TRIMESTER 1 2020 FINAL EXAMINATION Name: Student ID: SUBJECT NAME: Company and Associations Law SUBJECT CODE: BAC31 TIME ALLOWED: 3 Hours PERMITTED MATERIALS: • This is an Open Book exam. INSTRUCTIONS FOR STUDENTS: • • • You do not require a separate answer booklet. Please type your responses in the spaces provided. Type your full name and ID at the top of this page. This examination consists of three parts. Students must answer all questions. BAC31 A Final Examination Trimester 1 2020 Page 1 of 7 Part A: Multiple Choice: Choose the correct answer and write the letter corresponding to your chosen answer in the space provided. (10 marks) 1. Which of the following is incorrect with regard to membership of a company? a. The directors, officers, employees and shareholders are all members of the company. b. Shareholders are the members of a company. c. A party can still be a member of a company without holding a share if their membership relates to a guarantee company. d. Membership of a company might be obtained by agreeing to take shares when lodging a registration to form a company. [Answer here] 2. Members of a company have the right to inspect the company’s members’ register. Which is incorrect? a. Members can inspect the company register in order to gather information for a class action against the company or a party within the company. b. Members may wish to inspect the register in order to determine the correctness of their own details. c. The register of a company is open to the public, but only member can inspect without paying a fee. d. Members can use their right to inspect the company register under s 177(1) (a) to make an offer to purchase a fellow member’s shares. [Answer here] BAC31 A Final Examination Trimester 1 2020 Page 2 of 7 3. What is a statutory derivative action? Which of the following is correct? a. A statutory derivative action is an action under a statute, e.g. environmental legislation, whereby a member takes action against their company because the company has breached a law. b. A statutory derivative action requires ASIC to take action on behalf of disgruntled members who can demonstrate the company has not acted appropriately under law. c. A statutory derivative action allows members or officers to seek permission from a court to take action on behalf of a company, join an action or force the company to take action over some perceived wrong done to the company, where the company is refusing itself to take action. d. Under the Corporations Act it is possible for a member to request that a company take legal action, however, given that the company needs to fund any legal action it is at the company’s discretion as to whether this action should take place. [Answer here] 4. What best describes a statutory injunction? Indicate the correct response. a. An application for a statutory injunction is an application to a court for a direction from a court; however, it is only available to members. b. A statutory injunction is a court order which can only be used to stop something occurring; it is not possible to grant an injunction before the wrongful action occurs. c. A statutory injunction is an order granted by a court under s 1324 which is a stop order against a party engaging in conduct that is in breach of the Corporations Act. This might also include within the injunction an order to make someone actually do something. d. A statutory injunction is an order by a court which is relatively easy to obtain if a party is a member of the company; usually a court will grant an order for a substantial period of time while the company proves that it has in fact acted appropriately. [Answer here] BAC31 A Final Examination Trimester 1 2020 Page 3 of 7 5. What is an action for oppression? Which of the following is correct? a. An act of oppression is an action by directors which shareholders find unfavourable. A court should immediately wind up a company if the directors have acted unfairly. b. An action for oppression is the description of actions by officers in a company who keep secret vital information about the company from the members. The members can force disclosure of this with a court application. c. Under s 232 a member of the company can bring an action claiming that majority controllers of the company are acting oppressively. Under s 233 there are a number of remedies available to a court in response to a claim of oppression. d. The majority members of a company can bring an action for oppression where the minority keep objecting to various resolutions they put to meetings. The court can order that the minority is unable to block company business or create disturbances at company meetings. [Answer here] 6. On what grounds would a court order the winding up of a company? Indicate the appropriate response. a. An order to wind up a company can only occur because the owners of the company are unable to resolve their differences, so the only solution is to end the company. b. A company can only be wound under s 461 on grounds that there has been continual oppressive action by some of the majority members. c. A court can order the winding up of a company for various reasons under