LAW 160 multiple choice ,16 case study( just issue)

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3 2934 02352987 0 LA TROBE UNIVERSITY

SEMESTER TWO EXAMINATION PERIOD

2009

student ID: Seat Number:

Unit Code: LST3LBA Paper No: 1

Unit Name:

Paper Name:

Reading Time:

Writing Time:

Law of Business Association

Final

30 Minutes

3 Hours

No. of Pages (including cover sheet): 10

I" " ' " '' ""' '" ' OFFICE USE ONLY (FACULTY/SCHOOL STAFF):

EXAMINATION PERIOD

j O SEMESTER ONE

j ^ SEMESTER TWO

I n SUMMER SCHOOL

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CAMPUS

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ALLOWABLE MATERIALS

Number Description

102 Open book, including electronic dictionaries.

5 1 No La Trobe University library books permitted

9 2 Students may make notes during reading time (not on script books or multiple choice answer sheets) i

INSTRUCTIONS TO CANDIDATES 1. This examination is in three parts:

i. Part A: This is a set of 20 multiple choice questions, worth 1 mark each. You may tear off the answer sheet at the back of the examination paper but, if you do so, write your student number on the answer sheet. Circle the appropriate letter for each question.

ii. Part B: This comprises three questions worth 10 marks each. Answer all questions.

iii. Part C: Answer ONE of the two questions in Part C. It is worth 20 marks. 2. This examination is worth 70 marks, being 70% of the marks for the course.

This paper MUST NOT BE REMOVED from the examination venue.

Part A

This Part of the examination consists of twenty (20) multiple choice questions, each worth one (1) mark. The suggested time for completion is fifty minutes; that is, two minutes and thirty seconds for each question.

Students should circle the most appropriate answer to each question in Part A on the Part A answer sheet provided at the end of this examination paper. You may tear the answer sheet off the examination paper but, if you do so, remember to write your student number in the space provided at the top of the answer sheet.

Answer all twenty (20) questions from Part A. This Part is worth 20 marks.

Q u e s t i o n 1. [1 mark]

Which section of the Corporations Act 2001 (Cth) provides a company with the legal capacity and powers of an individual?

a. Section 588V

b. Section 198

c. Section 9

d. Section 124

Question 2 . [1 mark]

The constitution and replaceable rules DO NOT operate as a contract between: a. The company and each member

b. A member and each other member

c. The company and ASIC

d. The company and each director and company secretary

Q u e s t i o n 3 . [1 mark]

Which of the following is NOT a Replaceable Rule? a. Section 194

b. Section 195

c. Section 198C

d. Section 202A

Question 4. [1 mark]

Under section 129(2), a person dealing with a company may assume a person stated on ASIC records to be appointed as a managing director is:

a. Properly appointed as director with the implied power of a director b. Properly appointed as a managing director with the implied power of a managing

director

c. Properly appointed as a company secretary with the implied power of a company secretary

d. Really, really rich

Question 5. [1 mark]

What is a statutory derivative action?

a. An action brought by a member on behalf of the company where the company or directors are unable to do so.

b. An action that enables a member to recover the cost of legal proceedings against the company

c. An action that enables a member to enforce their personal right against the company

d. An action brought by a member to force the company to sue where the directors are unwilling or unable to do so.

Q u e s t i o n 6. [1 mark]

If a company pays dividends otherwise than out of profits, a director

a. May be liable personally to a creditor because they have breached the company's constitution.

b. May be liable personally to a creditor as a result of a derivative action for breach of duty

c. May be liable personally to a creditor as a result of an action in respect of insolvent trading

d. May be liable personally as a result of an action in respect of insider trading.

Q u e s t i o n 7. [1 mark]

An insolvent transaction is voidable as such if:

a. It is entered into during the six months prior to liquidation of a company

b. It is entered into during the two years prior to liquidation of a company

c. It is entered into during the five years prior to liquidation of a company

d. It is entered into during the ten years prior to liquidation of a company.

