Green Architecture Pty Ltd (GA Pty Ltd) was established in 2013. Mack Green is the sole director and a shareholder of GA Pty Ltd as well as its principal architect. Shi is the General Manager (Administration) of GA Pty Ltd, and holds 10% shares in GA Pty Ltd. Shi is Mack’s longest standing employee and is responsible for industrial relations and employment matters for their ten staff members, and various other specific responsibilities including setting strategies and negotiating with clients.
In January 2017, Green Pods Pty Ltd (GP Pty Ltd) was established for the purpose of developing and bringing to market an affordable modular concrete based construction system, which Mack designed, known as “Green Pods”. 

GP Pty Ltd is classified as a large proprietary company. The board comprises Mack as Managing Director, Cass a director who has a background as a lawyer specialising in contracts and contracts negotiations, and Bob a non-executive director and registered builder who has worked extensively with Mack over the years through his building company Rock Projects Pty Ltd (RP Pty Ltd). GA Pty Ltd owns 150,000 of the 200,000 shares issued in GP Pty Ltd. Mack, Bob and Cass each own 15,000 shares in GP Pty Ltd, the remaining 5,000 shares are held by a Mrs X. GP Pty Ltd’s constitution includes all general law and statutory directors’ duties.

From January 2017, Shi also became responsible for recording and maintaining the financial records for GP Pty Ltd as well as GA Pty Ltd, and for the past three years (so until January 2020) has signed the financial and directors’ reports for GP Pty Ltd.

In its early stages Mack decided that GP Pty Ltd would rely heavily on GA Pty Ltd’s infrastructure. GA Pty Ltd charged GP Pty Ltd for renting its office space on the same floor in a commercial building in Redfern NSW. The payments were only to be made by GP Pty Ltd to GA Pty Ltd as and when GP Pty Ltd had funds to make a payment. Mack makes it clear that GA Pty Ltd will never demand payment from GP Pty Ltd. This arrangement between GA Pty Ltd as head lessor, and GP Pty Ltd, the lessee, was never formally documented and no lease for a fixed term was in place.

In January 2020 there was an official launch of the Green Pods to the market which attracted significant media attention. The official advertising materials, which is marketed on TV and National Radio Stations states, “The Green Pods will revolutionise affordable housing in Australia. Our design is flawless.” In March 2020 Shi negotiates with a residential developer Berriton Ltd who engages GP Pty Ltd under an agreement for 4 Green Pods made of the highest quality European products, and guarantees completion within six months. This is the first time the Green Pods will be rolled out commercially. Two weeks later Cass, on behalf of GP Pty Ltd, enters into an agreement with Buildwell Projects Pty Ltd (BP Pty Ltd), a company which Bob had set up in his son and daughters names. Bob, on behalf of BP Pty Ltd, agreed to undertake the building works at cost price excluding any internal costs incurred by BP Pty Ltd and also excluding a charge for Bob’s own time. The budgeted cost in the contract to be paid to BP Pty Ltd was $250,000 per pod, a total price of $1 million. 

The price was for the pod only, and did not include the fit out of the pod. Around the time of the media attention, Bob had been approached by Maverick Gold Ltd, a leading developer. Maverick Gold Ltd actually flew Bob to the Palazzo Versace on the Gold Coast for a week of discussions. It was agreed with Maverick Gold Ltd that if they liked what they saw, RP Pty Ltd will be its principal
builder on its next big project in Byron Bay which would comprise the Green Pods. In mid- September 2020 BP Pty Ltd invoices GP Pty Ltd for a total of $620,000 including $120,000 in variations for the 2 Green Pods, deemed necessary due to significant problems with the original design. GP Pty Ltd disputes payment of the variation amount and BP Pty Ltd refuses to complete the remaining 2 Green Pods pending satisfaction of its invoices. At the same time, Berriton Ltd have also requested a progress update and are “very excited about completion of the 4 pods by October 2020 as agreed. We can’t wait for the Green Pods to be rolled out on a large scale to prospective purchasers.”

Notwithstanding the fact that it went beyond the bounds of her job as a General Manager (Administrator), in April 2020, Shi had negotiated the price of custom materials from Italy through its Australian distributor Belle Products Pty Ltd, to fit out the 4 Green Pods to be built and GP Pty Ltd had paid a large deposit in April 2020. Manufacture of the materials was completed just before Christmas 2020, and Belle Products Pty Ltd have issued two reminder notices in October and November 2020, for payment of its invoices, prior to shipment from Italy. To make matters worse, the initial 2 Green Pods that were completed by BP Pty Ltd in mid-September 2020 have started cracking.

In January 2021 GA Pty Ltd issues GP Pty Ltd with invoices in the sum of $300,000 in respect of: outstanding rent from Jan 2017 to Jan 2021 inclusive; costs in relation to time spent by employees of GA Pty Ltd for GP Pty Ltd work; and, for certain other miscellaneous charges. Mack is under a lot of stress, GP Pty Ltd has not lodged its tax return on time for the 2018/2019 financial year, or made superannuation contributions up to date. Mack has to make some hard decisions and let go 8 employees, and as he is feeling terrible, Mack causes GP Pty Ltd to pay the 8 employees $5,000.

In March 2021, ASIC announce an investigation of GP Pty Ltd following an industry wide surveillance of corporate governance practices in the building and construction industry.

Advise GP Pty Ltd as to its potential rights and liabilities. What action can be taken (if any) against the directors of GP Pty Ltd, and by whom?

Answer rating: 100% (QA)

The directors of GP P ty Ltd may be liable for breaches of their ... View the full answer