A Limited - Smith and Jason - Assignment Example

Assessment Name Course Lecturer Date Part B Question 4 A Limited has legal obligations under the Corporations Act 2001. Section 7 subsections 4 of the Corporations Ac t 2001 provides that a company must state and explain the risks involved in investing in the firm. As such, A Limited has an obligation to explain the real reasons behind the sale of 40% interest in the B limited. They state in the advertisement that they have decided to sell the 40% stake in B limited in order to pursue other investment strategies (Coffee et al., 2007). Notably, this is not the real reason behind the sale. In fact, they are selling because they are very aware that B limited will be selling its profitable business and also that B limited has suffering declining fortunes for some time. The directors of A Limited did not provide the risks involved in B limited. In addition, they also provide misleading information behind the sale of 40% stake in B limited. Hence, they carry liability for not providing the risks involved as well as providing misleading information about the same of the subsidiary (Djankov et al., 2008). Section 1309 subsections 1 (a-e) provides that “an officer of a company, a director or employee, who makes available or gives wrong information or authorizes or permits making available information that is misleading or false, whether documented or in any other form, that relates to the affairs of the company is guilty of an offence.” This indicates that the directors of A Limited are guilty of proving false and misleading information on the affairs of the company as well as the reasons behind their sale of the 40% stake in B Limited. Under their position as the trustees and directors of the company, they are supposed to provide the relevant and guiding information to the potential suitors in order for them to make a sound decision. However, the directors forfeit this duty. The company and the directors have legal obligations to provide the facts or the real information about the subsidiary (Rose 2006). Green and other directors have an obligation to act in good faith, exercise due diligence and a duty not to make improper use of position or information as provided section 180 subsections 182-185 of Corporations Act 2001. Importantly, section 184 provides for criminal offences for directors when they act in an intentional dishonest or reckless way. As such, green and the other directors have an obligation to be honest in all their dealings with both companies. They must provide information that is true and that represents the true state of B Limited. Section 197 subsection 1-5 provides that directors of a firm are liable for debts and other obligations by company as their trustees. As such, the directors have obligations to disclose market sensitive information. The directors are liable for losses and debts that the investors will incur as a result of investing in B Limited (Griffith 2005). They are also liable for other obligations by A Limited and B Limited as their trustees. Question 5 Section 9 of Corporations Act 2001 defines a debenture as a “document that acknowledges a debt.” A Limited, the debenture issuer, carrying on financial services business of issuing debentures will be required to hold AFS license as provided by see s766C (4) (c) of the Corporations Act 2001. However, since it is merely dealing in its own securities, it is not required to have the license. A Limited has a legal obligation to disclose the issue of the new debenture notes to its shareholders. s727 (4) states that a company must disclose the issue of new securities to its shareholders. As such, the first step for the company to undertake is to inform its shareholders that it is contemplating issuing new debenture notes. Further, s727 indicate that a company should get a clean bill of health from the shareholders. Moreover, the purpose of informing the shareholders is to give them an equal opportunity in increasing their investment ion the company (Johnson 2006). A Limited has a legal obligation to issue debentures as provided in section 124 (1) of Corporations Act 2001. Additionally, section 125 subsection 1 further states that the company's own constitution cannot prohibit it from issuing such securities for purposes of raising capital. Therefore, the company has an obligation to issue the debenture notes to its shareholders first before issuing them to the public (Hazen 2009). Another legal obligation of A Limited is to make financial records available for inspection to the potential buyers as provided by s283BB. This would enable investors to review the financial state of the company and hence make an informed decision. The company must disclose all information necessary to the shareholders and other willing buyers, the company must explain clearly the purpose of the money to be raised by issuing the debenture notes. In addition, the company must comply with restrictions of no further borrowing as provided in ASIC (Australia securities and investment commission). This is to avoid the company having too many debts that it cannot be able to repay (Kraakman 2009). Importantly, A Limited has a legal obligation to work out and indicate the amount each willing investor will purchase. The company must operate in an equitable and non-partisan way in issuing the debentures. The method for allocation must be well orchestrated to ensure equality. All investors, both the shareholders and the public should have equal opportunity to purchase the debentures. The company can only ensure this by disclosing all necessary