Puffin Pty Ltd (‘Puffin’) is a company that makes smoked salmon and other seafood delicacies. The constitution of Puffin is a combination of the Replaceable Rules and the following provisions:

1. Only members of the Fisher family may hold shares in the company.
2. Tim Fisher will be the company solicitor, for as long as he wishes to retain that role.

The shareholders of Puffin are the seven members of the Fisher family who hold shares as follows:

Name	Shareholding
Ann	20%
Ben	20%
Carl	20%
Tim	15%
Sally	15%
Yvette	5% non-voting
Yvonne	5% non-voting

The directors of Puffin are Ann Fisher, Ben Fisher and Carl Fisher. Ann, Ben and Carl have difficulty in understanding and managing the financial side of the business. Therefore, Puffin appointed a financial manager, Ying, to manage the financial affairs of Puffin. Ying is paid a good salary but has no say in the company’s activities.

The directors have ambitious plans for Puffin’s expansion, and so investigated possible sites in order to construct a new factory. Ann advised the other directors of a suitable site in Sunshine, (‘the Sunshine site’). Ben was taking part in a yachting regatta and therefore did not read any of the purchase documents and neither did he visit the Sunshine site. Ann texted Ben the following: “Found a great site for us, its perfect!!”. Ben messaged back “Should be good, check with Ying if financials okay”. Ann popped into Ying’s office and briefly outlined the purchase plan. Ying expressed concern that the outlay might expose Puffin to a dangerous level of risk, but Ann shrugged off the warning, thinking to herself “these financial types know nothing about entrepreneurship.”

Carl was interstate, attending to an urgent problem that had arisen in regard to one of Puffin’s fish suppliers. Carl briefly glanced at the documents in a distracted fashion.

All three directors voted to acquire the Sunshine site for $2.3 million.

Unbeknownst to Ben and Carl, the vendor of the Sunshine site was Ann’s nephew, Harry. Ann felt sorry for Harry, because his business ventures have always ended in abject failure and she wanted to give him a good start on his next venture.

After the purchase was completed, it became apparent that the Sunshine site was contaminated with toxic metals as a result of its previous purpose as an oil refinery. Planning permission for a factory has been refused as the site is unsuitable for food production due to this contamination. A land surveyor has valued the site at $250 000. Puffin has received legal advice that the sale is ‘watertight’ and that the state of the site was disclosed within the purchase documents.

Tim is furious, as he believes that as Puffin’s solicitor, he should have been consulted about the sale and has complained loudly to the board members. Sally has also expressed her displeasure to the board, saying “You lot are hopeless, you couldn’t run a chook raffle, let alone a company!”

In response, the board removed Tim from his position as solicitor and cancelled Sally’s shares. On the same day, the board issued 5% of shares to each director in exchange for $10 000 per 5% parcel. The board noted in the minutes that this action was necessary to raise funds for Puffin.

Required:

Answer the following questions by referring to relevant case law and legislation. Where appropriate, identify possible defences, remedies and penalties. Structure your answer as a memorandum of advice

1. Sally feels that the cancellation of her shares was very unfair. What options are available to Sally?

2. Tim believes the board has acted against the best interests of Puffin. What action can Tim take to protect Puffin?

3. Yvette and Yvonne are financially dependent on the dividends they receive from Puffin. The board has informed all shareholders that dividends will not be paid for the next 10 years. Is this permissible?

Answer rating: 100% (QA)

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