Question 1 

Jane is one of four directors of Uplift Pty Ltd. Uplift is a company that produces uplifting and inspirational stationary. Jane meets with PerfectDay Pty Ltd, a company that is in the wedding industry to negotiate a contract for the supply of stationery. PerfectDay Pty Ltd wants a very large contract, which could be very lucrative for UpLIft. Jane negotiates a four-year contract and signs. When Jane tells this to the other directors, they are very upset as they believe that this stretches the company beyond its capacity. They refuse to honor the contract.

1. Explain the relevant rules that apply here if Jane has the authority to make the transaction.
2. Explain the relevant rules that would apply here if Jane did not have the authority to make this transaction due to a stipulation in her contract limiting her capacity to make contracts, however, she is listed as a company director on the paperwork.

Question 2 

Ebony and Sam are the directors of Bananarama Ltd, a producer of banana-flavored cordials. They each hold 40% of the shares in the company. 15% of the shares are owned by Sam’s brother, Jordan, and 5% by Kai, an external investor. Jordan and Kai are not directors.

In January 2020 Sam proposed to Ebony that Bananarama Pty Ltd open a second factory. With significant domestic growth, they need a second factory to keep up with orders. Ebony was not keen on expanding the business and building a second factory as she thinks it is too risky in the current economy. Instead, she thinks they should be investing in the company’s visibility internationally.

Despite Ebony’s protest Sam forges ahead with the plan and put out a call for tenders. They receive three bids, including one from Jordan’s construction company, Build Pty Ltd. Although Sam knew this was Jordan’s company he did not disclose this to Ebony and awarded the contract to Jordan’s company. When Ebony finds out that Sam has undergone the tender process without consulting her first she is furious. She tells Sam that the money should have been used for the international expansion. Sam in turn is not keen on expanding internationally and doesn’t believe that there is a taste for banana-flavored cordial abroad. Ebony suggests that they explore the market further to see whether this may be a viable option – to which Sam agrees.

After two months of undertaking substantial research, Ebony forms a proposal and puts it to Sam who turns it down without even reading it. The proposal included the opportunity to pursue three contracts abroad – in the UK, Canada, and the US. This would have increased the profitability of the company by 50%. When Ebony inquires why Sam has refused, Sam says he thinks they should partner with RaspberryBelieve Pty Ltd, a company that specializes in carbonated drinks.

Ebony disagreed and says that Bananarama Ltd is about health and wellness and being associated with a carbonated drink company, which is well known for high caffeine and sugar in its drinks, will hurt the company’s image.“Let’s look at this as an opportunity – we could attract a new form of clientele”. Before Ebony can answer Sam smiles and says “I knew you would love the idea, that is why I already signed the contract. Don’t worry – I protected us, the contract is through a subsidiary of ours BananaBee Pty Ltd.” Ebony is left sputtering in outrage as Sam leaves the room.

Ebony looks into this further and discovers that UBuild is Jordan’s company and that Sam holds shares in build. She also looks into RaspberryBelieve Pty Ltd and learns from Kai that the director is Sam’s new girlfriend.

a) Ebony has come to you for advice and wants to know if Sam has breached his duties.

Following the above incident, Ebony is put on leave due to high blood pressure because of all the stress Sam is causing her. Two weeks later Sam breaks up with his girlfriend and refuses to follow through with the contract made with RaspberryBelieve Pty Ltd. Technically RaspberryBelieve Pty Ltd has a contract with BananaBee Pty Ltd, which is a company with no assets.

b) RaspberryBelieve Pty has come to you for advice and would like to know if they can bring an action against BananaRama Pty Ltd.

Kai has been waiting for her dividend payment to come through. She soon finds out that the directors have decided not to issue dividends because they want to increase on advertising and want to put the profits toward this. Kai is not happy with this as she wanted her dividend payment and had made plans to pay off some pressing debts. She suspects that Sam has done this because she raised the issue of Sam’s relationship with the director of RaspberryBelieve Pty Ltd.

c) Kai has come to you for advice and wants to know what would be the legal arguments to be made if it is true that they are withholding her dividends because she brought up the relationship Sam has with his new girlfriend to Ebony

Kai is pretty unhappy with the situation at BananaRama Pty Ltd. She has recently heard that the directors are planning on selling a large bundle of shares. The directors claim that this is in order to raise capital, but Kai worries that the real reason the directors are doing this is in order to dilute her shareholdings and make sure that she is unable to bring a statutory derivative action. Further Kai is very unhappy with Sam as she and Sam used to date until Sam broke up with her and started dating his new girlfriend. It was Sam who convinced Kai to purchase shares in BananaRama Pty Ltd in the first place and Kai is pretty sure that Sam would be keen to see her go.

Kai is also quite worried about the situation with RaspberryBelieve Pty Ltd as she believes the directors are not going to take action against Sam because of his contributions to the company and the large-scale clients he brings in.

d) Kai wants to know if there is anything she can do regarding the new sale of shares and if there is a way in which she can bring the action on behalf of the company.

It has been 12 months since the above happened. Bananarama Pty Ltd is struggling financially. Ebony has been on medical leave on and off for the past 12 months. Sam is not sure what to do, and can only think to follow Ebony’s marketing plan and expand internationally. He orders thousands of dollars of supplies but without Ebony is unable to secure the contract in the foreign markets and consequently, the company is not able to pay for the goods.

e) Advise Sam on the legality of these actions