Research Questions

Question 1

Heritage Pty Ltd is a manufacturer of custom-made jewellery. It also makes badges and pins for sports clubs and corporations. Its business is small, and is run from rented premises. Its only directors and equal shareholders are Peter, Paul and Mary. The company does not use a corporate seal. Mary is named both as a Director and as Transport Manager in the company’s constitution. The constitution also states that any contract over $ 50 000 in value requires the prior approval of the board.

Mary thinks that the company should expand its business, and so phones Mike, who is a salesman working for Canberra Van Rentals & Sales Pty Ltd. Mike has previously visited Heritage’s premises and knows Mary well, having advised her over the past five years on the most economical way to spend Heritage’s transport budget of approximately $ 15 000 per annum, which Heritage has used to rent a van from Canberra Van Rentals and Sales. Mary says that Heritage Ltd now wants to purchase three top of the range armoured vans at a cost of $ 100 000 each. Mike says that he will get back to her. Mike tells his boss, Roger, about Mary’s order, saying “I really don’t like this. Something is wrong. I think this is a strange order for Mary to be allowed to place, given what I know of Heritage Pty Ltd”, but Roger brushes him aside saying “I don’t care what you think – we will all get bonuses if we sell three armoured vans, so sign them up”. Mike then signs a contract with Mary to sell the armoured vans to Heritage Pty Ltd.

Most of Heritage’s silver and gold bullion and precious stones is stored with No Worries Storage Ltd. In accordance with No Worries Storage’s procedures, customers which are corporations may withdraw items from storage by presenting No Worries Storage with a withdrawal form signed by two of the customer’s directors.

Peter and Paul are shocked when they hear about the contract for the armoured vehicles, and an angry meeting with Mary ensues. She leaves in a rage, and later that week Peter and Paul discover that she has disappeared. They also find out that prior to leaving, she withdrew most of Heritage’s stock of diamonds, having presented Nelson Bunker with a withdrawal form signed by herself and with a forgery of Peter’s signature.

Heritage Pty Ltd has refused to take delivery of the vans or to pay for them, saying that Mary had not been authorised to enter into the contract. The company has now been sued for breach of contract by Canberra Van Rentals & Sales Pty Ltd.

 

Heritage Pty Ltd has itself brought an action to recover the value of the diamonds given to Mary by No Worries Storage Pty Ltd.

 

Advise Heritage Pty Ltd on the likely outcome of each action, citing full authority. You should assume that all facts related above are provable in court.

Question 2 [10 marks]

 

Peter Jones runs a stationery business. He is also a 5% shareholder in Sparkles Ltd, a company that makes and sells custom jewellery. The constitution of Sparkles Ltd says that Peter will be given a 3-year contract to supply stationery to Sparkles Ltd. He has heard that the company has decided to source all its stationery requirements from Office Pax Ltd.
Peter has also learned that Roger Rogerson, one of the directors and CEO of Sparkles Ltd, who also owns 65% of the shares in the company, entered into a contract on behalf of the company under which the company sold a rare sapphire to his nephew for $ 5 000, whereas in fact the stone is worth $ 100 000, and that he is about to sell a ruby worth $ 40 000 to his niece for $ 8 000 (but has not yet done so).

Peter wrote a letter to the board complaining about the company’s decision to source stationery from Office Pax Ltd and about the two deals. The Company Secretary wrote back saying that the Board was firm in its decision not to source stationery from Peter and that it would be taking no action against Roger in relation to his dealings with his nephew and niece.

Advise Peter on what he should do, citing relevant law. For the purposes of this question you may assume and therefore do not need to demonstrate that selling an asset at gross under-value amounts to a breach of directors’ duties contained in s 180(1) and s 181 of the Corporations Act 2001 (Cth).