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The
UNIVERSITY of NEWCASTLE
Faculty of Business & Law
LEGL2002 Law of Business Organisations
Semester 1 2014
Problem Question Assignment – Part B
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PROBLEM
QUESTION:
BlackJack Properties Pty Limited (“BJ”) is
a property development company whose main focus is the acquisition of real
estate for housing development in the Hunter Valley region. Melanie, Daniel and Sarah are the three
directors of BJ and each hold 25% of the total shares.
The directors’ shares are all “A” class shares and have
voting rights. All three directors are involved in the management of the
company. Melanie is the CEO, Daniel the CFO and Sarah is Sales and Marketing
Manager. The remaining 25% of shares are held by Daniel’s brother Max,who is
not involved in the management of the company. Max’s shares are “B” class
shares. The “B” class shares have only one vote for each 5 shares held except that
the shares have normal voting rights (1 vote per share) on a resolution to
amend the constitution or to wind up the company.
Last year BJ approached large property developer
ConneX Ltd (“ConneX”) to propose a joint venture between ConneX and BJ to
develop a housing estate in the Cessnock area. After some preliminary negotiations
ConneX said it was no longer willing to deal with BJ (this was because ConneX’s
controlling shareholder had recently ended a long termrelationship with Melanie).
Melanie was not aware thatConneXcontinued to negotiate withDaniel.
DanielinvitedSarahto form a new company, Crystal
Clear Pty Limited (“Crystal”). They used
the company to acquire some land near Cessnock. BJ had previously negotiated
with the landowner to purchase the same land but had withdrawn because Danielhad
advised the Board that the land was too expensive. The Cessnock land was
developed in a joint venture between Crystal andConneX but before the
development was completed ConneX withdrew from the deal. Daniel and Sarah did
not tell Melanie about the formation of Crystal, or the land deal. At the next
meeting of BJ’s Board, Daniel recommended that BJ purchase the partially
developed land from Crystal at a bargain price. Sarah and Melanie agreed. Crystal
made a small profit from the deal because ConneX wore the loss. At no time did Daniel
and Sarah disclose their interest in Crystal or the profit received from the
land deal to Melanie. BJ later sold the
completed development for a substantial profit.
At a recent board meeting Daniel proposed
that BJ should lend $400,000 of the company’s cash reserves to Max to fund his
new winemaking venture at an interest rate of 2.2%. Melanie expressed concern
about the loan on the grounds that BJ should be maintaining its cash reserves
given the impact of the decline in the mining boom on external funding. She was
also concerned about the low interest rate and that no security was being given
for the loan. Daniel and Sarah outvoted Melanie and the loan was given to Max. Six
months later Max advised the directors of BJ that his project had failed and he
would be unable to repay the loan.
Melanie is furious with Daniel for placing
BJ in such a tough financial position. She has also reconciled with her former
partner and has discovered Daniel and Sarah’s involvement with ConneX and Crystal
and the profit made on the sale of the land at Cessnock.
To make matters worse, Daniel and Sarah have advised Melanie
that they intend to call a general meeting to remove her from the board of
directors and to appoint Max as a director in her place. They are also
proposing an amendment to the Constitution to change the class of Max’s shares
from “B” class to “A” class. BJ has adopted the replaceable rules. The meeting
proceeded and the resolutions to amend the constitution and remove Melanie from
the board were passed by Max, Daniel and Sarah.
PART B (10 marks)
Advise
Melanie as to what action she may take as a minority member of BJ and her
prospects of succeeding in such an action in relation to:
a.
The amendment to the
constitution to change Max’s shares from
“B” class to “A” class
b.
Melanie’s removal from the
Board
