Reference no: EM132408122

FNSTPB504 Apply Legal Principles in Corporations and Trust Law Assignment - Monarch Institute, Australia

Assessment Activity 1:

Question 1.1 - Explain the elements necessary for negligence to be established.

Question 1.2 - Jayne is an accountant and business adviser. Christopher and Fleur run a highly profitable business and sought advice from Jayne as to the best business structure and practices to legally minimise their rising tax obligations. Jayne did so and advised Christopher and Fleur to set up a particular kind of trust.

Two years later, following a change in government, the tax laws concerning trusts were changed significantly. Christopher and Fleur are now obligated to pay 25% more tax than they would have been under a company structure. They are angry and believe Jayne has acted negligently. If they were to sue Jayne for negligence, would they be successful? Why or why not?

Question 1.3 - What risk management practices should a tax practitioner/adviser or accountant adopt to minimise the likelihood of negligence occurring?

Question 1.4 - Give an example of pure economic loss, stating the name of a relevant case.

Assessment Activity 2:

Question 2.1 - What kind of matters should be considered when deciding upon an appropriate business structure?

Question 2.2 - Steven and Lamont have recently set up an accounting practice in partnership. They have prepared a written partnership agreement in which it states that any purchase over $1,000 shall only be made after both partners agree. Steven and Lamont purchased all their office furniture and equipment from Mack at OfficeStuff. Mack contacted Steven and offered the partnership a great deal on a computer package for $2,000. Lamont is out seeing clients and cannot be contacted. Steven goes ahead and purchases the computer package. When Lamont is informed he says the purchase is not valid and wants Mack to take the computer package back and refund their money. Mack refuses. Discuss the issues raised and the likely outcome of these circumstances.

Question 2.3 - Under what circumstances may company directors be held responsible for the debts incurred by the company?

Question 2.4 - What are the essential elements of a trust?

Assessment Activity 3:

Question 3.1 - What is the significance of the cases of Saloman v Saloman (1897) AC 22 and Lee v Lee's Air Farming Ltd (1961) AC 12?

Question 3.2 - What is the principle on which a company limited by shares is formed?

Question 3.3 - Ruprecht and Lawrence are partners in Trident Holdings, a business which manufactures synthetic cork products. The business is growing and Ruprecht and Lawrence are keen to obtain further capital, export their products and also reward ten loyal long-term employees who have been with them since they started the business. They decide to change their business structure to a proprietary limited company and request your advice as to the following matters:

(a) What is the purpose of the Small Business Guide produced by ASIC?

(b) In what way can a proprietary limited company structure be used to reward employees?

(c) What is the maximum number of shareholders allowed for a proprietary limited company?  

(d) Can the business continue to be called Trident Holdings? If not, what changes must be made?           

(e) What is the difference between a small proprietary company and a large proprietary company?

(f) How may Ruprecht and Lawrence use the structure of the proprietary limited company to raise capital to grow the business?

(g) Why is a company structure beneficial for a business involved in export?

Question 3.4 - What rules govern the internal management of a company? Can these rules be varied? If so, how?

Question 3.5 - What information must appear on every public document signed or published on behalf of the company? On what other documents must this information appear?

Question 3.6 - Ruprecht and Lawrence have now filed a positive solvency resolution with ASIC. Why would they have done so? Under what circumstances are they required to file a negative solvency resolution?

Question 3.7 - What is the significance of s601AD(1) of the Corporations Act 2001?

Question 3.8 - What is the relationship which exists between a promoter and the company being formed?

Question 3.9 - Prior to incorporation, Claire entered into a contract with Phil to provide computers to a soon to be incorporated company, Modern Family Services Pty Ltd. Upon incorporation the directors of the company refused to ratify the contract made by Claire as they can obtain the same services less expensively from another business. Phil has spent time, expertise and money preparing to perform the contract.

Advise all parties of the issues raised and the likely outcome.

Assessment Activity 4:

Question 4.1 - Outline the responsibilities and functions of the board of directors.

Question 4.2 - How does a person become a member of a company?    

Question 4.3 - To what level of remuneration are directors entitled? Who has the power to decide on the remuneration of directors?

Question 4.4 - Please read the Case study on 'Court decisions lift director standards: ASIC'. The case study can be located in the section titled 'Chapter 5 Review Questions'.

