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Company and Securities Law - Question 1

A. Considering the fact that Ben was operating as the director of AGC Software Pty Ltd (AGC) that was based in Australia, several duties and liabilities would be entailed when engaging in the operations of the company. Companies within the territories of Australia are primarily governed by the Corporations Act 2001, and the statute provides for several duties that directors are liable to follow. Section 180 of the statute outline the duty of care and diligence, whereby the directors are required to ensure a degree of reasonableness that would be expected in their role. Furthermore, the judgement passed in the matter of “ASIC v Healey [2011] FCA 717” solidified the aspect of the director’s duty to act with care and diligence as the directors had signed off financial reports that were erroneous in an attempt to not disclose important financial information. Section 181 also requires ensuring that the directors act in good faith, where the key prerogative is to maintain the best interests of the company. The fact that Ben bought the 60% of the shares from the remaining shareholders for a price of $13.50 and sold it off to Big Nanny Ltd, whose managing director was his wife, was in gross violation of the aforementioned duties.

Furthermore, Sections 182 and 183 also impose the duty of properly using the position and using information gained during the directorship on the directors. The judgement passed in the matter of “ASIC v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] HCA 963” is relevant in this regard, where the directors deliberately engaged in actions that led to a conflict of interests. It is evident that Ben came to know about the purchase price of the shares requested by Big Nanny in the course of his directorship, and it would come under the purview of his responsibilities to let the shareholders know that this was the case. However, he went on to hide the information from them and sell the shares later to the company managed by his wife at a higher price. The actions would also violate the aforementioned provisions, for which Ben could be held liable in terms of civil penalties. Section 191 would also be relevant to the actions undertaken by Ben, which provides for directors to ensure that directors must disclose information related to the company where they have a personal interest. Ben had hidden the fact that his wide was the managing director of Big Nanny Ltd, and this would be in direct violation of the aforementioned provision since he had negligently engaged in personal profiteering when purchasing the remaining shares of the company from the shareholders and selling it to Big Nanny.

B. Based on the actions that Ben engaged in as provided within the case study, AGC and the shareholders of AGC could seek several remedies against Ben. Criminal sanctions could be imposed based on the case developed by the shareholders along with the arguments put forward, and this could subsequently lead to an imprisonment period of up to five years along with penalties amounting to $200,000. Dishonesty and recklessness would need to be proved in this regard.

The civil sanction could also be imposed due to the contraventions of the director's duties by Ben, and this could lead to Ben being disqualified for a long period. Furthermore, the shareholders could also seek compensation as a remedy based on the fact that Ben deliberately hid information and purchased the shares from them at a lower price while selling then subsequently for a significantly higher price. Considering the scope of the Corporations Act 2001, two major mechanisms allow aggrieved shareholders to seek remedies and protect their rights and interests. The most prominent among them relates to Part 2 F.1 where the statutory rights of the shareholders are mentioned in the context of unfair and prejudicial actions undertaken by the company. Part 2F.1A further allows shareholders to take on an interventional measure whereby the dealings of the company that are unfair can be restricted.

Company and Securities Law - Question 2

A. The Corporations Act 2001 does not define insolvency per se but instead chooses to define solvency, where the key fundamental relates to the ability of the company to pay the debts as and when they become payable. It is defined under Section 95A (1) of the statute. Subsequently, the statute goes on to mention that any person or organisation that is not solvent would be considered insolvent under Section 95A (2). Relevant case law is a judgement passed in “Sutherland v Hanson Construction Materials Pty Ltd (2009)” where the court held that while the balance sheet of the company would not be the primary test, it would be an extremely relevant part when addressing the question of solvency.

B. The directors of a company may want to place their company into voluntary administration for several reasons. The primary among them relates to avoiding training when insolvent and resolving creditor issues over time. In case of an insolvency or potential insolvency, the directors may use the aspect of the voluntary administration as a defence that they had taken steps to prevent trading while insolvent.

Voluntary administration is also related to the company’s desire to enter into a DOCA or a Deed of Company Arrangement. The key objectives of the DOCA are to provide businesses with another chance at restructuring and survival. Furthermore, the directors may also choose to enter into a voluntary administration process to abstain from director’s penalty notices. Liquidation prevention can also be an objective of voluntary administration, especially when market conditions become rigid and the directors anticipate a potential liquidation.

C. The process of a voluntary administration, once it is entered into by a company initially, begins with a series of investigations by the voluntary administrator. The timeline roughly extends to a little over a month and the end goal is to essentially either liquidate the company or enter into a DOCA. However, complex cases might require the voluntary administrator to extend the duration and delay of the Second Meeting of the Creditors through the permission of the courts or the creditors.

The investigation undertaken by the Voluntary Administrator must be reported to the ASIC. It entails several key areas including the determination of whether the company is insolvent and whether the company engaged in trading when insolvent. Other offences or preferential payments to creditors are also adjudged along with the presence of any hidden assets that could be recovered. Following the investigations, a DOCA may be entered into as opposed to the process of liquidation. Given that a DOCA is agreed upon, the creditors must assent to the same in at least 50% of the value as well as 50% in number. If a DOCA is voted in favour of, all the creditors of the company become are bound by it. The signing-time for a DOCA that has been approved by the creditors comprises of a period of 15 days unless it is extended for a longer period by the court of law.

D. The circumstances of VB Mines operating as a no liability company in terms of it being insolvent are primarily related to how the company was subject to the global downturn in the global demand for iron ore. Experts had predicted that it was likely to be long term and this could be extremely difficult to recuperate from. However, the company owed massive amounts of money to its creditors as the debts had run into tens of millions of dollars.

In terms of the interactions between the directors and the member, the most suitable course of action would relate to entering into a DOCA that involves either the sale of a renting out of the large number of properties owned by VB Mines in the rural properties. Additionally, the DOCA could also comprise of renting out the mining plant and equipment licenses as well, especially since they were expiring in 2018. The high tech device that could commercially viable resource deposits would be a key area of emphasis within the DOCA as it would be extremely profitable in terms of leasing it out further to recovers a certain portion of the existing debts.

In terms of the interaction with the creditors, the administrators would have to ensure that they are on the same page and agree to the clauses contained within the DOCA. The key fundamental would be to recover as much of the debt as possible and repay them based on the renting out the leases and any other assets that VB Mines might have. Furthermore, it would be important that the company was a no liability company. It would mean that the company could not benefit from any sort of entitlement to class on the unpaid issue prices of the shares. While it would limit the prospects of the repayment, the unsecured creditors would have to be cleared off first followed by the secured creditors. Liquidation would certainly not be the most appropriate way forward, especially since the debts of the company were in the tens of millions.

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