Reference no: EM133027863

LAWS6017 Corporate Law - Toi Ohomai Institute of Technology

You are required to:

1. Read and thoroughly understand the questions and undertake any further research of your own that you think necessary to obtain more background detail and/or help answer the questions set.

2. Then apply your knowledge of corporate law to answer the following questions.

3. Include any applicable sections of the Companies Act or other relevant companies' legislation and/or rules wherever appropriate to support your reasoning, explaining why or how that provision applies, or is relevant, to your answer.

4. You do not need to copy out sections, Rules or other provisions but please give the correct section/sub section and/or clause number and its title. (I.e. the embolded section title given at the top of each section of the Companies Act, or the relevant Schedule and clause number, or the relevant NZX Listing Rule number/name if given).

You may carry out whatever research you deem necessary using law reporters and any other sources you may locate, for commentary on some of the finer points of the law and some of the more important precedent cases.

PRESENTATION
Please ensure you correctly number all of your answers so that it is clear to the marker which question your answer relates to. Your assignment should show your student identity number only - NOT your name. Attach a reference list showing all texts, references and other resources used. If you are going to quote from a reference please acknowledge that reference in your text. Acknowledging a source adds authority to your argument.

Question One: Topic 5 - Company Formation and Governance
Anna has just formed a company and wants your advice. She didn't submit a constitution when she incorporated the company, but now she wants her company to be able to buy and hold its own shares. Anna also wants to know whether her company could provide finance to intending share purchasers.

Required:
Explain, referring to any relevant Companies Act provisions, whether Anna's company can do either of the following without a constitution:
i) Buy and hold its own shares
ii) Provide finance to intending shares purchasers

Question Two: Topic 6 - Company Record keeping, Documentation, Auditors

a) The Financial Reporting Art 2013 (referred to in your textbook, Chapter 7 - Record keeping, Reporting and Auditors) contains the following definitions:

Required:
i) List two types of ‘reporting entities' that are required by the Companies Act 1993 to prepare financial statements in accordance with GAAP (Generally Accepted Accounting Practice).
ii) Some entities are not required to require to prepare financial statements that comply with GAAP. Name one type of entity that is not required to prepare such statements.
iii) What type of financial reports are any such exempted entities instead required to provide for tax purposes?
b) Under the Companies Act 1993, auditors' statutory duties include, reporting to the shareholders on the company's financial statements, or group financial statements, for the relevant accounting period (CA, s207B). Some precedent cases also relate to auditors' duties. The precedent case Caparo Industries plc v Dickman [1990] 1 All ER 568 (HL) 1 considered an auditor's duty of care.

Required
Briefly explain why, in the Caparo case as above, the House of Lords ruled that auditors did not have a duty of care to:
i) any member of the public who, based on the audited accounts, may intend to buy shares in a listed company
ii) any individual shareholder who wishes to buy more shares in the company

c) Sam thinks that soon the NZ government will legalise all forms of cannabis (marijuana) for personal use. He wants to be one of the first to exploit this new business opportunity and has just registered a new company, Weed Wonders Ltd. Sam is the owner, sole director and shareholder of Weed Wonders Ltd. He believes that - apart from normal taxation requirements - all Weed Wonders Ltd.'s company records are commercially sensitive, private, and do not have to be made available to anyone else.
Is Sam correct? Explain.
Include the section number and title, if one, of any one applicable Companies Act provision in your answer.

Question Three: Topic 7 - the Board of Directors
Royal Photography Ltd, established in 2009, specializes in wedding photography and family portraits. Ben and Ciara, who are married, are majority shareholders. Ben is also a director, as is Dennis, who is also Royal Photography's managing director. Ben and Dennis are professional photographers, and they both work in the business. Most of the company's business comes from the wedding pictures and family portraits. The portraits were usually taken in a rented studio, until two years ago when Ben decided it would be better if the company had its own studio. So the company obtained a large mortgage from its bank, and bought a studio in a very exclusive, expensive building in the city centre. The company has also invested in some expensive assets, including top of the range digital cameras, printers and computers, so that pictures can be downloaded, manipulated and printed to top quality. Portraits are now taken in the company's studio, while wedding pictures are taken onsite at the wedding and/or reception venues.

Ben and Dennis don't like to work at weekends but many weddings are held then, so they rely on outsourcing to casual photographers for most of the weekend work. The business pays generously for the skills and travel expenses of these casual photographers. The company charges very reasonable prices, successfully undercutting its competitors.

However although it was incorporated 11 years ago and has a steady supply of customers, its lower prices mean it has not yet made a profit. The company's practice is to collect payment from its debtors in less than 14 days, whilst also obtaining credit of between 90 to 120 days from its creditors. Through these measures, plus its large mortgage, the company has managed to stay in business.

Ben is fairly relaxed about the company's situation. He isn't concerned the business is losing money right now, because he expects his skills as a photographer to gain international recognition in the future, so the business will then pick up. Dennis only wants to make the most of it while the company is operating. He often falsifies his expense claims, claims payment for work he has never done, and overcharges the company for the work he does do.
No one ever asks him to justify any of his decisions, and he keeps buying materials that he then uses for his own personal use ‘on the side'. He recently released some tasteless photographs he took during some of the weddings he photographed for Royal Photography, which he manipulated to show the people in them without clothes. The newly wed customers are furious about this.

