ASE STUDY 1
Lawrence, Bernard and Donald were all executive directors of an insurance company called InsureIt Ltd. Donald was the finance director and Bernard was the Chief Executive Officer of the company. In addition to being a director, Lawrence also owned a substantial amount of shares in InsureIt Ltd which was a publicly listed company on the ASX. Lawrence’s wife was a director and shareholder of another company called Prime Earnings Pty Ltd. Lawrence requested from Bernard and Donald an advance of $10 million from InsureIt Ltd to be paid to Prime Earnings, in return for $10 million worth of the shares of Prime Earnings. Lawrence had a reputation as a finance guru and he told Bernard and Donald that he would use the money to buy sub-prime securities that were doing well overseas. His banker friends were making lots of money by trading these securities. He said that this would make the shares of Prime Earnings very valuable.
Prime Earnings had no other assets. Bernard and Donald also knew that Lawrence’s wife was a director and shareholder of Prime Earnings and that there were no other assets in Prime Earnings. As Bernard and Donald trusted Lawrence’s judgement they did not ask for any security. None of the other directors of InsureIt Ltd knew of this advance. They also did not let the investment committee of the company know of the transfer of the funds.
The $10 million was spent as follows:
• $5 million was given to Prime Earnings and was used to buy the securities overseas;
• $3 million was used by Lawrence to buy more shares in InsureIt Ltd to support its share price on the ASX; and
• The remaining $2 million was invested into other private companies where Lawrence and his family had an interest.
Lawrence thought he could make a quick profit as he had done in the past. He did not investigate any of these investments in any real way. Soon after this, the news from overseas was that the securities were worthless and were causing the collapse of many U.S. companies. This made the Prime Earnings shares, now owned by InsureIt Ltd, worthless. The other directors of InsureIt found out about the $10 million given to Prime Earnings and they were furious. They have reported the matter to ASIC and want ASIC to investigate Lawrence, Bernard and Donald for breaches of the Corporations Act.
REQUIRED
(a) Advise the other directors of InsureIt Ltd as to any breaches of directors’ duties under the Corporations Act 2001 (Cth) by Lawrence, Bernard and Donald and any defences that may be available to them (30 marks)
(b) Advise as to any other breaches of the Corporations Act 2001 (Cth) relating to the use of the funds by Lawrence. (20 marks)
Total (50 marks)
CASE STUDY 2
Valerie is a non-executive director of an investment company for retirees along the Bellarine peninsula called The Millenial Retirees Pty Ltd. She has basic accounting knowledge and can read a balance sheet. One of the executive directors, Samantha, put forward a proposal at a board meeting to invest $600,000 in a company in India. The company was noted as the most successful IT company for 2020 in India in an independent investment report commissioned by Samantha. Valerie however thought further investigation was needed before the money was invested. Valerie made her own inquiries and rang the authors of the investment report and questioned them further regarding the nature of the IT company in India and its financial status. She was told that there were management problems in the company at the moment but it appeared the company was running well. Valerie suggested to Samantha that she invites one of the representatives of the financial investment company who wrote the report to a board meeting, so the directors could ask questions before any decisions were made. Samantha agreed. At the meeting most of the directors did not ask any questions. It seemed most of the directors had not read the report or they did not understand it. The other board members also did not make any of their own inquiries as Valerie had done. Instead they chose to rely on the advice of the representative of the investment company and their report. The resolution by a majority of the board was to invest the $600,000. Nine weeks later the Indian company went into liquidation. Fortunately for the The Millenial Retirees Pty Ltd, it survived this crisis because of a dynamic advertising campaign that secured 100 new retirees who bought property and concluded long term leasing contracts with The Millenial Retirees Pty Ltd. REQUIRED
(a)Explain whether Valerie has breached any of her duties owed to the company? If so, discussthe defences (if any) that may be available to her. (15 marks)
(b)Explain whether Samantha has breached any of her duties owed to the company? If so, discussthe defences (if any) that may be available to her. (15 marks)
(c)Explain whether the other directors have breached any of their duties owed to the company?If so, discuss the defences (if any) that may be available to them. (15 marks)
(d)ASIC wishes to take action against the directors of The Millenial Retirees Pty Ltd. Advise ASICas to the relevant consequences for breach of the duties discussed in your answers to (a), (b)and (c) above. (5 marks)
Total (50 marks
Lawrence, Bernard and Donald were all executive directors of an insurance company called InsureIt Ltd. Donald was the finance director and Bernard was the Chief Executive Officer of the company. In addition to being a director, Lawrence also owned a substantial amount of shares in InsureIt Ltd which was a publicly listed company on the ASX. Lawrence’s wife was a director and shareholder of another company called Prime Earnings Pty Ltd. Lawrence requested from Bernard and Donald an advance of $10 million from InsureIt Ltd to be paid to Prime Earnings, in return for $10 million worth of the shares of Prime Earnings. Lawrence had a reputation as a finance guru and he told Bernard and Donald that he would use the money to buy sub-prime securities that were doing well overseas. His banker friends were making lots of money by trading these securities. He said that this would make the shares of Prime Earnings very valuable.