information for the investors to make informed decision (Karmel 2005). Part C Question 1 Potential difficulties for a superannuation fund holding interest in a managed investment scheme Superannuation fund holding interests in a managed investment scheme face several challenges in discharging their mandate. One of such challenges is sustainability. Many investment schemes do not have sound investments to make them sustainable. As such, they end up collapsing on the way while others get absorbed. Some of the schemes are absorbed by other firms and hence cease existing. This is a main challenge to superannuation fund because they cannot plan long term and they cannot be consistent. This is a major challenge to superannuation fund in their long term planning. Some managed investment schemes only exist for a defined period and then they are dissolved. This is because the members of such schemes are in a temporally income generating activity that would only support them for a defined period (Griffith 2005). Another challenge facing superannuation fund holding interest in a managed investment scheme is technology. Many investment schemes do not embrace the current digital revolution while the superannuation funds have embraced it. Superannuation funds are professionally managed and hence create all platforms for betterment in terms of technology and long term planning. Contrastingly, these aspects lack in managed investment schemes. Another challenge is that superannuation funds provide for retirement planning while managed investment schemes are for short term financial gain or venture. When superannuation funds invest in managed investment schemes, they get a share of income generated. However, the income is very little as compared to the amount invested. The income received might not be sustainable especially having in mind that super funds provide lump sum amounts to its members together with interest that their amount will have generated (Karmel 2005). This creates a deficit since managed funds are not able to generate enough income for the superannuation funds. Essentially, there is not adequacy. An efficient and stable managed investment scheme is crucial to effective functioning of superannuation fund. Managed investment schemes lack stability, confidence and efficiency; this makes superannuation funds to hold back their investments in such schemes because of such inefficiency and lack of confidence. Lack of confidence makes the schemes to invest their funds in portfolios that generate very little returns. This is a challenge to superannuation fund as they want high returns for their investment. Manage investment schemes lack prudence which is a key aspect of superannuation fund (Rose 2006). Another challenge is governance; governance involves managerial control of the managed schemes as well as how they are regulated including but not limited to accountability of management and supervision. Managed investment schemes and superannuation fund are managed differently; they have different regulations and supervision. Moreover, their accountability is different. These aspects make superannuation funds to have challenges in their interest in managed investment schemes. Super funds are structured differently in meeting their goals. The structure is very different from that of managed investment schemes. As such, their goals do not line and this presents managerial and planning challenges (Steinberg 2009). Question 2 One of the problems that may arise in Jason’s appointment to the board is standard of competence as a director. The competence of director to the board is fundamental to the governance of the managed super. The directors are required to have qualifications and be competent. Jason, representing the construction and mining workers union, may not have the required qualifications and hence not competent in the position as a director. Jason may not have the necessary knowledge to make decisions upon responsibilities given to him as a director. This will substantially undermine the performance of the managed super (Karmel 2005). Another challenge is that Jason does not know how the managed super operates. He is absolutely not the right person to steer the super to greater heights in future. The representative should not be for only representing the interest of the workers but a visionary person who will propel the super to achieve greater things than it achieved in the past. Jason does not have the necessary training for a director, he may have adequate knowledge and skills about construction and mining but he is inappropriate to steer the managed super. This is because the managed super requires an experienced person with competence and qualifications in financial management (Johnson 2006). In addition, Jason, as a trustee director, is required to have the appropriate knowledge. This is of the relevant law relating to investment principles as well as trusts and in case of managed super, a management and investment principles. He cannot demonstrate that he holds the relevant understanding and knowledge about managed super (Steinberg 2009). The legal requirements for the composition of the board of managed super are equal representations of all the parties composing the managed fund. The Corporations Act 2001 has no special rules for composition or governance of persons that act as trustees of managed funds. However, equal representation is a critical aspect of compositions structure (Coffee et al., 2007). Equal representation on the board is one of the most effective ways of ensuring that members participate in protection and