Question 1:

Rachel and Stacey operate a busy café in Melbourne's inner east. They have been running the business together for 5 years and share profits equally.

As the years progress, Rachel and Stacey notice that they do not have enough working capital to keep the café running. In addition, due to the slippery floors, there have been some customers that keep falling over and breaking their legs.

Rachel and Stacey are approached by Bruno who makes the best cakes in Melbourne. Bruno wants to work with Rachel and Stacey in the café as the head pastry chef.

Rachel and Stacey believe that if Bruno worked at the café then his expertise in cake making will bring in more business for the café. Rachel and Stacey come to visit your office and ask your legal advice to:

a) What type of legal business structure is Rachel and Stacey currently operating? Provides reasons.

b) Whether their current business structure is the most suitable for the cafe or whether they should consider another form of business structure, and, if so, which one?

Question 2:

Tavid, Suzan and Dilara are the only shareholders and directors of Vintage Wedding Dress Boutique Pty Ltd (Vintage Dress) which sew and sell vintage boutique dresses. Tavid, Suzan and Dilara each have one-third equal share in Vintage Dress.

You should note the following regarding Vintage Dress:

• Tavid is a non-executive director and is a qualified accountant and the Chief Financial Officer. Tavid also sits on many board and sews the dresses.

• Suzie is the Managing Director of Vintage Dress and sells the dresses.

• Dilara is a non-executive director and never attends any meetings and never has a reasonable excuse for not attending.

Business had been very profitable for Vintage Dress for years so it purchased many new state of the art sewing machines.

Tavid recommended that Vintage dress buy their new sewing machines from Sew West Pty Ltd. Tavid states that it is the best sewing machine to provide for the large increases in sales and sewing. Tavid does not tell Suzan and Dilara that Tavidand her daughter control Sew West Pty Ltd. Suzan knows that Tavid has some form of interest in Sew West but does not tell Dilara and does not ask for any details from Tavid.

Last month, Vintage Dress was approached by a second hand fabric dealer named Second Hand Fabric Pty Ltd which suggested that the two companies should enter into a joint venture where Second Hand Fabric would provide fabrics and Vintage Dress would sew the fabrics and they would sell the garments in the second hand fabric store. After lengthy discussions, all three directors decided that due to the expansion of vintage dress, Vintage dress did not have the facilities and resources to be able to sew the dresses for Vintage Dress and those for the Second Hand Fabric Store. Shortly afterwards, Dilara acting on her own behalf, and Second Hand Fabrics formed a new company which successfully created garments to sell in the second hand fabric store and made very large profits.

By this stage, the company started making large losses. At a board meeting in August 2015,

the board considered the company's in-house financial statements relating to the loss making investments. The financial statements have been negligently prepared and show a profit instead of a loss.

During the board meeting, Tavid didn't draw the errors to the attention of the board, while Dilara failed to ask any questions about the financial statements, and was absent on this occasion. Due to time constraints, Suzie failed to read the financial statements, believing that Tavid would discuss the statements with her if there were any important matters requiring her attention.

The board directors do not identify the mistake and authorise further investment in the loss-making business ventures. By December 2015, Vintage Dress is insolvent.

Discuss any case law or statutory civil liability of the directors of Vintage Dress in relation to these events. What are the consequences, if any, of a breach of the Corporations Act?

Question 3:

Leo purchased two shares in Thomas The Tank Engine Pty Ltd for $500,000. Thomas The Tank Engine Pty Ltd makes and builds trains which they manufacture and sell to retail stores. Leo, now a non-executive director of Thomas The Tank Engine Pty Ltd, is unhappy with the state of affairs of the company. The following occurred:

Thomas The Tank Engine Pty Ltd revenue has increased 300%

Leo has received no dividends to date and Ruby and Amanda, the two executive directors of Thomas The Tank Engine Pty Ltd, have decided to pay no dividends this year. Ruby and Amanda have voted themselves a large pay rise and bonus. Ruby and Amanda havearranged for Thomas The Tank Engine Pty Ltd to lease two expensive cars for their exclusive use.Leo attends his first directors' meeting and questions the dividend policy and asks that he objection to the lease of the cars be recorded.

Amanda and Ruby decide to remove Leo from the board. They hold a members' meeting and remove Leo from the board. Advise Leo as to his rights as a shareholder/member.

PART B

Question 4

The Corporations Act provides notice procedures when a company calls a shareholders meeting. What are these notice procedures? The Corporations Act also provides, that if these notices procedures are not followed strictly and there is no "substantial injustice", the effect of a procedural irregularity won't make the meeting or its resolutions invalid. Do you think notice procedures need to be stricter and should there be a stricter approach to procedural irregularities? Discuss.