Mr Sam Tipping (Sam) and Mrs Rosa Tipping (Rosa) bought a commercial building in 2014 in the name of their company, SRT Pty Ltd (SRT). They are the sole directors and shareholders in SRT. The commercial building leases the building to the Tipping Family Trust (Tipping Trust). Sam and Rosa are the trustees and beneficiaries of the Tipping Trust. The Tipping Trust runs a locksmith business (LB).
Charlotte and Mia are business partners and run a wholesale business called ‘Charlotte and Mia’ (C&M). Charlotte and Mia rent a commercial space to store and supply locks, door hardware, and other locksmith parts and tools.
In 2014, Sam and Rosa required funding for their business and decided to advertise the sale of 1,000 shares in SRT on LB’s website.
In 2015, Sam and Rosa made $50,000.00 from the sale of the shares. They reinvested $40,000.00 in LB and spent $10,000.00 on buying a second-hand campervan. This money was not accounted for as a dividend or part of a salary. Sam and Rosa intend to tour Australia.
In 2016, C&M becomes LB’s new wholesale supplier. Charlotte is the sales representative for C&M. Unknown to Mia, Charlotte sends LB amended tax invoices with an added 10% surcharge for priority service. The tax invoices are paid into Charlotte’s personal bank account and then 90% of the payment is transferred to the C&M’s bank account.
In 2017, Sam and Rosa employ Phillipa, their niece, to manage SRT, the Tipping Trust and LB. Phillipa has five years-experience in the hospitality industry as a bartender and wanted a new challenge. Sam and Rosa trust Phillipa because she is family. Sam and Rosa tour Australia.
In 2018, SRT is in financial difficulty. Phillipa purchased more stock than necessary and sales dramatically dropped. To combat the financial problem, Phillipa decides to spend a large sum of money on marketing to attract new customers. However, SRT remains in financial difficulty.
In 2019, Sam and Rosa return from their tour and have run out of money. At Sam and Rosa’s request, Phillipa distributes trust money in the Tipping Trust to Sam, Rosa, and herself. However, the company is unable to be saved. The company is liquidated, leaving outstanding creditors.
Focus questions (and headings)
1. Describe the legal duties for the parties?
2. Discuss any breaches of the parties’ legal duties?
3. Explain the legal consequences to the parties for a breach of their duties?