management of managed funds. There is a strong consensus that trustee directors appointed to represent the interest of various parties to respect the principle that they are required to safeguard the interests of their members as whole and not simply to represent one class of members. This is a bigger mandate to the directors. Although directors in a managed super are appointed to represent their respective members, they should respect the performance of the whole super and ensure that the interest of all members are safeguarded (Griffith 2005). Question 3 Smith and Jason have a duty of care to protect the interest of their members against malicious and unfavourable trading and investment dealings. They are supposed to exercise prudence in their position as directors and reject the deal if they perceive that it will undermine and be a detriment to the objectives of the scheme. This is a very essential legal obligation as it ensures that they do not follow their own interests safeguard the interests of the members they represent. Another legal obligation of the directors is a duty of loyalty. They are expected to give uncompromising and undivided allegiance to their members as well as the interests of all the members when making decisions. They must not use inside information for their own personal gains. The directors must not have a conflict of interest. Positively, smith and Jason exercise this obligation as they are opposed to the prospect of purchasing the HBP shares; this is because the deal would undermine the interests of the members as well as institutional investors (Johnson 2006). By voicing their displeasure at the prospect of purchasing the HBP shares, they remain obedience and faithful to the goals, objectives and mission of the managed fund as well as the institutional investors. They are supposed to ensure, as they have shown, to the best of their ability, that the managed super comply with the relevant regulations, funding mechanisms as well as ensuring that it meets its objectives (Kraakman 2009). Smith and Jason have a responsibility setting up and monitoring key financial indicators. They are supposed to ensure that they have the proper tools to evaluate and monitor financial performance and strength of the super. They are supposed to ensure that the board has good guidelines and standards for judging the health of the super. Such transitions that work against the super should be rejected. Significantly, Smith and Jason are supposed to oversee the funds legal obligations are met adequately. They should ensure that all filling requirements and other legal requirements are completed. The purchase of the HBP shares does not approve of the members interest and hence Smith and Jason are very right in voicing their concerns (Steinberg 2009). All the directors of the managed super have responsibilities to undertake, these responsibilities come with risk and liabilities. In discharging these responsibilities, the directors are exposed to liabilities, their actions and decisions may make them to be liable to the members as well as to third parties. They may be faced with civil and criminal liabilities. Therefore, they are supposed to ensure that they scrutinise all activities and deals to ensure that they represent the best interests of the members and investors (Hazen 2009). Part D Question 1 The bank is rightly entitled in law to dishonour you cheque in this way. The bank has the right to advance funding or dishonour such requests. The bank may have various reasons for not honouring the funding request. One of the reasons is that you failed to make a formal request and present various documents that the bank may ask. For this reason, the bank considered your request but decided to dishonour it. It is very obvious that you have insufficient funds in account number 2 yet you still want the bank to give you more than the amount in the account. Under the banking Act 1959, the bank is under no obligation to advance additional funding to you. Furthermore, you did not go to the bank to make a formal request for additional funding. Usually, the bank wants security for the additional funding for which you and the bank have agreed on terms and conditions (Djankov et al., 2008). There were no security or repayment terms and hence the bank could not advance you the additional funding you needed. It is important to note that the bank cannot combine your two accounts and repay itself out of your account. Your accounts and monies in the account are protected by the Reserve Bank Act 1959, the Banking Act 1959, and the Corporations Act 2001 and against such activity as provided in division 2 of banking act 1959. The bank can only withdraw such an amount with your permission in writing and in person. In “Baker v. Australia and New Zealand Bank Ltd, 1958 N.Z.L.R. 907 (1958)” it was decided that the bank had the right under its own argument to not give the plaintiff funding he needed. This was similar in Vagliano's Case, 1891 A.C. 107 (1891) where it was decided that the defendant cannot be obliged to advance funding under any circumstances. Similarly, in Commonwealth Trading Bank of Australia v. Sidney Raper Pty Ltd, 25 F.L.R. 217 (1975), the defendant was found to have committed no offence nor was it found to not have complied with any law for failing to advance loan to the plaintiff. It was asserted that the plaintiff did not have any right whatsoever to claim for loan facility. In Riedell v. Commercial Bank of Australia Ltd, 1931 V.L.R. 382 (1931), the plaintiff was a very good customer of the defendant. After being aggrieved that, in