Please answer the following questions in relation to the Case study:

a) What is the prime objective held by ASIC in relation to recent court rulings?

b) List the recent penalties ASIC has secured.

c) Do you believe ASIC plays an effective role as a corporate regulator? Why/Why not?

Assessment Activity 5:

Question 5.1 - Do the directors owe the creditors of the company any fiduciary duties? Why or why not?

Question 5.2 - Dirk is a member of the board of directors of Seriousbucks Ltd. Just prior to his first board meeting, Dirk agreed with the Chairman of the board that he would always vote in line with the Chairman's instructions, and he has done just that throughout his term as a director. Dirk prides himself on being a 'team player'. Discuss the issues raised by these circumstances.

Question 5.3 - Nim is a director of Avarice Ltd, a successful multimedia and marketing company. Avarice Ltd is keen to grow its business and wants to take over another successful marketing business, Marketers Rule Ltd. This is discussed at a board meeting and it is decided to attempt the takeover in three months. As it happens, Nim's sister Ann is an executive director of Marketers Rule Ltd, a fact he does not disclose to the board of Avarice Ltd. Nim informs Ann of the intended takeover and also buys 200,000 shares at $20 a share. Ann also increases her own shareholding, but prior to the takeover, resigns as a director of Marketers Rule Ltd to set up her own marketing business. Ann takes with her a wonderful new software marketing package she has developed while working as a director at Marketers Rule Ltd.

Avarice Ltd proceeds with the takeover, at which point the share price of Marketers Rule Ltd increases to $100 a share. Nim and Ann sell their shares in the takeover and make a large profit. Subsequently, Avarice Ltd and Marketers Rule Ltd discover Nim and Ann's conduct and demand an explanation.

a) Have Nim and Ann acted properly in fulfilling their duties as directors? If not, why not?

b) What are the possible consequences of their conduct?

c) With reasons, explain whether the 'business judgement rule' will be relevant in these circumstances?

Question 5.4 - What is ASIC's role when criminal proceedings are brought against a director?

Question 5.5 - What are the possible defences a director accused of breaching s588G of the Corporations Act may raise?

Assessment Activity 6:

Question 6.1 - What is 'equity finance'? What is 'loan finance'? What is the main difference between them?

Question 6.2 - What is share capital? What purpose does the concept of share capital fulfil?

Question 6.3 - List the rights held by shareholders of ordinary shares.

Question 6.4 - Chin Ho has inherited two bundles of shares from her grandmother from two different companies. The first bundle is cumulative preference shares and the second bundle is redeemable preference shares. Explain what this means.

Question 6.5 - What is reserve capital?

Question 6.6 - How is the price for an option calculated?

Question 6.7 - Elizabeth owns 20,000 shares in Tudor Ltd. Elizabeth has received from the directors of the company a renounceable one-for-four rights issue at the discounted price of 5% below market price. Explain what this means and the choices available to her.

Question 6.8 - Why is there a general prohibition to a company purchasing its own shares?

Assessment Activity 7:

Question 7.1 - Under what circumstances would directors appoint an external administrator?

Question 7.2 - Who may be an administrator?

Question 7.3 - List the ways in which property of the company is protected during the administration.

Question 7.4 - Yummy Tummy Pty Ltd (Yummy Tummy) is a 44 year old business which manufactures and retails desserts. Yummy Tummy operates 17 shops throughout Australia which are leased from shopping centres and its products are also sold through gourmet shops and restaurants. Yummy Tummy employs 400 people, owns two large commercial bakeries freehold and two commercial bakeries subject to mortgage with the Global Domination Bank.

Currently, the business is performing poorly. Yummy tummy is 3 months behind in payment to its flour supplier. So far all employee wages and entitlements have been paid, but the directors are worried about the financial position of the company.

What is the risk to the directors of Yummy Tummy if they take no action to address the company's financial problems but instead simply continue to trade?

Question 7.5 - How may creditors or consumers of Yummy Tummy find out if it has gone into external administration?

Question 7.6 - What are the circumstances under which an application may be made for a compulsory winding up?

Assessment Activity 8:

Question 8.1 - What is the difference between an unincorporated and an incorporated association?

Question 8.2 - Briefly summarise the matters that should be addressed in the rules of an incorporated association.