Q u e s t i o n 8. [1 mark]

Chapter 2E of the Corporations Act 2001 regulates:

a. Parties with relatives.

b. Transactions between public companies and related parties, requiring full disclosure of all such transactions

c. Transactions between public companies and related parties, banning all such transactions

d. Transactions between public companies and related parties, requiring member approval of most such transactions

Question 9. [1 mark]

Receivership is a form of external administration which assists: a. Liquidators in selling off company assets b. Liquidators in distributing proceeds to creditors c. Secured creditors getting their money back d. An administrator entering into a deed of company arrangement with creditors.

Question 10. [1 mark]

Fred and Jo are setting up a business selling computer spare parts. They want to know what legal form of business they should use. Which of the following statements is correct advice?

a. They should use a partnership because liability is limited in a partnership. b. They should use a company because it costs less to register a company than to form

even a simple partnership. c. They should use a company because they can then borrow against a floating charge. d. They should use an incorporated association because they will not make profits for a

few years.

Question 11. [1 mark]

A company has the object of mining gold. This object is a provision of its constitution. Does it have to be a N. L. company?

a. Yes. b. No. c. Only if it issues partly paid shares. d. Only if it has fewer than 50 employees.

Question 12. [1 mark]

Which of the following is a good reason for a Court to wind up a company under sec 461? a. The company has purchased all of its own shares. b. The company has paid dividends otherwise than out of profits. c. One of the directors has acted in their own interests rather than the interests of the

members as a whole. d. The company has failed to hold an annual general meeting for ten years.

Q u e s t i o n 13. [1 mark]

If the company states in its disclosure document that it has found a huge high grade gold ore body, when it has not found anything of the kind, who can be sued by a shareholder who subscribes for shares relying on the statement?

A. the company

B. the directors C. lawyers and accountants who drafted the disclosure document in ignorance of the

falsehood

D. persons named as geological experts in the disclosure document

Choose the correct combination from the alternatives listed:

a. A and B only.

b. A, B & C, but not D

c. A, B & D, but not C .

d. all of them.

Q u e s t i o n 14. [1 mark]

Which is paid first in a winding-up: a. An amount secured by a registered floating charge

b. A Court-ordered payment to a tort victim

c. An amount secured by a registered fixed charge

d. An amount payable to the Taxation Office.

Q u e s t i o n 15. [1 mark]

Which is paid second in a winding-up: a. An amount secured by a registered floating charge

b. A Court-ordered payment to a tort victim

c. An amount secured by a registered fixed charge

d. An amount payable to the Taxation Office.

Q u e s t i o n 16. [1 mark]

Which is paid third in a winding-up: a. An amount secured by a registered floating charge

b. A Court-ordered payment to a tort victim

c. An amount secured by a registered fixed charge

d. An amount payable to the Taxation Office.

Q u e s t i o n 17. [1 mark]

Choose the correct ending to the following statement:

A creditor has standing to sue for an injunction to prevent a contravention of the Corporations Act 2001 under section 1324 of the same

a. under no circumstances.

b. if the creditor's interests are affected by the contravention.

c. if the contravention would be oppressive, unfairly prejudicial or unjustly detrimental to the creditor's interests.

d. in respect of every contravention of the Corporations Act 2001.

Q u e s t i o n 18. [1 mark]

Absent anything other than their appointment as a company's auditor, to whom does an auditor owe a duty?

a. Individual shareholders

b. The directors

c. Banks to whom the auditors are told the report is being sent

d. Investors who buy shares on the strength of the report

Q u e s t i o n 19. [1 mark]

The Sons ofGwalia decision

a. Equated all claims by shareholders with those of unsecured creditors.

b. Equated only some claims by shareholders with those of unsecured creditors

c. Deferred all claims by shareholders to those of unsecured creditors

d. Deferred only some claims by shareholders to those of unsecured creditors

Question 2 0 . [1 mark]

Who administers a public company's internal affairs?

a. ASIC

b. APRA

c. ACCC

d. The company Secretary

[Part B over]

Parts

Students should answer all three (3) questions in Part B. This Part is worth 30 marks.

The suggested time for completion of Part B is one hour and fifteen minutes, that is 25 minutes for each question.

Students should refer to relevant statutory provisions and/or case law wherever possible.

Question 1. [10 marks]

Discuss the proposition that the board of the James Hardie group of companies did the morally right thing in endeavouring to maintain shareholder value when faced with continuing and uncertain tort claims.

