Question 1 ABC Ltd is a recently formed, publicly listed company. David is the company’s managing… 1 answer below »

Question 1

ABC Ltd is a recently formed, publicly listed company. David is the company's managing director. The company owns a number of car dealerships and sells cars to the public through various city outlets. Shortly following the formation of the company, the board meets to consider two of David's proposals for financing the company's anticipated expansion. David suggests firstly, that ABC Ltd offer Eternal Life Ltd an option to acquire, by way of issue, shares in ABC. Eternal Life would acquire this option for the sum of $1 million. Eternal Life Ltd is a large insurance company that has expressed a wish to be a long term financing partner of ABC Ltd and to offer stability to the company's share register.

What are the requirements of the Corporations Act 2001 if it decides to go ahead with David's proposals?

Question 2

Secondly, David suggests that ABC Ltd place an advertisement in the Sydney Morning Herald stating that ABC Ltd would '…accept funds lodged upon loan with ABC Ltd, in multiples of $5,000'. The advertisement would provide that all investors are to receive certificates, certifying the total amount of any funds lodged on their behalf and the company's obligation to pay interest of 6% per annum. The advertisement is to also provide that interested investors might obtain an application form from the company upon request. David believes that in the present climate, this might raise at least $10 million. What are the requirements of the Corporations Act 2001 if it decides to go ahead with David's proposals?

Question 3

David tells the board of ABC Ltd that he would include in the advertisement a statement that the company is able to offer an exceptional rate of return to investors because extraordinary sales are anticipated in the following year. David bases this statement upon the company's anticipated acquisition of an important new car dealership. It is expected that contracts on this acquisition shortly.

Another director, George, notes that a recent car industry study has suggested that car sales generally are likely to be down 20% in the following year. George says that some statement or acknowledgement of this fact ought to be included in the advertisement. The other directors do not agree. However, George remains concerned for what he should do if such a statement is not included in the proposed advertisement. Advise David, George and the other directors as to their most significant potential legal liabilities.

What courses of action might each of these directors adopt to avoid liability?

 

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