Prime Earnings had no other assets. Bernard and Donald also knew that Lawrence’s wife was a director and shareholder of Prime Earnings and that there were no other assets in Prime Earnings. As Bernard and Donald trusted Lawrence’s judgement they did not ask for any security. None of the other directors of InsureIt Ltd knew of this advance. They also did not let the investment committee of the company know of the transfer of the funds.
The $10 million was spent as follows:
• $5 million was given to Prime Earnings and was used to buy the securities overseas;
• $3 million was used by Lawrence to buy more shares in InsureIt Ltd to support its share price on the ASX; and
• The remaining $2 million was invested into other private companies where Lawrence and his family had an interest.
Lawrence thought he could make a quick profit as he had done in the past. He did not investigate any of these investments in any real way. Soon after this, the news from overseas was that the securities were worthless and were causing the collapse of many U.S. companies. This made the Prime Earnings shares, now owned by InsureIt Ltd, worthless. The other directors of InsureIt found out about the $10 million given to Prime Earnings and they were furious. They have reported the matter to ASIC and want ASIC to investigate Lawrence, Bernard and Donald for breaches of the Corporations Act.
REQUIRED
(a) Advise the other directors of InsureIt Ltd as to any breaches of directors’ duties under the Corporations Act 2001 (Cth) by Lawrence, Bernard and Donald and any defences that may be available to them (30 marks)
(b) Advise as to any other breaches of the Corporations Act 2001 (Cth) relating to the use of the funds by Lawrence. (20 marks)
Total (50 marks)
CASE STUDY 2
Valerie is a non-executive director of an investment company for retirees along the Bellarine peninsula called The Millenial Retirees Pty Ltd. She has basic accounting knowledge and can read a balance sheet. One of the executive directors, Samantha, put forward a proposal at a board meeting to invest $600,000 in a company in India. The company was noted as the most successful IT company for 2020 in India in an independent investment report commissioned by Samantha. Valerie however thought further investigation was needed before the money was invested. Valerie made her own inquiries and rang the authors of the investment report and questioned them further regarding the nature of the IT company in India and its financial status. She was told that there were management problems in the company at the moment but it appeared the company was running well. Valerie suggested to Samantha that she invites one of the representatives of the financial investment company who wrote the report to a board meeting, so the directors could ask questions before any decisions were made. Samantha agreed. At the meeting most of the directors did not ask any questions. It seemed most of the directors had not read the report or they did not understand it. The other board members also did not make any of their own inquiries as Valerie had done. Instead they chose to rely on the advice of the representative of the investment company and their report. The resolution by a majority of the board was to invest the $600,000. Nine weeks later the Indian company went into liquidation. Fortunately for the The Millenial Retirees Pty Ltd, it survived this crisis because of a dynamic advertising campaign that secured 100 new retirees who bought property and concluded long term leasing contracts with The Millenial Retirees Pty Ltd. REQUIRED
(a)Explain whether Valerie has breached any of her duties owed to the company? If so, discussthe defences (if any) that may be available to her. (15 marks)
(b)Explain whether Samantha has breached any of her duties owed to the company? If so, discussthe defences (if any) that may be available to her. (15 marks)
(c)Explain whether the other directors have breached any of their duties owed to the company?If so, discuss the defences (if any) that may be available to them. (15 marks)
(d)ASIC wishes to take action against the directors of The Millenial Retirees Pty Ltd. Advise ASICas to the relevant consequences for breach of the duties discussed in your answers to (a), (b)and (c) above. (5 marks)
Total (50 marks
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