Question 2. [10 marks]

Coles Ltd leases a number of supermarkets in shopping centres around Australia. In every lease it is provided that Coles Ltd carmot transfer the lease unless the person to whom the lease is transferred is wholly owned by Coles Ltd. Coles Ltd intends to transfer a number of such leases to a company set up and wholly owned by itself It ftirther intends, after subleasing the premises, to sell all the shares in the new companies to some other company unconnected with itself, thereby avoiding the operation of the bar on the transfer of leases. Advise the shopping centre owners as to whether Coles Ltd would be breaching the leases.

Question 3. [10 marks]

Harry, Moe and Joe were practising as a firm of solicitors operating as a partnership. The partnership agreement was to the effect that no partner could incur expenses chargeable to the firm unless it was done in the ordinary course of business. Joe borrows money from Rich saying it is to buy reference law books for the firm. However, Joe takes the money and sails off to South America never to be seen or heard from again. Advise Rich whether he can bring an action against Harry and Moe individually and separately, Harry and Moe jointly, and/or against the firm. Do not forget to consider whether Rich's rights to take action are limited to being against Joe.

[Part C over]

Parte

Students should answer one (1) question from Part C. This Part is worth 20 marks. The suggested time for completion is 45 minutes.

Q u e s t i o n 1. [20 marks]

PCW is a proprietary company the shares in which are divided equally among four shareholders all of whom also serve as directors of the company. The constitution of the company provides the following rules for the event that one of the shareholders wishes to transfer his/her shares.

• The other shareholders have the right to acquire the shares at a price equal to book value of the shares.

• To the extent that the other shareholders do not exercise the right to acquire the shares, the shareholder can dispose of his/her shares to a third party subject to the unanimous approval of the board of directors. .

For some time now there has been disagreement about matters of business policy. One of the shareholders (Mr Trubel) insists that the company pursue a more aggressive business strategy, while the remaining shareholders are content to follow a more conservative approach. Fed up with the trouble from Mr Trubel, the other three members vote to remove him from the board of directors and fill the position with a friendly party (the company's accountant). Mr Trubel wants to sever his connection with the business. However, Mr Trubel refuses to sell on grounds that the book value of the shares is only a fraction of their net value as computed by reference to other valuation methods such as capitalised earnings or net asset backing. One of the other members (Ms Kauf) announces her willingness to acquire Mr Trubel's shares at a price satisfactory to Mr Trubel. However, the other directors refuse to consent to the transfer on the grounds that the transfer would place too much power in the hands of Ms Kauf

Discuss the possible rights and remedies of Mr Trubel and the extent to which the exercise of each would be successful in satisfying Mr Trubel.

Q u e s t i o n 2. [20 marks]

Sally has a small shareholding in Peat Pty Ltd which she inherited from her father who was the son of the founder of the company. She also lent $20,000 to the company at an interest rate which is above the current market rate. Eric, her cousin, who is chairman and managing director, was formerly the controlling shareholder, but had since sold the majority of his shares, retaining only a minority holding. The other shareholders are Maurice, Anita and Fred, who together hold 76% of the issued shares and are non-executive directors. Sally thinks that Eric has been corrupt, incompetent and inefficient in the management of the company. Under his management the company has:

a) entered into some unprofitable long term supply contracts with a friend of his, Nigel;

b) acquired expensive real estate which has since diminished in value due to the downturn in the property market;

c) never paid a dividend;

d) paid large amounts of remuneration to Eric and other members of the board; and

e) recently delayed paying creditors.

Until this year, Sally has been a director and had regularly disagreed with Eric on matters of policy. Because of constant fiction between them, the other members of the board and shareholders did not reappoint her to the board at the end of her term of office under the company's internal rules. Sally maintains that Maurice, Anita and Fred acquiesced in Eric's misconduct. She worries about the continuing solvency of the company.

Advise Sally on her rights and remedies.

[End of examination]

Multiple Choice Answer Sheet

Circle your answer (a, b, c, or d) against the relevant question numbers.

Do not forget to enter your student number on this sheet.

Student ID:

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

1 1

a b c

I I Seat Number: | ^ | ^ | |