burg-Go Pty Ltd (Burg-Go). Burg-Go purports to specialise in installing burglar alarms. In fact, Jasper has had little success in installing alarms, and now has several disgruntled customers. In particular, one of Burg-Go's customers, Patrick, is threatening legal action against Burg-Go as the result of his alarm failing to go off when a burglar broke open his front door and stole his priceless stamp collection. The police report confirmed that the intruder had not deactivated the burglar system. Jasper is concerned that Patrick could be “difficult” so he transfers the assets from Burg-
Go to a new company which he controls called Stop-Burg Pty Ltd. Shortly after this transaction, Burg-Go is wound up. Patrick wants compensation for the loss of his stamp collection, but Burg-Go has no assets. What possible legal arguments could Patrick make in order to get judgment against Jasper and Stop-Burg Pty Ltd? Question 11
2
Tom has been running a small business growing vegetables on his farm and selling them at the farm gate and at Sunday markets. In 2012, on the advice of his accountant, Tom formed a company called Tom's Fresh Vegies Pty Ltd (Fresh Vegies). Tom had always bought his seeds and seedlings from Seeds Ltd (Seeds) and was well known to Seeds 1
Source of the questions: Yogaratnam, Jeswynn and Lidia Xynas, Corporations Law: In principle, (Thomson Reuters, 10th ed, 2016). 2
Ibid.
5 because of his poor credit record. When Fresh Vegies was formed, Tom told Seeds that it was now dealing with the company but did not make any changes to the way in which he carried on the business. Tom owned the farm and the truck used for deliveries; Fresh Vegies did not pay rent or pay wages to Tom. The income from sales of vegetables and payments to suppliers were paid into and from Tom's personal bank account and Fresh Vegies did not lodge any tax returns (nor did Tom himself in most years). Seeds eventually sued Fresh Vegies to recover the debt of $10,000 owed by Fresh Vegies and sought leave to add Tom as a defendant. What legal grounds could Seeds rely on to support its claim? Explain by referring to relevant legal principles. Question 12
3
Myra is the only shareholder and director of Kids Clothes Pty Ltd (Kids Clothes) which makes cheap children's clothing. The company has 10 employees. In the past Kids Clothes had operated profitably, however since 2014 it has been running at a loss. In July 2015 Myra paid herself a large bonus and then transferred all the remaining assets of Kids Clothes to a new company called Clothing for Kids Pty Ltd. The employees continue to be employed by Kids Clothes. Kids Clothes has no assets and owes each of its employees several thousand dollars in accumulated holiday, superannuation, and long service leave entitlements. What possible legal grounds might the employees have to claim their entitlements from Clothing for Kids Pty Ltd? 3
Ibid.