Laws3100 Corporations Law: Case Study Assessment Answers
Questions:
Flexible Ltd (Flexible) is a public company that sells physiotherapy equipment. There are 50 shareholders (a mix of employee and non-employee shareholders) all with equal shareholdings in the company. Since its registration the 5 founding directors (all validly appointed and registered with ASIC) have continued to direct the company.
At a meeting on 2 May 2017 the 5 directors of Flexible decided that changes in the market have reduced the capacity of Flexible to operate long term. As there is no probability of selling the business as a going concern, the directors have determined to wind up the company and, with the unanimous approval of members at a 9 June 2017 meeting, have appointed Cassell to act as liquidator.
Cassell agreed to act as liquidator and commenced as liquidator on 10 June 2017.
You work for Cassell as a graduate accountant and you have been instructed to write a memorandum advising on the following:
- First whether each claim is a debt that Flexible is required to pay. You MUST explain your reasoning for each item by reference to the Corporations Act 2001 (Cth) and using the issue, rule application and conclusion approach. You must refer to the Corporations Act 2001 (Cth) and case law where relevant.
- Second, explain and apply the order of priorities in the Corporations Act 2001 (Cth) to determine how much each claimant will receive and how much will be returned to shareholders if anything.
You are advised by the liquidator that Flexible has the following assets:
- The Warren St building valued at $750,000;
- Stock in trade that could be sold for $100,000 (this is the actual value that could be realized by a liquidator rather than its potential value if it was sold during normal commercial operations);
- Cash and ASX listed shares in other companies valued at $500,000.
Answers:
A) Issue
According to the case study, the issue is whether the shareholders of the Flexible Pvt. Ltd will pay every claimant or not.
Law
According to the case study, the Cassell is the new liquidator of the Flexible. They are n the charge of the company with the authorization of the court. According to the old case history of this company they are related with several cases with other company. As per the offence of vicariously liability for personal injury to the Smith they have to pay as per the order of the Queensland Supreme Court judgment and the employee’s wages and the expenses of liquidation to the liquidator. The sec- 477 of the Corporation Act 2011 define the power of the liquidator where they have the power to issue every payment and dividend to all shareholders or the suppliers (Porter and Navarro 2015). They can carry the business on their own. The sec- 506 of the Corporation Act defines the powers and duties to exercise all the powers of the liquidator.
Ret is another company who are claiming that they have lease contract with Flexible but when the Cassell found that there is n contract have been made between them therefore the company will not pay nay debt to Ret (Tricker and Tricker 2015).
The Sec-254A defines the issue of bonus, partly paid, preference and redeemable shares to the shareholders (Renneboo and Szilagyi 2015). The company must pay their dividend amount to the shareholders according to the sec- 254SA of the Corporation Act 2001(Fich, Rice and Tran 2017). The Sec-507 defines the powers of liquidator where they accept the share amount according to their share of the company where they act as liquidator (Porter and Navarro 2015). According to the liquidation expenses of the liquidator, Flexible will pay them for their performance as a liquidator of the company (Campbell 2015).
Application
According to the case study, Flexible Ltd is a company which sells the physiotherapy equipments and they have almost 50shareholders who have equal share rights in that company. The company has appointed 5 directors who are registered under the ASIC and they have rights to direct the company. When the directors want to wind up the company according the business value of the market they appoint Cassel another company who will act as liquidator of the company. After the appointment of the liquidators they have found that Flexible has several issues related to the company where they have to pay several debts.
First, they found that one of the suppliers of the Flexible, Stretch Pvt Ltd has an agreement with this company for paying the loan debt amount according their loan where Flexible never miss any debt.
Second, they found that Ret is another company who are claiming another lease agreement with Flexible and one of the shareholders has entered into a contract (Porter and Navarro 2015) with Retbut the directors of the company and in the company’s record there is no contract or agreement had found. Therefore Flexible will not pay any debt amount to the company (Tricker and Tricker 2015).
Third, according to the order if the Queensland Supreme Court Judgment, the company have to pay the $250,000 to Smith for the vicariously liable for personal injuries as per the Civil Liability Act of Queensland.
Fourth, according to the sec- 254SA, the company must pay the dividend amount to the shareholders equally. They have not paid the wages, unpaid superannuation entitlements and outstanding annual leave and other entitlements to the employees. The company breaches their duties to pay the dividend amount to them. Therefore they must pay them (Fich, Rice and Tran 2017).
Fifth, as the liquidator of the company, Cassell have also entitled to pay their liquidation expenses by Flexible (Campbell 2015).
Conclusion
As per the above discussion, Flexible must pay all the amounts to their shareholders, other loan debts and the liquidator expenses to the liquidator company. If they breach their duties, the shareholders and the other company must take the legal actions against them.
B). According to the case study, the total amount of the company’s valuation is $1,35,0000. They have to pay the loan to Stretch 100,000. The company not made any contract with Ret, therefore they do not need any payment to this company.
As per the order if the Queensland Supreme Court Judgment, the company have to pay the $250,000 to Smith for the vicariously liable for personal injuries as per the Civil Liability Act of Queensland.
For the employee entitlements they have to pay total amount of $ 214,000. The Cassell is the liquidator of the company who will have their liquidation expenses of $ 15,000.
References
Badenoch?Jones, E.K., White, B.P. and Lynham, A.J., 2016. The Australian litigation landscape–oral and maxillofacial surgery and general dentistry (oral surgery procedures): an analysis of litigation cases. Australian dental journal, 61(3), pp.310-316.
Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J. and Janson, P., 2014. Accounting: Business Reporting for Decision Making 5e.
Campbell, J.C., 2015. Corporate Law, the Courts and Corporate Personality.
Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press.
Fich, E.M., Rice, E.M. and Tran, A.L., 2017. Corporate Tax Cuts, Merger Activity, and Shareholder Wealth.
Gullifer, L. and Payne, J., 2015. Corporate finance law: principles and policy. Bloomsbury Publishing. Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press.
Harris, P., 2013. Corporate tax law: Structure, policy and practice. Cambridge University Press.
Porter, D. and Navarro, F., 2015. Insolvent corporate trustees. Australian Insolvency Journal, 27(2), p.26.
Renneboog, L. and Szilagyi, P.G., 2015. How relevant is dividend policy under low shareholder protection?. Journal of International Financial Markets, Institutions and Money.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
