Deck 4: Membership, Members Power, Dividends, Corporate Governance and Company Management

Question 1

Hiroko was on vacation in Cairo. Egypt has a law that says it is illegal to purchase antiquities with the intent to remove them from the country. The penalty is punishable by imprisonment for a period up to 50 years. Hiroko purchased a small statue from a street vendor. Unknown to Hiroko, the statue was actually 2000 years old and was stolen from an archaeological site. The local authorities discovered that Hirko purchased the statute and arrested her. After a trial, Hiroko was convicted but was given a lenient sentence in the form of a $1000 fine due to the mitigating circumstances. Immediately after she paid the fine, she returned to Australia. On her return, her friend offered her a director position with his company. Even though she has not been convicted of any offence in Australia, she is nonetheless disqualified form managing a corporation in Australia.

Answer 1

True

Question 2

The constitution of New Wave Tunes Pty Ltd provides the following article:
"A director's term of appointment expires after 3 years from the date the director is appointed. At the end of the 3 years, the director is deemed to be terminated and must be re-appointed by the shareholders passing an ordinary resolution."
Mary was first appointed as a director of New Wave Tunes Pty Ltd on January 1, 2015. She has never been reappointed by the shareholders but has continued to act as a director. Which of the following is correct?

A) Mary is not a director as she was not validly appointed after her initial term expired.
B) Since Mary has been acting as a director while not been validly appointed, she will be deemed to be automatically disqualified from managing a corporation.
C) Mary will be deemed to be a de facto director because she has not been validly appointed as a director but continues to act as a director.
D) Any act done by Mary after her initial term expired is invalid and ineffective because she was not validly re-appointed as a director.
E) The abovementioned article in the constitution is invalid because the Corporations Act says the maximum term for a director's appointment is one year and thereafter the director must be re-appointed by the shareholders.

Answer 2

Mary will be deemed to be a de facto director because she has not been validly appointed as a director but continues to act as a director.

Question 3

Harambe is a director of Gorilla Ltd and is the chair of the board. Gorilla Ltd does not have a constitution and relies on the replaceable rules in the Corporations Act. Which of the following is correct:?

A) If Harambe wants to call a directors' meeting, he must obtain the consent of all the other directors before doing so;
B) If Harambe is a major shareholder of Gorilla Ltd, he cannot be a director as that would be a conflict of interest;
C) Directors' resolutions of Gorilla Ltd require the support of at least 50% of the vote;
D) Gorilla Ltd's board of directors could pass a circulating resolution if it is supported and signed by 50% of the directors;
E) Harambe has a casting vote on resolutions in the event that the vote of the directors is tied;
F) Both (c) and (e) are correct.

Answer 3

Both (c) and (e) are correct.

Question 4

Which of the following is NOT a measure that helps demonstrate that management is acting in the interests of members?

A) Inclusion of profit-based bonuses in remuneration packages
B) Use of an independent auditor to audit the company's accounts
C) Timely disclosure of information to shareholders
D) The separation of powers

Question 5

Lexi owns 65% of the shares of AusBank Ltd. AusBank runs a banking business and the directors have recently announced that they passed a directors' resolution to purchase an office building in Sydney for its headquarters. Lexi is furious when she hears about this announcement as she believes the company should be headquartered in Brisbane. She makes a request under section 249D of the Corporations Act in order to pass a shareholders' resolution to overturn the decision to buy the building in Sydney

A) The directors must arrange and hold the meeting in accordance with section 249D.
B) The directors can ignore the request because the meeting is being held for an improper purpose (i.e. to interfere with management decisions).
C) Lexi has no right to make a request under section 249D because she is a majority shareholder.
D) If the directors decided to proceed with the meeting under section 249D, Lexi would have to pay the costs of the meeting.
E) If the company's AGM was scheduled, Lexi could attend the AGM and with no notice ask the shareholders to vote on a resolution to overturn the decision to purchase the building in Sydney.

Question 6

Anja is 6 years old and attends a local primary school. As part of a school project, she bakes chocolate chip cookies and sells them to her neighbours. The cookies are delicious and the neighbours ask for more. Soon Anja is baking a large amount of cookies and selling them all over Australia. Anja's father, Jacob, is a lawyer and says Anja should incorporate the cookie business. Jacob said he would act as the director of the company and the shareholders would be Anja (75%) and Jacob (25%). Which of the following is correct:

A) Jacob's plan doesn't work because Anja cannot be a shareholder as shareholders need to be at least 18 years old.
B) Because Jacob is a promoter he does not need to consent to becoming a member.
C) Unless there is something in the constitution that limits the transferability of shares, Jacob could transfer ALL his shares to Anja if they both agreed.
D) As a minority shareholder, Jacob would have no right to enforce the constitution and replaceable rules of the company.
E) If Anja's neighbour was curious as to who owned the shares in the company, there is no way she would be able to get a copy of the register of members of the company.

Question 7

Dora and Valentina are directors of a company called Guadalajara Pty Ltd ("Guadalajara"). Notwithstanding that Guadalajara has been very unprofitable for many years, it still has large amounts of cash on its balance sheet. Dora and Valentina are getting a lot of pressure from the company's shareholders to pay a dividend. Under the Corporations Act in order for a dividend to be paid, Valentina and Dora must ensure that:

A) The company has been profitable;
B) There is sufficient cash to pay the dividend at the time the directors declare the dividend;
C) The company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend;
D) The payment of the dividend is fair and reasonable to the company's shareholders as a whole;
E) The payment of the dividend does not materially prejudice the company's ability to pay its creditors.
F) All the above are correct.
G) (c), (d) and (e) are required before the dividend can be paid.

Question 8

What are the types of members' meetings?

Question 9

Who calls a members' meeting?