Tutorial 3

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Western Sydney University *

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MISC

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Law

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Jan 9, 2024

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1 Tutorial 3 Question 1 • Has the principle in Salomon case been incorporated in the statute? • What are the advantages of incorporating a company? Question 2 Which of the following statement is the most correct relating to the judgment of the House of Lord in Salomon case?  The company is a valid entity.  The company structure, incorporated under the Companies Act 1862 , was invalid because there was not a minimum of seven members; in effect only one member existed.  The company was indeed a valid association of persons although one person was the sole beneficial owner of all the shares issued by the company; a company need not be an association of independent persons.  The company structure was valid because the members are not in control of the company. Question 3 Melissa is running a busy clothing shop business in the form of a sole trader. She decides to incorporate her business. She wants to become an employee of the business so that he can be covered by workers’ compensation and superannuation. She also wishes to stay in control of the management of the company. a. What type of business organization should Melissa choose? Explain why. b. What are the formalities that Melissa needs to complete to be able to create a company? c. Assuming Melissa decided to incorporate a proprietary company, how many directors does the company need to have? Does the company require a company secretary? d. Will Melissa be able to register the company with the name ‘Zeus Pty Ltd’? Search the National Name Index on ASIC website and determine if it is possible to register a company under the proposed name. If such a company already exists find out as much information as you can about it from the site. e. Melissa decides to register the company under the following name: ‘Melissa’s Chic Pty Ltd’. Is the name available? If so, how can she ensure that no one else uses it before her company is registered? f. Is Melissa required to have a registered office? And if so does it need to be open to the public?

2 Question 4 Mac runs a soil testing business. He decides to form a company, Test Pty Ltd, to take over the business. He is the sole shareholder and sole director. Mac sells his business to the company at the price of $200,000. Further, he lends the company $100,000 and make sure his loan is secured by a charge over all the company’s assets. He and his daughter, Melissa, become the only two employees in the company. In the first year of operation, the business makes a small profit (after paying Mac and his daughter’s wages). However by the end of 2011 it became clear to Mac that the agricultural industry was going through a slump and as a result the company’s business suffers. Mac becomes desperate and works even harder. While working late into the night, Mac badly lacerates his hand and needs micro-surgery. His efforts to keep the business afloat are in vain and the company is forced into liquidation. The liquidator discovered that the company has approximately $150,000 worth of assets and owes around $535,000 to 15 creditors. Mac was the only secured creditor the company had. However the liquidator rejected Mac’s claim. Mac decided to challenge the liquidator’s decision. He also initiated action to claim compensations for the injury that he suffered as an employee of the company. Advice Mac on these matters. Question 5 Eric and Matilda are married. They also are the only members and directors of Swim Pty Ltd. They have three kids aged 9, 18 and 20. Eric and Matilda were traveling and they were both tragically killed in a car accident. Discuss the legal implications of these facts on the existence of the company. Question 6 Jennifer was working for Cyrano Pty Ltd, a company that buys and sells second hand books. Her employment contract stated that Jennifer should not compete with the company for two years after she leaves her position. Jennifer has a fight with the management of Cyrano and she resigns on the spot. The next day she was talking with her friend Sarah, telling her about what happened to her and how afraid she is because she might not find a new job and that under the employment contract she cannot compete with Cyrano. After discussing the matter, Jennifer and Sarah decide to create a company, called “Books Pty Ltd, to run a competing business to Cyrano. After the new company was created (the company was created one month after Jennifer’s resignation), Cyrano Pty Ltd discovers that Books Pty Ltd is stealing its customers. Advice Cyrano Pty Ltd.

3 Question 7 Buster Crabbe is a scallop fisherman at Lakes Entrance. Each fisherman has a quota of so many tonnes of scallops per week. A fine of up to $100,000 is prescribed for fishermen, who are caught exceeding the quota. This is to deter people from fishing out the shell-fish. Buster would like to harvest more scallops but fears being caught and penalised. Buster’s daughter, who has studied company law, suggests that if Buster formed a company, with himself in control, he would effectively double his catch without breaking the law. Explain the legal basis for Buster’s daughter’s suggestion and comment upon the likelihood of success of such a scheme. ( You must support your answer with both Legislation and/or case law.) Question 8 Jack owned a parcel of land, which he decides to sell to Property Tycoon Ltd. A long settlement was negotiated. After Jack had entered into a legally binding contract with Property Tycoon Ltd to sell the land but before he had actually transferred the title of the land to Property Tycoon Ltd, the regulations in relation to the land changed. Now the property can be used for land development, which wasn’t possible, when he agreed to sell the land to Property Tycoon Ltd. This change has significantly increased the value of the property. Jack no longer wants to sell the property to Property Tycoon Ltd but legally he is obliged to, as he has already entered into a valid contract of sale with them. Therefore, Jack decides to create a company, called ‘My Property, Not Yours Pty Ltd’ and transfers the land to the new company. At this time, the land was still registered in Jack’s name. Jack believes by doing this, he can get around the contract with Property Tycoon because now ‘My Property, Not Yours Pty Ltd’ is the registered owner of the land and as he, Jack, is no longer the owner he cannot perform the contract with Property Tycoon Ltd. Is his reasoning correct? (You must support your answer with both Legislation and/or case law.) Question 9 Shark Ltd was running a financial business that involved two departments: one department insured risky loans, while the other department lent money. In September 2002, Shark Ltd received a report from its financial adviser that noted that its insurance departments may suffer a huge loss due to rising claims. The report was correct and Shark Ltd ended up paying a number of claims worth $10 million. In February 2003, Shark Ltd registered Safe Pty Ltd. The new company was a wholly owned subsidiary of Shark Ltd. (see Corporations Act for definition). Shark transferred its insurance department to the new company. The new company was running its business from premises leased from Shark Ltd.

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