BO1CLAW314-Corporate Law

Questions

1.Budding entrepreneurs, DJ PHUNKY PHAM (or ‘DJ_PP for short) and club promotor, KHAN CHAN have been making a name for themselves in the local dance party industry. After saving enough money, the dynamic duo felt ready to take their business to the next level by opening their own night club.

After speaking to former nightclub owner, MEL O’DRAMA, Mel warned them about the risks involved with starting a night club, including the high costs associated with securing a venue, liquor licensing, rent, paying staff etc. In fact, Mel knows the risks all too well, since he lost his club, all his savings and his family home when his former business partner and fellow club co-owner failed to renew their club’s public liability insurance policy, thus making the partners personally liable for the losses suffered when the club burnt down.

Advise DJ_PP and Khan Chan in relation to a suitable business structure to operate such a high risk business. You must support your answer with legal authority

2.Assume DJ_PP and Khan made the decision to incorporate and to appoint themselves as the only Directors and Shareholders of their new company ‘Rainforest Raves Pty Ltd’ (‘RR’). They also decided to create their own company constitution that would reflect, not only their shared love for dance music, but also their passion for saving the world’s rain forests. To do this, they included a term in their constitution which read, ‘Rainforest Raves Pty Ltd (‘RR’) will only do business with contractors and suppliers that are carbon neutral’. Unfortunately, whilst placing an order for toilet paper, the club’s receptionist failed to check the supplier’s carbon status and accidentally placed a large order with ‘Rainforests-R-Stupid Pty Ltd’ – a company notorious for destroying the environment.

With reference to legal authority, analyse whether the contract between RR and ‘Rainforests-R-Stupid Pty Ltd’ is valid in light of the receptionist’s breach of the company constitution.

3.Assume that the constitution contains a stipulation that contracts valued over $10,000 must be signed by both directors to bind the company. The constitution furthermore grants express authority to the company receptionist, to allow the receptionist to sign low value contracts (under $100), on behalf of the company without first obtaining prior approval from the Directors. Since its opening 11 months ago, the club’s receptionist, SLY AZAFOX, regularly visited the company’s local bank branch to make deposits and small cash withdrawals from the club’s business account. On the last occasion however, Sly lodged an application for a $40,000 loan in the name of the company - claiming that the money was to be used to buy a new speaker system for the club’s members-only lounge. Without asking any further questions, the bank officer approved the loan and transferred the funds in accordance with Sly’s instructions. Later that same day, Sly boarded a plane to Bali and was never heard from again.

The following month, the directors are shocked to discover a letter of demand, from the bank, requesting immediate repayments on the loan or risk legal action. Further investigation reveals that, unbeknownst to the bank officer, the money was transferred into Sly’s personal bank account and withdrawn in cash before she left Australia.

With reference to legal authority, analyse whether the loan contract is binding on the company or the company might be able to escape liability. In your answer discuss common law indoor management rule and relevant statutory assumptions. (