COMMERCIAL AND CORPORATIONS LAW ASSIGNMENT

Question 1 -

John entered into a contract with Kim's Fun Cruises Ltd (KFC) for the purpose of hiring one of KFC's cruise boats, the Yorks, between the hours of 7pm on 22 December 2011 and 3am on 23 December 2011. At the time of contracting (on 19 December 2011), John advised KFC that he was hiring the boat so that John, his wife Estelle and their son Mike could enjoy an evening on Sydney Harbour and have a prime position to view the fireworks display that was to be held on the evening of 22 December 2011 as part of the annual Festivus Day celebrations. The agreed hiring fee was $5,000 which John paid on the date of signing the contract. In return for that fee KFC was to provide the Yorks, a licensed captain to drive the boat, and a chef to prepare a set meal for John, Estelle and Mike.

When John, Estelle and Mike turned up at the appointed time to begin their cruise on the Yorks, KFC advised them that the Yorks had been double booked due to an error in the electronic booking system managed by KFC. In fact, the Yorks had been hired by a third party who paid double price for the same evening before KFC contracted with John. Accordingly, KFC claimed that the contract with John was void for mistake.

In relation to the above facts:

(A) Was the contract void for mistake? What damages, if any, would John be able to recover from KFC for breach of contract?

(B) Would you advice in (A) be different if the Yorks had been destroyed by storm on 18 December 2011, and neither party was aware of that fact until 20 December 2011.

(C) Would your advice in (B) be different if on the day that John, Estelle and Mike turned up to begin their cruise, they were advised by KFC that the cruise could not take place because on the previous day the Yorks had been destroyed by terrorists?

Question 2 -

The Finished Timber Company Pty Limited (in liq) ("Company") was wound up in December 2013. Kevin and Robert were the Company's directors since incorporation. Mrs Thompson was the Company's financial officer, but she was not a director of the Company. Despite her title Mrs Thompson had no formal financial qualifications.

The liquidator of the Company now seeks to recover from Kevin and Robert the amount equivalent to the amount owing to the unsecured creditors of the Company on the basis that at the time the debts were incurred the Company was insolvent or became insolvent by reason of incurring the debts.

Both Kevin and Robert believe that at the time of incurring the debts to the unsecured creditors the Company was not insolvent but rather was experiencing a temporary illiquidity and that they expected on reasonable grounds that:

(a) The Company would have been able to conclude negotiations with a very large building organisation for the purchase of the Company's timber products, which would have increased the Company's income substantially; and

(b) The debts incurred and which would continue to be incurred by the Company could have been paid by recourse to the assets of the Company and both Kevin and Robert were reasonably certain that those assets could have been realised within a 90 day period.

Further, Kevin and Robert state that throughout the relevant period they were advised by Mrs Thompson that the Company was solvent and was able to meet its obligations because most of the creditors did not press for payment within their normal trading terms and because there was an understanding that the creditors would not take recovery action against the Company provided that the Company paid within a reasonable time after 30 days notice was given. Mrs Thompson says however that she was never asked to monitor solvency and that her job was more akin to being a bookkeeper and that she did what she was told by Kevin and Robert.

Advise Kevin and Robert of their prospects of resisting the liquidator's action. In your answer you should have regard to the provisions of section 588G and 588H of the Corporations Act.

Question 3 -

Ian and Mike are the only directors and shareholders of Windmills Pty Limited ("Windmills"), a small proprietary company.

Ian is the Managing Director of Windmills and is the majority shareholder. Mike, as the minority shareholder, had no formal involvement with Windmills and although he was a director he had no information or insight into the affairs of Windmills.

In early January 2013, a third party made an offer to Ian, as Managing Director of Windmills, to purchase the assets of Windmills. Ian then commenced to negotiate with the third party and agreed a purchase price. The offer by the third party and the agreed price for the assets of Windmills was not disclosed by Ian to Mike.

After reaching an agreement with the third party, Ian approached Mike with a view of acquiring Mike's shares in Windmills. Consequently Mike agreed to sell his shares in Windmills to Ian for a price at significantly less than for the price agreed to be paid by the third party for the assets of Windmills.

After selling his shares to Ian, Mike became aware that the assets of Windmills had been sold to the third party at a much larger price than Ian had paid for Mike's shares. Mike also became aware that the negotiations between Ian and the third party and the agreed purchase price for the assets of Windmills had been agreed between Ian and the third party prior to Ian acquiring Mike's shares in Windmills.

Mike now wants to bring an action against Ian or Windmills for compensation. Advise Mike. In your answer you should have regard to the relevant cases concerning director's fiduciary duty to company and its minority shareholders.