The company holds very few directors meetings, and no records are kept of the few meetings that have been held. The directors do not compare actual against budgeted performance. In January 2020, the bank wrote to Ciara advising the company was no longer paying the mortgage and it is very likely the business is in trouble. But Ciara sees the business as really ‘more of Ben's thing' and she ignores the bank's letter. By May 2020 Royal Photography Ltd had a debt of more than $80,000.00 and is highly unlikely to make significant payments.

Required

a) Discuss any two (2) duties Royal Photography's directors may have according to Part 8 of the Companies Act 1993.
Include reference to any applicable Companies Act provision/s in your answer.
.
You do not need to copy out any such provision/s, just list the section and/or subsection number/s, and title/s, if any.

b) State how these duties may be enforced

c) Assume that Ciara has sometimes attended and voted at one of the few Royal Photography Ltd.'s directors' meetings. She isn't really interested in the ‘nuts and bolts' of the business, and leaves that side of things to Ben and Dennis. However when the decision to obtain the bank mortgage for the new studio and equipment had to be made, Ben asked her to attend the directors' meeting he and Dennis were holding, to vote in support. Ciara felt Ben and Dennis already had all necessary financial details, so after Dennis gave a one- minute verbal summary of why taking out the mortgage would be the very best option "because we will be able to grow" and said both he and Ben supported this, Ciara also voted in support.

Briefly explain whether Ciara may be considered a ‘director' of Royal Photography Ltd for her involvement in the directors' meeting and this decision. (6 marks). Include reference to any one applicable Companies Act provision in your answer.

Question Four: Topic 8 - Directors Duties

Assume that Royal Photography Ltd from Question Three above, has now been put into liquidation, owing its creditors in excess of $100,000.00 and unable to pay its debts.

Immediately prior to the liquidators moving in, Dennis secretly set up his own new company Regal Photography Ltd. Using his position as Royal Photography's managing director, Dennis then transferred Royal Photography assets - the photographic equipment, computers and printers, plus the cash that had built up as the company hadn't paid its creditors for the past 6 weeks - to Regal Photography Ltd. Dennis is the sole director and shareholder of Regal Photography.

a) Dennis's actions breach several Companies Act provisions. For each of the actions listed below, list one applicable Companies Act provision from Part 8 (Director and their Powers and Duties) and briefly explain how Dennis's actions have breached this provision, when he:
i) Secretly set up his own company, Regal Photography Ltd
ii) Secretly transferred most of Royal Photography's assets to Regal Photography Ltd

(You must give two different provisions, i.e. one for each action listed above. You cannot use the same provision you gave in your answer to Question Three (b) above).

Question Five: Topic 9 - Shareholders Rights

The case summary below is based on a recent offer of approximately 20 million new shares made by NZ company Comvita Ltd (‘Comvita'). Comvita's current total shareholding is 51,008,127 shares of various classes. The offer details given here are all real, however the shareholder ‘Ellie' and all detail relating to her in the questions below, are fictitious. Comvita's new shares offer aimed to raise "approximately NZ$50 million via an approximately NZ$30 million underwritten 1 for 4.15 pro-rata accelerated non- renounceable entitlement offer (the Offer) together with a NZ$20 million underwritten placement to institutional investors"2. The full offer details are in Comvita's 20-page Offer document. A downloaded copy of this document in Word is in the LAWS6017 Assignment 2 folder on Moodle.

Required:

a) Ellie, a retired farmer, is a current shareholder, holding 8300 ordinary Comvita shares in her own name. Is Ellie an institutional or a retail shareholder? Explain.

b) What does the phrase ‘accelerated non-renounceable entitlement' mean?

Questions (c) to (f) require that you carefully read through and understand relevant provisions in the Offer document. For each answer, include the relevant page number, section or subsection number, and heading, if any, for any provisions in the Offer documents that you believe support your answer.

c) If Ellie decides to accept Comvita's offer, how many new shares will she receive?

d) If Ellie decides to accept Comvita's offer and subscribes to the full entitlement of new shares that the offer makes available to her, what price must she pay for each new share she subscribes to?

e) If Ellie subscribes to the new shares offered, would she be able to trade these later on if she wishes through the NZX or any other stock exchange?

f) If Ellie does not take up the offer to subscribe to any of the new shares this offer entitles her to, what happens to those new shares?

g) Assume Ellie has taken up Comvita's offer and has now subscribed to the number of new shares you identified she would receive, in your answer to (b) above. Comvita's registered Constitution contains the following:

What, if any, effect does this Constitutional provision have for Ellie's new shareholding in Comvita? Explain.

h) Assume Comvita's directors have just obtained majority shareholder approval to make some changes to the company's Constitution. Ellie did not support those changes and was in the minority of shareholders who voted against them. She does not wish to remain a Comvita shareholder but is unsure how she might quit her shareholding in Comvita altogether. As her shareholding is still a relatively small proportion of Comvita's new total of just over 71 million shares, Ellie thinks it may be difficult to find a buyer, but she isn't sure if there is any other option available to her.

Advise Ellie of her rights under the Companies Act in this situation.

Attachment:- Corporate Law.rar