Note, questions are related to Australian Legislation. Word limit is withing 2200.
Question 1 – Victoria’s contracts on behalf of Posh Co.
(a) Mel, Victoria, Geri and Emma are friends who used to work together. After the strange disappearance of her husband during a soccer tour through Russia, Victoria decides to expand her fashion business and for this purpose requires additional investors in her company Posh Pty Limited (‘Posh Co’). Victoria is the sole director and shareholder of Posh Co. She appoints Geri and Emma as fellow directors and changes the company status to public. She then issues shares in Posh Co to her 3 friends. This results in the 4 ladies being the only shareholders. There are many employees as it is a large business. The head office is in the centre of Sydney.
(b) The constitution of Posh Co gives the directors power to manage and control the company, but requires shareholder approval for any expenditure over $50,000. The constitution also provides for the appointment of a managing director, although no one has ever been formally appointed. The ladies all think of Posh Co as Victoria’s company because historically it was. Geri and Emma have little interest in the high-end fashion that Victoria designs and produces but agreed to be directors for the sake of their friendship (which never ends). They regularly introduce Victoria as Posh Co’s managing director and let her run the business as she pleases.
(c) Victoria has been negotiating with Bob to renovate the main office in Sydney. It’s looking a bit dated and Victoria thinks it needs spicing up to provide a more creative environment for her designers and dressmakers. It will cost $100,000. Victoria signs the contract with Bob on behalf of Posh Co. She doesn’t think to tell the other directors and shareholders given that in her mind it is her company.
(d) Victoria also enters into a 5-year deal with retail store David Jones Pty Limited (‘DJs’) for Posh Co to supply clothing to DJs. Posh Co will receive $52,000 per year just for signing the contract. Extra money will also be paid for each item of clothing that Posh Co sells to DJs. DJs is a very old company and the directors of DJs insist on signing the contract as a Deed. Victoria affixes Posh Co’s seal to the Deed and signs her name as director. She then goes to Geri’s house and gets Geri to sign as well as a director. She then gives the Deed to DJs. Two directors of DJs validly sign the Deed. There are 2 copies of the Deed signed – one for each party. The Deed bears the words ‘executed as a Deed’.
(e) Is Posh Co bound by each of these contracts? (In your answer you should discuss both the common law and the Corporations Act 2001 (Cth)).
Question 2 – other questions re Posh Co
(Note that each paragraph below is a separate unrelated question.)
(a) Does the issue of shares to Geri, Emma and Victoria (for an investment of $600,000 each) require a prospectus? Why or why not?
(b) Suppose that Geri needs to exit Posh Co so that she can use the money from her shares for a new business venture. Suppose that Victoria, Mel and Emma don’t want to spend their own money buying Geri’s shares and don’t want Geri to sell the shares to another person. Suppose that Posh Co has enough retained earnings to pay for Geri’s shares through a share capital reduction or share buyback.
