Australian Company Law
Assignment facts
Wicrem Pty Ltd (Wicrem) was incorporated in April 2021 by Eshan and Sharon. Eshan and Sharon were the only directors and Eshan, Sharon, Tony, Chathu and Clare were the only shareholders, each holding 10 shares. The company used the replaceable rules.
At the first directors’ meeting on 12th April:
• Sharon was appointed managing director. She was delegated authority to commit the company to contracts up to $10,000 without approval of the Board of Directors.
• Eshan and Sharon then offered to sell to Wicrem their marketing business for $1.5 million even though it had recently been valued at $1.2 million. Eshan and Sharon then, as directors, resolved that Wicrem accept the offer, subject to shareholder approval, and purchase the marketing business for $1.5 million, and that Wicrem borrow $1.5 million to allow the company to pay Eshan and Sharon.
• It was resolved to call an extraordinary general meeting of shareholders to approve the purchase of the business for $1.5 million. Following the directors’ meeting a notice of extraordinary general meeting was prepared stating the intention to seek shareholder approval for the purchase of the marketing business for $1.5 million from Eshan and Sharon. The meeting was to be held at 6pm 12th May in Wicrem’s office in North Sydney. The notices were posted to each of the 5 shareholders on 13th April but unfortunately Chathu and Clare’s addresses were incorrectly printed on their envelopes and the notices were not received by Chathu and Clare.
At 6pm 12th May Eshan, Sharon and Tony met at Wicrem’s office in North Sydney. As there was a quorum, the meeting proceeded. Sharon chaired the meeting, explained the nature of the marketing business and stated the price of $1.5 million. Tony expressed concern about the value of the business, but Sharon assured Tony that it was a good deal.
Sharon then asked for a vote on the resolution that the shareholders approve the purchase of the business for $1.5 million. Eshan and Sharon voted in favour and Tony voted against it. On that basis the resolution was passed.
In August Sharon began considering new ways to increase Wicrem’s expected profit. Sharon introduced herself as the managing director of Wicrem to Chloe, a consultant employed by AdviceCo Ltd. Sharon asked for advice on what new businesses Wicrem could develop in the next 6 months. Chloe prepared a strategy for the creation of an interior design business and included recommended lists of supplies and possible qualified designers. Chloe emailed the strategy, and
Advice Co Ltd’s account for $12,500 for the advice, to Wicrem. When Eshan read the email he questioned the need to diversify.
Sharon explained the benefits of the new business, but Eshan said she should have discussed it with him first. Eshan immediately called AdviceCo Ltd and told the General Manager that Sharon did not have the authority to use their services and that Wicrem would not pay their account
Questions
• Could the validity of the resolution passed at the extraordinary general meeting be challenged and if so, what would be the remedy? [4 marks]
• Assume that the shareholders’ resolution had not been validly passed. Would Wicrem be able to obtain a remedy in relation to the sale of the business, and if so, what would that remedy be? [6 marks]
• Can Wicrem avoid the contract with AdviceCo Ltd by successfully arguing th agents for both companies lacked authority? [18 marks] Two further marks available for the quality of your written communication and referencing.
Use only the law considered in weeks 1 – 5 of the unit.
When answering question 3 you should use th structure set out on slide 42 in slides for week 4 an consider each type of authority, as relevant.
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