Corporations Law – CVL – GEPL – Law Assignment Help TASK Question 1 Clear Vision Ltd (CVL) is a…

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Corporations Law – CVL – GEPL – Law Assignment Help


Question 1

Clear Vision Ltd (CVL) is a small unlisted information technology company operating in Brisbane’s outer suburbs. Marlow is the majority shareholder, with 67% of the shares. The remaining shares are owned by Sean (20%) and Becky (13%). Each of Marlow, Sean and Becky sit on the board of CVL, but Marlow is effectively the governing director of the firm. The constitution provides that the object of CVL is to deliver expert advice to businesses considering IT investments. It is through Marlow that CVL provides these services. Sean and Becky trust Marlow to run the business in their collective interests. Until recently, CVL was a fairly unassuming company. Its annual turnover was sufficient to cover Marlow’s salary and a small dividend to Sean and Becky, but not much more. Any excess was reinvested in business items, like new computers and programs. Then, some months ago, Marlow made, what he thinks will be a major technological breakthrough. Whilst completing a project for one of CVL’s regular clients, he discovered a new type of block chain that, in his view, could have significant applications in the lucrative defence industry. Marlow asks Sean and Becky whether they would be willing to contribute more capital to develop the block chain product further. Both refuse. Sean tells Marlow that ‘it would be unethical to make money from an industry of war’. Becky says that there are few guarantees that the research would yield any return: she regards the new technology as too speculative. Marlow, therefore, approaches Polly, his new romantic partner, about the possibility of investment. Polly is willing to put up the cash but only if the profits are split two ways between her and Marlow. Marlow is very happy about Polly’s willingness to support the project, in part, because he loves her and believes that the investment will be an excellent use of her savings. However, he is also angry at Sean and Becky and quite willing to cause a little pain to them through CVL. Marlow seeks your advice as to whether he can resign from CVL and incorporate a new company through which to conduct the block chain business with Polly and himself as the sole shareholders anddirectors. What is your advice to Marlow? How would your answer change, if at all, were CVL’s constitution to contain a clause identical to s 194 Corporations Act 2001 (Cth)?

Question 2

Sam and Ellis are friends and experienced operators in the hospitality business. Over the years, each has owned large and successful restaurants in Sydney and Brisbane. On a recent trip to the United States, Ellis discovers a specialty gourmet donut shop in an entertainment district of Los Angeles. Sam has never heard of such a thing in Brisbane and agrees that it could be popular for people going out in Fortitude Valley. Talking through the practicalities, Sam and Ellis realise that it will cost about $350,000 to establish the donut shop and get it to a point of profitability. Together Sam and Ellis can contribute $200,000. The balance could be raised through a $100,000 business loan from Aussie Bank Ltd, and a capital injection of $50,000 from Craig and Diane, who are friends of Sam. Sam and Ellis regard the donut shop as a high-risk investment. But, as Sam notes, it is also potentially high-return. If the Brisbane shop succeeds and the pair can raise more funds, there is a possibility that they could franchise the idea throughout Australia. Advise Sam and Ellis on the advantages and disadvantages of incorporation in light of the facts and the relevant case law and legislation. In your answer, consider the type of company that they would best consider at this time.

Question 3

Great Escapes Pty Ltd (GEPL) is in the adventure tourism business. Its principal customers are people in their early 20s who want to explore beautiful and rugged locations in South-East Asia. Lola is its Managing Director. Gary is its Chief Financial Officer (CFO). In late April 2018, a volcano erupts in one of GEPL’s major destinations, forcing it to cancel several tours. That same week, Aussie Bank Ltd raises its interest rates on GEPL’s business loan and customers start demanding the return of the amounts that they paid on their cancelled holidays. As a result of these events, GEPL’s accountant advises that the company is insolvent. Whereas Gary responds by dropping out of touch and failing to keep the accounts in order, Lola devises a ‘rescue plan’ in consultation with her mentor, Don. In May, she takes three key steps: She buys advertising space on websites frequently visited by GEPL’s target group of customers; She persuades Gary to resign as CFO and to give the books to an accountant; and She arranges for GEPL to borrow $50,000 from Kiwi Bank Ltd at a high interest rate. Presume GEPL is wound up in insolvency in September 2018 and that Lola would otherwise be liable for breach of the insolvent trading provisions. Can Lola rely on the statutory ‘safe harbour’ in s 588GA of the Corporations Act 2001 (Cth)? Explain your answer.

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