Question 1

Assess the general compulsory acquisition power in s 664A using economic theory discussed in Chapter 2 of your Textbook.

Question 2

‘The rights that creditors have under Part 5.7B Division 3 challenges the notion of shareholder primacy’. Discuss.

Questions 3 and 4 (see below for the Questions) are based on the following facts

ZXUS Ltd was listed on the Australian stock exchange in 2015. Its principal asset was an under developed iron ore deposit (mine) in Western Australia. This mine has only been partly developed and open for further exploration and development. ZXUS Ltd has issued 1 million shares to institutional shareholders and 100,000 shares to each of the six directors of the company. The six directors are Alan Jarrod, Bruce McMahon, Chris Tan, Derek Nguyen, Roddy McMahon and Fergus Latimer.  Alan, Chris and Derek are executive officers holding the positions of CEO, CFO and COO respectively. The others are non-executive directors. While Alan, Chris, Derek and Fergus are usually in agreement about the corporation’s future direction, they are often at odds with Bruce and Roddy, who are married to each other. In particular there have been disagreements about how to raise funds for the development of the mine. 

Alan, Chris and Derek have been working on plans to bring Chinese corporations to fund the development of the mine. Bruce and Roddy have opposed any such moves and have tried to garner public support against the possibility of such investment. To do so they rely on Daphne Greentree who is their neighbour, and is employed by No Mines For Me, an activist organisation in Western Australia. They are impressed by Daphne’s journalistic instincts and networks and have been having frank conversations with her about the company’s plans and disagreements.  Daphne has used her networks to get three articles published in local newspapers about the company’s plans for attracting Chinese capital which has stimulated significant public disquiet. Chris has warned Bruce and Roddy that they will be dismissed as directors if they keep up their attempts to oppose the initiatives of the company’s board of directors.

Between January and March 2019, the board of directors have been considering options for raising $6 million for the development of the mine. While Bruce, Roddy and Fergus wanted to have a large advertising campaign encouraging public ownership in the company, the others felt this would be a costly option and result in unnecessary interference. After heated debate, Fergus switched sides to join the other three directors, and the shares are issued in May 2019 without a disclosure document at $100 each. The first issue was to six companies of 5000 shares each. The second issue was to Morgans Investing Pty Ltd, the largest stockbroking and wealth management business in Australia, which took up the balance of  the shares.

Bruce and Roddy call on Daphne’s networks again to find out more about the companies that bought the shares issued in May 2019. They find out that all of the six companies which acquired 5000 shares each were connected to Alan, Chris and Derek: three companies were single shareholder companies run by Alan’s three sons; two other companies were proprietary companies in which Chris and Derek were directors; and the other company was one in which Alan, Chris and Derek had large shareholdings. They also suspect that Morgans Investing Pty Ltd will be selling its shareholding to Chinese corporations in the near future, a suspicion which is confirmed by Daphne. Bruce and Roddy each transfer 30,000 shares to Daphne to enable her to vocalise their concerns at the next meeting of ZXUS Ltd. 

Bruce and Roddy approach Fergus to gain more information about the issue of shares in 2019. They notice that Fergus has lost all focus on the affairs of ZXUS Ltd. He seems very busy developing wellness and yoga apps directed at fly in fly out workers employed by mines and has not been focussing on the activities or meetings of ZXUS Ltd. Fergus tells Bruce and Roddy to leave him alone and that he is not interested in their conspiracy theories. Roddy, who usually sits next to Fergus at ZXUS Ltd’s meetings, has observed that Fergus is always busy working on his apps or playing ‘words with friends’ online. He rarely reads the documents for the meeting and only raises his head to make sure that he votes in the same way as Alan and Chris on any resolutions requiring a vote.  

Bruce and Roddy continue to put questions to the executive in directors’ meetings and request further information. This is viewed as holding up important business by the executive. After two warnings, in November 2019, the board of directors pass a resolution terminating Bruce and Roddy as directors, effective immediately. Bruce and Roddy take a break and go on a meditation and ball room dancing retreat in Laos for two months. During this time while trying to balance both centring thoughts and ballroom twirls, they realise that they want to be part of ZXUS Ltd and ensure that its future direction is a successful and ethical one. All the gains of inner peace from the retreat are shattered when they return home to read their mail. It includes a notice of a general meeting of ZXUS Ltd where a resolution proposing an amendment to the constitution ‘allowing for the compulsory purchase of parcels of shares less than 80,000 from members, for reasons of increased efficiency and administrative cost savings’ will be voted upon. They realise that they returned home from their retreat the day after the meeting was scheduled. They look online and see that the resolution has been passed at the extraordinary general meeting of members.

Worse news follows. There is a letter from Trust and Loyalty Bank confirming that the loan of $500,000 for apps development has been finalised and moneys transferred. A copy of the signed contract show that it has been signed by Roddy MacMahon and Fergus Latimar, both as directors on behalf of ZXUS Ltd. Roddy knows that he did not sign that contract and it is clear that his signature has been forged by Fergus. Further, the date indicates that contract was signed after his dismissal as director of ZXUS Ltd, although he suspects that the company has not notified ASIC of his dismissal. He contacts Fergus who tells him not to worry as it’ll not impact on him in any way and confirms that  he signed the contract on Roddy’s behalf.

Bruce and Roddy come to see you and ask about the following.

QUESTION 3

(a) Can Daphne raise the issue about shareholders at a general meeting?

(b) Was a disclosure document required for the shares issue in 2019?

(c) Is there any legal basis for convincing Fergus to take pro-active steps in meetings?

(d) Who is liable for the contract with Trust and Loyalty Bank?

QUESTION 4

(a) Can Bruce and Roddy contest their dismissal as directors?

(b) How can Bruce and Roddy contest the resolution that has been passed and try to be part of the company’s future?