Question 8.3 - Lewis, the chairman of the committee of the Flemington Football Club Inc has also entered into a two year contract with GreatGrounds Gardeners, to maintain the football oval and grounds.

All went well for the first ten months, but despite providing their services, GreatGrounds Gardeners have now not received payment for three months. Who is liable for the debt owed to GreatGrounds Gardeners? Give reasons for your answer.

Would your answer be different if Flemington Football Club Inc was not an incorporated association? If so, how and why?

Question 8.4 - List five advantages of becoming an incorporated association.

Assessment Activity 9:

Question 9.1 - What are the major commercial reasons that people choose to create and operate express trusts?

Question 9.2 - Identify the following types of trusts?

a) The trust document confers on the trustee discretion to select who is in the designated class of potential beneficiaries is to receive any benefit and to decide the amount of any benefit o be paid.

b) The trust creates and grants to each beneficiary proprietary interests in the trust property or the income derived from that property. The trustee has no discretion regarding distribution of income and property.

c) The trust creates and grants to each beneficiary a fixed equitable interest in the capital and income of the trust calculated by reference to the proportion of units each beneficiary holds in relation to the total number of units issued.

Question 9.3 - Peter has been appointed trustee of Nina's testamentary express trust. The trust document states that the trust applies to "...most of my estate, including my shares and two-thirds of my antique collection." It goes on to state that "half of the two-thirds of the antique collection is to be held for the grandchildren that loved me most". Can Peter fulfil the terms of Nina's trust?

Give reasons for your answer.

Question 9.4 - What law governs trustees?

Question 9.5 - Is there any conduct by the beneficiary which may prevent them being granted an equitable remedy for breach of a fiduciary duty by the trustee?

Question 9.6 - What are the only circumstances under which a trustee is not bound to carry out the terms of the trust instrument?

Question 9.7 - Elaine is the trustee of a trading trust and enters into a contract with a service on behalf of the trust. The business of the trading trust is not financially sound and when the service is complete there are insufficient trust funds to pay the debt.

Giving reasons for your answer, explain who will be liable to pay the outstanding debt.

Question 9.8 - How is the existence and continuity of a trust affected by the death of a beneficiary?

Assessment Activity 10:

Question 10.1 - What are the advantages of compulsory employer funded superannuation to Australian workers and the Australian economy? Are there any disadvantages?

Question 10.2 - What do you think are the advantages and disadvantages of being a member in a defined benefit fund?

Why are defined benefit funds becoming increasingly uncommon?

Question 10.3 - What is an eligible rollover fund?

Question 10.4 - Moe, Larry and Curly are licensed trustees of SensationalSuper, a RSE. The fund has not been performing well and the trustees are keen to increase investment return to members. Moe and Larry decide that the best course of action is to invest in higher risk activities where the investment return is greater. Curly points out that higher risk means higher loss if the investment is not successful. Moe and Larry laugh at him saying 'no pain no gain'. The trustees invest 50% of the available funds in a digital animation and movie company, whose first three projects fail. The loss to the fund is massive. It is also revealed that two directors of the movie company are Larry's daughters from his first marriage.

Discuss the issues and possible consequences raised by these circumstances.

Question 10.5 - Crossword puzzle

Test your knowledge: Complete the following crossword puzzle

Across

1. A holding account for lost members or inactive members with low account balances. (Three words of 8, 8 and 7 letters each).

2. Superannuation was part of a__________ pillar reform package to deal with the aging of Australia's population.

3. Who are the trustees in the SMSF? (Two words of 3 and 7 letters each).

Down

1. Age before which superannuation savings cannot be withdrawn if a person has retired.

2. Regulated and low taxed savings scheme designed to encourage tax payers to save for their retirement.

3. Fund into which employer will pay superannuation contribution if employee does not choose their own.

4. A superannuation fund run for profit with no restrictions on members and many investment options.

5. The phase during which superannuation is being saved.

6. The person who holds a RSE licence and is responsible for the management of a RSE.

7. The Review which recommended the introduction of MySuper was the _________ Review.

8. The authority responsible for regulating RSE's is the Australian ____________ Regulation Authority.

9. The phase in which a member is receiving payment from their superannuation savings.

10. In a MySuper product, there may be either a 'singe diversified investment strategy' or a '___________ investment strategy'.

Attachment:- Corporations and Trusts Law Assignment File.rar