Company law assignment

Due date: 12 noon Wednesday 5 September 2012 Details of task: ANSWER QUESTIONS 1 AND 2 Question 1 Zigzag Motors Ltd, a small listed company, was an importer and retailer of Volvo cars and trucks. The same directors had conservatively managed it for the past 35 years. Zigzag Motors Ltd was rich in fixed assets, consisting mainly of its showroom sites. The directors and their associates owned about 35% of the company’s issued shares. The remainder was held by a large group of other shareholders. Recently, the directors became aware that Argus Regal Ltd (ARL) had acquired a 5% shareholding in Zigzag Motors Ltd. They believed that ARL would soon launch a takeover bid. The Zigzag Motors Ltd directors correctly thought that if ARL succeeded in gaining control of their company it would arrange for Zigzag Motors Ltd to sell the Volvo business and all the showroom sites and use the proceeds to finance ARL’s other businesses. Zigzag Motors Ltd’s directors believed that an ARL takeover of their company would not be in the best interests of the company, its shareholders or employees. They were of the firm opinion that the price ARL would offer for the Zigzag Motors Ltd shares would not reflect their long-term worth. Further, an ARL takeover would most probably result in the directors and employees being sacked. For these reasons the Zigzag Motors Ltd directors decided to take defensive measures to prevent the anticipated ARL takeover from taking place. At a recent board meeting, attended by all the directors, it was decided that Zigzag Motors Ltd would sell all the company’s showroom sites to Pierpont Investments Pty Ltd. Unknown to the other directors, Pierpont Investments Pty Ltd was the family company of Frank Zigzag, chairman of Zigzag Motors Ltd. One of the terms of the sale was that Zigzag Motors Ltd would lease back all the showroom sites from Pierpont Investments Pty Ltd. Because no independent real estate valuations had been obtained, the Zigzag Motors Ltd directors were unaware that the sale price was considerably less than market prices and that the agreed lease back rent was very high. The Zigzag Motors Ltd directors also arranged for the company to issue preference shares in the company to the directors’ respective family companies. These preferences shares entitled the holders to an unusually high dividend rate. After the preference share issue the directors’ family companies would have 52% of the votes at a Zigzag Motors Ltd shareholders’ meeting. The preference share issue took place despite the advice of the company’s accountants that while the company needed additional funds, it would have been better for it to borrow the money than raise capital through the preference share Explain fully whether or not the Zigzag Motors Ltd directors have breached any (and if so what) duties in relation to the sale and lease back of the company’s showroom sites and the issue of the preference shares. [15 marks] Question 2 The government’s Action Against Fraudulent Phoenix Activity Proposals Paper 2009 ([login to view URL];NavID=) resulted in numerous submissions from interested parties and the release of two exposure draft bills including the Corporations Amendment (Phoenixing and Other Measures) Bill 2012 and the Corporations Amendment (Similar Names) Bill 2012. There were also numerous submissions in relation to the exposure draft bills ([login to view URL];NavID=) Critically assess whether the bills adequately deal with the concerns about phoenix companies. [15 marks] [Total = 30 marks] Word limit: Approximately 3000 words (not counting footnotes or bibliography). Marks will be deducted if your answer is substantially more or less than the suggested word limit. Essentially this means that question 1 and 2 should be around 1500 words each.