Reference no: EM133137242

LAW 2450 Company and Finance Law - RMIT University

The assessment:

Background:
You have recently graduated as an accountant/ financial adviser and your first position is with an integrated accounting and financial services organisation in Melbourne.

One of the clients in the company BW Enterprises Ltd a small publicly listed company. You have been asked by your senior manager to sit in on a meeting of the client and the directors and to take notes on the issues raised and then to prepare a report on the matters for review by your senior manager and the managing partner.
Expectations in preparation of the report:

The organisation that you work for has a high profile in the profession and therefore expects all staff to demonstrate a high degree of professionalism.

In the advice that you are to prepare you are expected to demonstrate that you understand the relevant law and how the law applies to the issues raised by the client and come to a logical conclusion.

You are also expected to be able to justify your conclusion by reference to the relevant legislation in the Corporations Act, ASIC Act, or any other legislation you think appropriate and case law.

Your senior manager has high expectations of you and will not accept any grammatical errors or unsubstantiated statements or conclusions made in your report. He will not tolerate any material copied from textbooks, google or any other source which you attempt to pass off as your own material.

You are currently under a three-month probation period with the organisation and so far, your performance has been deemed adequate.
Your performance on this task could determine whether you continue being employed or not.
The client and issues:
BW Enterprises Ltd is a small capital sized company incorporated in Melbourne on 3 February 2000. The directors of the company are:
Brian the CEO,
Gurinder the IT director
Voon-Ling the marketing director
Jose is the CFO and finance director
Swee-Lim is the purchasing director

All are executive directors of the company
All the executive directors own their respective shares in the company via their family trusts. Together they own 65% of the shares equally.
Chiew is a non-executive director who was nominated by the Halliwell Ltd which owns 15% of the shares in BW Enterprises Ltd.Halliwell Ltd owns 15% and the public owns the remaining 20%.

The company has been involved in the manufacture, distribution and installation of solar panels and batteries throughout Australia and New Zealand.

It has developed new technology in relation to the production of solar panels but needs more funding to get it into a commercial stage.

The financial results for the year ended 30 June 2021 show that the company has been profitable since 2015. However it has no income tax liability because of the prior year losses. The CFO Jose anticipates that the losses will be used up by 2022 and that the company will have an income tax liability. The interim financial statements as at 30 April 2022 show the following:

Total assets:                          $37m

Liabilities:                              $28m

Net shareholder funds:       $9m

The net shareholder funds is made up of:

the issued share capital                 $12m

accumulated losses:                       ($3m)

Operating revenue                          $15m

Operating expenses                        $12.5m

Due to the issues of COVID during the last 2 years and the current conflict in Ukraine, it has placed stress on the company's financial position and the ability to develop the new technology. Many of the software developers and engineers involved were based in the Ukraine and this has slowed down the development of the new technology.

Brian and Voon-Ling have requested a meeting to discuss several issues that have arisen and would like your advice on the matters plus any other recommendations you as experts may have considered.

Issues:
1. A draft resolution has been prepared by Chiew requesting that as there are retained profits of $9m as per the 30 April 2022 financial accounts a dividend should be paid to the shareholders. Halliwell Ltd have indicated quite strongly they are expecting a return on their investment soon or they may dispose of their shareholding in the company or seek a change of the board of directors to have a majority control of the company.

2. Gurinder is an aspiring politician and is seeking nomination for one of the major parties in the upcoming November 2022 State elections. As the IT director he acquired specialised software that allows the company to track all queries and requests for solar panels. It stores a lot of client data useful for the company when it finishes developing the new technology.
However Gurinder has also used the software and the data within the software to mail out to people political information to assist him in the upcoming state election.
Brian is not that concerned as he believes that if Gurinder gets elected he can help the company get State Government contracts.
Voon -Ling is not so happy but has not told the other directors about this.

3. Due to the COVID out break the company obtained funding from the State and Federal Government to help it through. It also received Jobkeeper payments. However because of the financial support provided to the company by State and Federal Governments, the company had sufficient funding to pay thedirectors significant bonuses. Chiew as the non-executive director objected to this and felt that this was reducing the payment of dividends to shareholders. Halliwell Ltd the shareholder was also not happy to receive lower dividends because of the bonuses paid to the executive directors.
The other directors are not happy about Chiew's attitude and would like to remove himas a director but are mindful he representsHalliwell Ltd which owns 15% of the company.

4. The Board of directors is mindful since COVID of relying on one country being the sole supplier of parts and believe it would be wiser to spread the manufacturers between other countries as well as developing a local manufacturing base in Melbourne.
Swee Lim as the purchasing director has been asked to look at other countries as well as Australia to develop alternative suppliers of parts so the supply chain issues caused by COVID do not arise in the future.
Her god father has contacts in several countries in Asia and South America that could supply the parts cheaper than any other suppliers. She was authorised under her employment contract to order parts up to $2m (AUD). Any contract above that amount needed the approval of the Board of directors.
She called a meeting of the Board of directors but only she Voon-Ling and Brian turned up at the meeting.
Under the constitution of the company the quorum for Board meetings is three but one must include the non-executive director Chiew.
Swee Lim on behalf of the company signed the contract for $5m.
Swee Lim's god father also bought her a diamond necklace and gave her a "red packet" containing $50,000.
Swee Lim did not consider or undertake a review of the advantages of manufacturing in Australia on the basis that "Australia is not a manufacturing country". She advised the board of the directors that it was better to have suppliers throughout Asia and South America and not in Australia.

5. In a recent planning meeting attended by all the directors and the senior staff the issue of finance was raised.
To combat the current financial issues happening again the directors agreed that the company needed to raise funds to:
a) Reduce their current liabilities of $28m by $12m being the loan from the National Australia Bank Ltd.
b) Provide funds to pay future dividends of $1m per annum
c) Build up a cash reserve or buffer of $750,000.
They are unsure whether to seek money from the public or ask Halliwell Ltd to invest more or do a rights issue or some other alternative.
They are mindful that by issuing more shares to Halliwell Ltd they could lose control of the company.

Required:

From the information above you are required to provide advice to the Board of directors of BW Enterprises Ltd:

Question 1. Discuss and analyse the legal issues that arise from the 5 issues mentioned above. In your analysis you need to:
a) identify the legal issues
b) explain the relevant law both the legislation and case law
c) apply the law to the facts and come to a conclusion

Question 2. If you believe the directors may be liable for breach of a provision explain if they have a defence and if not what the company could recover from the directors.

Question 3. Discuss the various funding options available to the company mentioned in point 5 above and any other alternatives you think would be appropriate and which you think would be the best option to the company.

Question 4. As a financial adviser if you recommend seeking funds from the public what type of clients would you focus on and why?

Attachment:- Company and Finance Law.rar