s 461; one of the grounds being that it is the best interests of the members to order a wind up, i.e. it is just and equitable to order the wind up. d. A court will only order the wind up of a company if the company’s substratum has failed, i.e. the company no longer has the purpose for which it was established. [Answer here] BAC31 A Final Examination Trimester 1 2020 Page 4 of 7 7. Does a company have to keep financial records? Which of the following is correct? a. Only larger companies that need to prepare reports have to keep financial reports under s 286. b. Under s 286 a company, particularly the directors, must keep financial records, which in turn can be used to create financial reports. c. A company must keep its records, but does not need to record any of these documents in any form of accounting system. d. The company secretary has the duty to keep company financial records. [Answer here] 8. Why is external administration important? Which of the following is the best answer? a. External administration is not important; when a company is insolvent it will inevitably be wound up in order to retrieve the assets on behalf of its creditors. b. External administration is optional for an insolvent company. The directors are in the best position to determine what advice they should give the creditors and therefore the appointment of an external administrator should be the last option taken by a company in difficulties. c. So that the shareholders can vote on which creditors can be paid, and what proportion of the company’s funds they can receive. d. External administration is important because it creates a time period in which an assessment of the company can take place, and similarly to determine the rights of different parties in relation to the assets within the company. [Answer here] BAC31 A Final Examination Trimester 1 2020 Page 5 of 7 9. What is receivership and what does it have to do with a company in distress? Which of the following is correct? a. Receivership can only take place where a secured creditor has a contractual right to appoint a receiver to take control of a company in order to pay back secured creditors. b. A receiver can only be appointed by a court; the creditors must always get the permission of a court before doing something drastic like placing a receiver in control of a company in distress. c. A receiver normally only has the power to seize assets on behalf of unpaid creditors, not to actually control and manage a company. d. A receiver is only appointed by ASIC, and only where the company has breached its agreement with the creditors to repay money it owes. [Answer here] 10. What is a Deed of Company Arrangement, and what is its effect on the company and creditors? Which is the correct response? a. A Deed of Company Arrangement is the process whereby the creditors agree to allow the company to continue trading under some form or a contractual agreement designed to pay back amounts owing at a future point in time. b. A Deed of Company Arrangement is the process imposed by ASIC whereby the creditors are required to list amounts they believe are owing to each of them, so that a repayment can be made at the point of company liquidation. c. If a company is unable to convince the creditors to accept a Deed of Company Arrangement, the company will be put into liquidation and deregistered. d. A Deed of Company Arrangement is the agreement by the creditors to actually sell off the company assets in order to satisfy various creditors. [Answer here] BAC31 A Final Examination Trimester 1 2020 Page 6 of 7 Part B: Essay Questions (15 marks) 1. Describe the functions and powers of ASIC. (7.5 marks) [Answer here] 2. Explain why the concept of a company being described as an ‘artificial legal person’ is a ‘legal fiction’. (7.5 marks) [Answer here] Part C: Case Studies (25 marks) 1. Pablo is the Chief Financial Officer in his company. He becomes aware that his company is seeking to tender for some repair work needed by the company. Pablo’s cousin is in the repair business so Pablo tells him of the possibility of work with his company. Pablo tells his cousin the price range that the company will consider and something about other companies that are tendering. Pablo attends the meeting where they consider who will get the tender for the repair work, but does not disclose his connection with his cousin, who has put in a tender and actually wins the contract. Does Pablo have any potential liability for what he has done or not done? (10 marks) [Answer here] BAC31 A Final Examination Trimester 1 2020 Page 7 of 7 2. Tom is a minority shareholder of Aussie Mines Ltd. He comes to you and complains that the directors have sold company assets and have used the proceeds from the sale to purchase an island resort in their own names. He also tells you that the directors are the controlling shareholders of the company and they have ratified their own acts at a recent general meeting. Advise Tom, who wants to initiate an action against the directors. (15 marks) [Answer here] END OF EXAM PAPER BAC31 A Final Examination Trimester 1 2020 Page 8 of 7
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