The directors of the company want to know: 

1 whether they can keep trading during this period and whether there are any consequences if they do continue to trade? 

2 what is the best option or process to follow if the directors want to try and save the company? Explain this process and possible outcomes of this process. Your answer must focus on legal solutions. 

3 what liquidation process can XYZ bank follow to obtain payment of the debt it is owed by the company? Explain this process.

Mary, Elizabeth and Bill run a business which sells imported European groceries online and at its bricks and mortar store in Melbourne. The business has an annual turnover of $6,000,000 and 30 employees, and profits of the business are shared between Mary, Elizabeth and Bill. Mary, Elizabeth and Bill would like to expand their business by importing new groceries from Asia and buying another store in the Docklands which they hear is running at a loss. They do not want to take out a loan from a bank or bring in any new people into the business. Question 1(a) [5 marks] What business structure are Mary, Elizabeth and Bill currently using? Explain your answer. You may assume that the business structure has not been registered with government and that property is owned personally. Question 1(b) [5 marks] 2 Mary, Elizabeth and Bill have heard about trusts and they want you to explain a trust, how trusts are created, and whether participants in a trust are exposed to any liabilities. Question 1(c) [5 Marks] Mary, Elizabeth and Bill also want advice as to whether they should incorporate a company. They want to know: • What type of company you would recommend for their business and why would you recommend this type of company?

Background facts: Sam, Bruce, Wilson and Angelica run a chain of pizza restaurants as a partnership business in Melbourne. They set up a proprietary company which purchases the partnership business, and shares in the company are issued to Sam, Bruce, Wilson and Angelica. Sam receives 40% of the shares, Bruce receives 40% of the shares, Wilson receives 10% of the shares and Angelica receives 10% of the shares. Sam, Bruce, Wilson and Angelica are each appointed directors of the company. The company enters into a secured loan of $800,000 with a XYZ bank (the loan is secured using the company’s assets, namely three pizza restaurant locations which it owns) to buy new pizza ovens for and renovate its restaurants. Sam and Bruce have had many arguments with Wilson, because they want to control the direction of the business without Wilson’s input.

 Angelica’s sister owns a competing chain of pizza restaurants, and Sam and Bruce find out that Angelica is giving her sister information about the company (its secret pizza sauce recipe and expansion plans, which are frequently discussed at directors’ meetings). Also, Angelica takes no interest in the company (apart from attempting to get information to benefit her sister). 

Therefore, Sam and Bruce want to remove both Angelica and Wilson from the business. Sam and Bruce pass a special resolution to amend the company’s constitution so that shareholders who own 80% of the shares or more can compulsorily acquire the shares of minority shareholders. They engage an accounting firm to ensure that the holdings of the minority shareholders are independently valued, because they want to fairly compensate the minority shareholders. They then seek to buy out Wilson and Angelica, but Wilson and Angelica do not want to sell their shares in the company. Question 2(a) [ 15 marks] Explain whether any directors’ duties have been breached. Question 2(b) [15 marks] Are Wilson and Angelica required to sell their shares or can they each rely on any protections in the law to challenge the special resolution? Further background facts: 3 Unfortunately for Sam and Bruce, shortly after they pass the special resolution to compulsorily acquire the minority shareholdings, there is an outbreak of a new respiratory virus called the H3-G5 virus and the government orders that all restaurants need to close down for two months. The company is now in extreme financial difficulties, and it cannot pay for its daily supply of stock and its staff’s wages. 

Answer rating: 100% (QA)

1The directors of the company want to know 1 whether they can keep trading during this period and wh... View the full answer