The Gode family arrived from the UK in 1862 to the Manly, Tingalpa and Wynnum area in Brisbane. They started developing farming and property businesses and some of the family went into law. Another migrant, Frederick Harpur, moved from England in 1841 to Sydney with his family. He was a surgeon and the family focused on medical industries and yachting. Most Harpurs moved north to Brisbane in the early 20th century and also established themselves in the Manly, Tingalpa and Wynnum areas.

A marriage between the families resulted in the 2 commercial enterprises merging into the Mortoen Bay Club Ltd (MB Club Ltd).

MB Club Ltd was registered with ASIC in 2002 and has one wholly owned subsidiary. MB Club Ltd has 50 shareholders and 9 directors registered with ASIC, consisting of: Darren, Managing Director; Melina, company secretary; Joan, director, client relations; Una, finance director; And 5 non-executive directors.

The MB Club Ltd was hit hard by the COVID-19 Pandemic and Una reported at their February 2021 meeting that their cash flow is problematic. The board sets trigger points on their finances. If any of these trigger points are reached, then the board immediately are all sent a notice and the executive directors will meet within 2 hours to discuss and advise if a full board meeting is required to be held later that day.

The MB Club Ltd has 3 properties with houses on them, each valued at $700,000. Each of these properties has a mortgage to the bank against them valued at $500,000. There is no scope for further loans against these assets and the properties would be hard to sell within a 3 month period. MB Club Ltd’s main business is operated as a yacht and boating marina, with yacht, restaurants and other facilities.

The Bla Bank has a mortgage over the entire MB Club Ltd buildings, fixtures and land for $10 million and the MB assets secured against this loan has a book value of $12 million. It could take up to 6 months to sell this asset.

MB Club Ltd also has furniture, equipment and vehicles collectively worth about $150,000. If they were put sold as an urgent sale in a few week period these assets could be sold for $125,000. MB Club Ltd has a yacht, the Cassell, worth $500,000. The MB Club Ltd has cash reserves of $100,000 that they can access as at the meeting in February 2021.

Each month the MB Club Ltd receives $250,000 from a major client, Big Bucks Ltd, who rents out most of the MB Club Ltd. Big Bucks is behind on its payment and has not paid for the December 2020 or January 2021 use of the MB Club Ltd yet. This has meant MB Club Ltd has been drawing on their cash reserves to meet their outgoings. MB Club Ltd has $1.5 million cash coming in each month and $1.3 million going out when Big Bucks is paying their $250,000 each month.

Una and Darren inform the board at their February 2021 meeting that they have spoken with Big Bucks and expect a payment in late February that will clear all the Big Bucks debt to MB Club Ltd. Joan asks if Big Bucks is really as financially viable as they say, after all, a large part of their business is wedding and large functions and these are less common during the pandemic, even in March 2021.

MB Club Ltd has no anticipated large expenses, but the board of MB Club wants to get greater cash reserves. MB Club Ltd decides in the February 2021 board meeting to ask 2 of their subsidiaries, Wind and Sail Pty Ltd and Wake Up Bean Ltd, to lend them money with the yacht, the Cassell (worth $500,000), as security. MB Club Ltd owns 100% of shares in Wind and Sail Pty Ltd and Wake Up Bean Ltd respectively.

Wind and Sail Pty Ltd is directed by Darren, Melina, Joan and Una.Wind and Sail Pty Ltd has a constitution which modifies some replaceable rules about meeting procedures, disclosures to the board and expressly authorises the directors of Wind and Sail Pty Ltd to act in the best interests of MB Club Ltd. Wind and Sail Pty Ltd provides yacht services, with 75% of their business coming from the MB Club Ltd.

The directors of Wind and Sail Pty Ltd decide to execute a loan agreement following the MB Club Ltd meeting in February 2021 and approach the bank for a loan the next day. Wind and Sail Pty Ltd borrows $500,000 from the bank against its own assets and then uses that $500,000 to make a loan to the MB Club Ltd. Wind and Sail Pty Ltd takes no security for this loan. After making this loan, Wind and Sail Pty Ltd has limited cash reserves and all of its assets are offered as security. Providing there is no change in cash flows, Wind and Sail Pty Ltd will remain solvent even if MB Club Ltd made no payments. If MB Club Ltd makes the repayments on schedule, then Wind and Sail Pty Ltd will be in a comfortable financial position.

The bank agreed to transfer the money in the first week of March and the money was moved from Wind and Sail Pty Ltd’s account to the accounts of MB Club Ltd on 26 March 2021.

On 27 March 2021 Big Bucks entered into insolvency. Big Bucks last payment to MB Club Ltd was in November 2020. Big Bucks administrator quickly appoints a liquidator as there is no chance Big Bucks can be saved. The liquidator warns creditors they may receive 5 cents in every dollar owed if they are lucky.

After hearing the news at 10 AM on the 27th of March 2021 Darren comes into your office asking you to advise him and the other directors in the group if they have breached the Corporations Act duties on proper purposes and insolvent trading.

Answer rating: 100% (QA)

The different issues faced by the company are as below Due to Covid1... View the full answer