BFA601 Business and Corporate Law in Practice
Semester 1 2023
This notification contains details of assessment tasks 2 and 3.
Assessment Task 2: Business Case Study
For this task you are required to critique contemporary contract or corporate relationships and to analyse the means by which the situations described below could be avoided or resolved through the application of corporate and commercial law theory, legislation and practice.
You should articulate a proposed solution to each of the problems set out below drawing on appropriate aspects of law.
This is an individual assignment and you should write no more than 2000 words in total in answer to the questions following each case study. Your answers should be submitted in the form of report, on MyLO no later than 10th May. Worth 25%
Rubric to be provided.
Case study 1
Peter and Lois are in business together, providing financial advice and accounting services. Due to their different experience, Peter handled the financial advice and Lois looked after the accounting clients. Unfortunately, their business has not been performing well.
Peter and Lois invite their friend Stevie to help with the business. He invested $100,000 into the business, which they called a loan. Stevie was to receive a share in profits at the end of each financial year and would have input into how the business was run.
Following the investment of Stevie, the business begins to improve. Peter purchased an expensive Type-X 10 computer on which to run his financial analysis models. Lois was furious at the $74,000 price tag and challenges Peter’s right to purchase the computer without her consent by refusing to authorise payment of the purchase invoice.
Following the purchase of the computer Peter has become increasingly distracted by the new computer and is often careless in the advice he gives to clients. Chris and Meg, two of Peter’s clients have recently suffered a significant loss as a result of following the careless advice given them by Peter.
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Who is liable for the loss suffered by Chris and Meg? Explain why and cite your sources.
In answering this question consider who the partners are and whether the firm is liable for Peter’s careless advice to Chris and Meg.
Case study 2
DCL Ltd is the owner of a number of Health Centres in Tasmania. The board of DCL Ltd is made up of 5 persons including Jack Askland, the managing director and chief executive. The other directors include the finance executive (Hoadley)and 3 non-executive independent directors.
At a recent board meeting attended by all the directors, a 5 year $8.5m contract with HPL Ltd, to supply important equipment to DCL Ltd was discussed. At the time, Askland’s family company owned 38% of the shares in HPL Ltd. Barnes, one of the non-executive directors suspected that Askland might have an interest in HPL Ltd and would as a result benefit from the contract; but he did not share this suspicion with the other directors because he thought it would embarrass Askland.
At the same meeting, the finance executive (Hoadley) reported to that the level of the company’s current liabilities was higher than at the end of the previous accounting period and that there were significant short term loans needing to be refinanced if they could not be repaid.
A decision about the contract with HLP Ltd was deferred to the next month’s board meeting and the finance executive was requested to prepare a report on the financial impact of the contract.
At the following board meeting, the finance executive’s report which favoured entering into the contract was received and accepted without question or discussion. It was resolved that the contract should be entered into.
The board also considered the draft annual financial statements prepared under the finance executive’s supervision. The audit committee had recommended the adoption of the draft financial statements and the directors, without further discussion, resolved pursuant to s 295(4)c of the Corporations Act that the financial statements complied with the relevant accounting standards and presented a true and fair view of the company’s financial position. None of the directors noticed that the financial statements incorrectly classified a $50 million debt as a non-current liability. The financial statements were subsequently submitted to the ASX in accordance with the continuous disclosure obligation.
It later became clear that the decision to enter the contract with HLP Ltdwas a poor one from the point of view of DCL Ltd(but very beneficial for HLP Ltd). In addition the mistake in the financial statements severely impacted DCL Ltd’s ability to meet its debts as and when due and although the board had a subsequent meeting to address this, it limited the company’s ability to borrow and grow as planned.
Information about the directors of DCL Ltd is as follows –
- Jack Askland – Chief Executive Officer and Managing Director. He has many years’ experience in business in senior roles.
- Jane Hoadley – Chief Finance executiveand also an Executive Director. She has significant academic and practical experience in business and as an accountant.
- William Barnes – Independent Non-Executive Director – He is a former medical practitioner who is able to provide advice on health matters.
- Candice Campbell – Independent Non-Executive Director – She has academic and practical experience in public health.
- George Davidson – Non-Executive director – He is a partner in a major firm of accountants in Hobart.
Barnes, Davidson and Campbell comprise the Audit Committee of DCL Ltd.
- Explain (citing sources) what are the duties of directors of a corporation. Is there a different standard required of non-executive directors?
- Discuss the conflict of interest of the CEO and advise whether the CEO and/or Barnes had a duty to inform the board of the ownership of 38% of HPL Ltd. Identify your sources.
Assessment Task 3: Group Case Presentation
For this task you will begin by reflecting on feedback from the Task 2 individual case studies and analyse the respective partnership and corporate relationships by contemplating relevant accounting and legal implications.
Students will work in groups to develop a shared understanding of the legal challenges in each case and propose a consensus solution to the questions posed below drawing on appropriate legal principles, precedents and statutory provisions and interpretations.
You should articulate a proposed solution to each of the requirements set out below drawing on appropriate aspects of law.
You will submit your response in the form of a video (of no longer than 12 minutes) to a MyLO Assignment submission folder prior to 21stMay, 2023.
Rubric to be provided.
Assessment task 3 specifically requires you toinclude in your video report your proposed observations and solutions in respect of the following requirements in relation to each case study.
Case study 1.
Would the business which supplied the computer be successful in suing for payment of the sum due ($74,000) despite a term in the partnership agreement which required approval of all partners to any purchase in excess of $10,000. Give your answer and cite your sources.
Case study 2
In the context of the board decision to approve entering the contract with HPL Ltd, advise whether the non-executive directors might be in breach of s 180 of the Corporations Act by failing to exercise that degree of care and diligence a reasonable person would exercise if they were a director of DCL Ltd. Cite your sources.
Can any of the directors or officers of DCL Ltd rely upon the business judgment rule in their approval of the contract? Give your reasons.
Did the directors of DCL Ltd act in accordance with their duties in resolving that the financial statements presented a true and fair view of the company’s financial position? Explain and cite your sources.
14 April 2023