COMPANY LAW FOR BUSINESS ASSIGNMENT

In February, Butch made the decision that he was going to register a company to own and operate a diamond mine. He estimated that the company would need to raise $20M by way of a share issue and he planned to approach the members of his golf club, which has 100 wealthy members. Butch considered that the company would only need $10M of the $20M in the initial exploration phase but would require the further $10M in the critical operational phase that would follow.

Butch was uncertain as to the type of company he should register.  He planned to be the Managing Director of the company and to have his close friend Patsy as Chairman. Butch wanted to keep the affairs of the company confidential and retain control of its management but without the large amount of capital required, the company would not be able to undertake its objectives.

In April, Butch contracted with some mining engineers to assist with the mining operations in October. Butch signed the contract with the mining engineers as “agent of Diamond Pty Ltd”. In June, Butch registered Diamond Pty Ltd with no constitution. Ralph is a shareholder in Diamond Pty Ltd. Ralph becomes aware that the directors of the company are considering the creation of a constitution with the following rules:

(i)   that no director may be removed  from office by the members;

(ii) that members may only  appoint directors of the company as proxies to general meetings;

(iii)    that the company’s activities are restricted to diamond mining.

In early October, Butch advises the mining engineers that Diamond Pty Ltd is not going to go ahead with the contract as it no longer requires their services. 

REQUIRED:

With reference to the Corporations Act 2001 (Cth) and case law, you are required to answer the questions set out below.

1. List and describe each type of company that it is possible to register under the Corporations Act 2001 (Cth).  For each one, advise why you consider that type of company might be suitable or unsuitable to meet Butch’s interests and any member liability that might arise.  From your analysis, conclude which type of company you would recommend here.     [9 Marks] 

2.      Describe the nature of the legal relationship that exists through a company's rules between:

(a)  Butch and Diamond Pty Ltd; and

(b) Ralph and Diamond Pty Ltd.

Make reference to the Corporations Act 2001 (Cth) and cases where relevant. [4 Marks] 

3.      Analyse each of the following 2 proposed rules:

(a)  Director removal rule; and

(b)  Proxy rule.

Include in each answer a reference to a similar rule (if any) that might be currently applicable to Diamond Pty Ltd under the Corporations Act 2001 (Cth) and whether each of the proposed rules could be properly included in a new constitution and would be enforceable.   [4 Marks]

4. Diamond Pty Ltd enters into a contract to buy a gold mine from Golden Pty Ltd. Can Golden Pty Ltd enforce the contract assuming that Diamond Pty Ltd has adopted the proposed constitution? Give reasons for your answer. [4 Marks]
5. If Diamond Pty Ltd wanted to start mining gold, what is the correct procedure to allow the company to do this? [3 Marks]

 Advise Butch and Diamond Pty Ltd on whether either of them has any liability to the mining engineers in relation to the failure to comply with the contract with them.   [6 Marks]

Note: In answering some parts of the questions, a full 4 step process may not be required.  However, if application is required, please write the law before attempting to solve the problem.