Harry, Bert and Simon are the directors of Adventure Ltd, a company that organises holidays involving extreme sports. The members are Harry, Bert, Simon and Paul. The company is expanding and considering opening offices in Melbourne and Sydney. At a directors’ meeting, discussion as to staffing the offices takes place. It is decided to place an advertisement for two managers in the employment section of the West Australian Newspaper. Harry’s son Fred applies for the position in Melbourne and Bert’s nephew Trevor applies for the position in Sydney.

To fund the expansion, the directors of Adventure Ltd explore various alternatives. Adventure Ltd’s banker Bigbucks Bank is willing to lend funds to the company however the directors decide to issue a large parcel of shares to Eddie, who is a friend of the directors. As a result of the share issue, Paul’s shareholding reduces to 47%. Paul previously held 52% and had written to the directors expressing his dissatisfaction with their performance and his intention to remove and replace them at the next AGM.

REQUIRED

(a)     Discuss the procedure the directors and the company must take in order to appoint Fred and Trevor to these positions. Use the Corporations Act in support of your answer.

 

(b)     Would your answer to the above be any different if Adventure Ltd was Adventure Pty Ltd?

 

(c)     Discuss the relevant duty the directors may have breached by issuing the shares to Eddie. Include in your answer the test that the court may use to determine a breach of this duty. Use the Corporations Act and case law in support of your answer.