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Subject Code : LAW2001
Country : Australia
Assessment Task:

CASE STUDY 1 
Scintillators Pty Ltd is a company engaged in the event management for celebrities. It is a family-owned company and Joe Johnson, his wife and three adult children all own shares. Joe Johnson, a former bankrupt, is the sole Director. Joe manages the day to day business of the company which employs 30 employees, comprising event planners, designers and administrative support. 
In June of the year, the company is engaged by Jerome Best, Australia’s wealthiest gardening equipment manufacturer, to plan his daughter’s wedding to Simon Stash, the son of Australia’s wealthiest marketing magnate. The wedding promises to be the most glamorous celebrity event of the year and Joe Johnson delegates the planning of the event to a team of 4 wedding planners. The planners arrange the flowers, venue, security and drinks for the event, scheduled for December in that year. 
All of the suppliers of these services to Scintillators Pty Ltd require payment in advance and the usual practice of the business is to obtain a personal guarantee from the clients and a 50% deposit. In relation to this particular event, Joe Johnson directs the planners that they should not obtain a personal guarantee, nor require a deposit because he believes that this particular wedding is worth the risk and will situate the company at the centre of the Celebrity events market. 
The total supplier’s costs, paid out of company funds, put the company in a financially precarious position, and Joe Johnson, not knowing the full financial impact, enters the company into a lease for office premises for a five-year period in the most expensive office building in Melbourne, owned by Jerome Best Pty Ltd. This forms part of his grand plan for the company to become the premier celebrity event manager in Australia. In the process of moving premises, Joe Johnson discovers that he did not provide written consent to his appointment as Director. 
In the meantime, Joe Smith’s wife leaves him shortly after, citing irreconcilable differences and breach of duties owed to the Company. She also says to him that she is going to sue him personally for breaching his director’s duties and notify ASIC of his former bankruptcy and what he has been up to in relation to the company. Jerome Best also personally telephones him to advise that the wedding has been cancelled by the groom and that neither he nor his daughter would be paying a cent to anyone that has provided anything to do with the wedding. 
Joe becomes concerned about his legal position, honestly believing he has acted with proprietary and professionalism. He comes to you for advice. 

CASE STUDY 2 
Brian is a non-executive director of 'OTC Ltd.' Rakesh is a director and the CEO of OTC Ltd. Michael is a director and the finance controller of OTC Ltd. Brian has a substantial shareholding in OTC Ltd. This has entitled Brian to appoint a nominee director, who happens to be Rakesh. 'H2O Pty Ltd' is a wholly-owned subsidiary of OTC Ltd. Brian requested, and Rakesh and Michael arranged, for H2O Pty Ltd to advance $10 million to 'Dithery Pty Ltd' - a company controlled by Brian. 
During the next two weeks, Dithery Pty Ltd used some of these funds to purchase OTC Ltd shares to the value of approximately $4 million. Soon after the advance and the purchase of the shares, Brian created a unit trust with Dithery Pty Ltd as trustee. Units were issued to H2O Pty Ltd at a price of $10 million. A further 10% of the units in the trust were issued to another corporation controlled by Brian, ‘Myne2 Pty Ltd'. The trust property comprised of the shares in OTC Ltd and the residue of the $10 million advances. Over subsequent months, Dithery Pty Ltd had the opportunity of selling the OTC Ltd shares at a profit but chose not to. Eventually, they were sold at a loss of $2.5 million. The residue of the $10 million advance was used by Dithery Pty Ltd to: (i) purchase from Myne2 Pty Ltd unlisted technology shares (they were purchased at the price Myne2 Pty Ltd had initially paid for them. They were almost worthless at the time of purchase and were ultimately sold at a loss of $3.8 million);and 
(ii) make unsecured loans to further corporations controlled by Brian. 
ASIC has received a complaint from a preference shareholder in OTC Ltd. He is angry that the board of OTC Ltd has not declared a dividend in many years "despite the fact that my shares have a guaranteed right to 10% annual dividends." He has outlined to the ASIC the above facts that he has discovered through his own investigations. 
He has complained that "the management of OTC Ltd" is appalling. ASIC now approaches you seeking your advice on the above matters. 

 

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