spite of being a good customer, the defendant turned down the request for loan funding, the defendant was found to have violated no law. The defendant was not obliged to advance the request. Essentially, the bank is entitled in law to dishonour your cheque. Question 2 The bank is rightly entitled in law to dishonour you cheque in this way. The bank has the right to advance funding or dishonour such requests. The bank may have various reasons for not honouring the funding request. One of the reasons is that you failed to make a formal request and present various documents that the bank may ask. For this reason, the bank considered your request but decided to dishonour it. It is very obvious that you have insufficient funds in account number 2 yet you still want the bank to give you more than the amount in the account. Under the banking Act 1959, the bank is under no obligation to advance additional funding to you. Furthermore, you did not go to the bank to make a formal request for additional funding (Djankov et al., 2008). Usually, the bank wants security for the additional funding for which you and the bank have agreed on terms and conditions. There were no security or repayment terms and hence the bank could not advance you the additional funding you needed. It is important to note that the bank cannot combine your two accounts and repay itself out of your account. Your accounts and monies in the account are protected by the Reserve Bank Act 1959, the Banking Act 1959, and the Corporations Act 2001 and against such activity as provided in division 2 of banking act 1959. The bank can only withdraw such an amount with your permission in writing and in person. In “Baker v. Australia and New Zealand Bank Ltd, 1958 N.Z.L.R. 907 (1958)” it was decided that the bank had the right under its own argument to not give the plaintiff funding he needed. This was similar in Vagliano's Case, 1891 A.C. 107 (1891) where it was decided that the defendant cannot be obliged to advance funding under any circumstances. Similarly, in Commonwealth Trading Bank of Australia v. Sidney Raper Pty Ltd, 25 F.L.R. 217 (1975), the defendant was found to have committed no offence nor was it found to not have complied with any law for failing to advance loan to the plaintiff. It was asserted that the plaintiff did not have any right whatsoever to claim for loan facility. In Riedell v. Commercial Bank of Australia Ltd, 1931 V.L.R. 382 (1931), the plaintiff was a very good customer of the defendant. After being aggrieved that, in spite of being a good customer, the defendant turned down the request for loan funding, the defendant was found to have violated no law. The defendant was not obliged to advance the request. Essentially, the bank is entitled in law to dishonour your cheque. Question 3 This is a very sensitive case because Jenny Ford is the appointed administrator and trustee of her fathers will. However, the bank has legal duties and responsibilities regarding the running of the account by Jenny Ford. First, the bank has an obligation to protect the account against misuse of funds by the administrator. Although Jenny Ford is the administrator, she should not use her father’s assets to meet her daily living expenses. She is supposed to use her payment to cater for her daily living expenses. The bank should stop Jenny Ford from withdrawing any amount until she explains clearly what she is using the amount for and to produced evidence of usage (Rose 2006). Therefore, the bank has a responsibility of summoning Jenny Ford and telling her that she is not administering the will but exploiting it. The bank is rightly entitled in law to dishonour you cheque in this way. The bank has the right to advance funding or dishonour such requests. The bank may have various reasons for not honouring the funding request. One of the reasons is that you failed to make a formal request and present various documents that the bank may ask. For this reason, the bank considered your request but decided to dishonour it. It is very obvious that you have insufficient funds in account number 2 yet you still want the bank to give you more than the amount in the account. Under the banking Act 1959, the bank is under no obligation to advance additional funding to you. Furthermore, you did not go to the bank to make a formal request for additional funding. Usually, the bank wants security for the additional funding for which you and the bank have agreed on terms and conditions. There were no security or repayment terms and hence the bank could not advance you the additional funding you needed (Kraakman 2009). References Coffee, J. C., Seligman, J., & Sale, H, A, 2007, Securities regulation: cases and materials: Foundation Pr. Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A, 2008, The law and economics of self-dealing: Journal of financial economics, 88(3), 430-465. Griffith, S. J. (2005), Good faith business judgment: A theory of rhetoric in corporate law jurisprudence. Duke Law Journal, 1-73. Hazen, T, L, 2009, Treatise on the Law of Securities Regulation: West. Johnson, C, J, 2006, corporate finance and the securities laws: Aspen Publishers. Karmel, R, S, 2005, Realizing the Dream of William O. Douglas-The Securities and Exchange Commission Takes Charge of Corporate Governance: Delaware Journal of Corporate Law, 30(1), 79-144. Kraakman, R, 2009, the anatomy of corporate law: a comparative and functional approach: Oxford University Press. Rose, P, 2006, Corporate Governance Industry: the, J, Corp L, 32, 887. Steinberg, M, I, 2009, Understanding securities law: LexisNexis. Read More