Business and Corporations Law

| October 19, 2015

QUESTION
Bill Bates had an electronic business worth $600,000 and wanted to set up a company to run it. In April this year, Bill incorporated a proprietary company limited by shares, Bill Bates Pty Ltd to take over the business. The company has issued one million shares of $1 each, 600,000 to Bill and 400,000 to Bill’s friend Lisa. Bill and Lisa became the directors of the company. Bill, being an expert in electronics agreed to do the software work in the business, whilst Lisa would look after the sales.
Bill Bates Pty Ltd’s constitution contains the following clauses:
(i) John (Lisa’s brother) will be appointed as the company’s sales manager and will remain the company’s sales manager until he decides to resign;

(ii) The company’s business will always remain the sale of software for personal computers that has been developed by Bill; and

(iii) Any contracts over $50,000 require the approval and signature of both Bill and Lisa.

The company sent John to attend a computer expo in Sydney to explore new developments. At the expo John is excited to be introduced to a new computer program that would save time, money and deliver a more professional service than the company’s competitors. John enters into a contract to purchase the computer program for $60,000 from Ultimate Computer Programs.
Whilst returning to his hotel room after the computer expo, John was stopped by the police who found John to be in possession of illegal drugs. John explained to the police that he had purchased the drugs for Bill Bates Pty Ltd.
Upon receipt of the computer program invoice, Bill writes to Ultimate Computer Programs advising that the company will not pay for the computer program as the software is incompatible with the company’s system developed by Bill. Bill also advises that John did not have the authority to enter into the contract and in any event, the company has no legal capacity to enter into such a contract.
Bill wants to dismiss John as the company’s sales manager. However, Lisa is adamant that Bill cannot do this without her approval.
REQUIRED:
With reference to the Corporations Act 2001 (Cth) and case law, you are required to answer the following questions:

PART A
Discuss whether John is likely to be held responsible for the drug offence. Also discuss whether Bill is likely to succeed in removing John as the company’s sales manager, despite the clause in the company’s constitution.
[10 Marks]
PART B
With reference to clauses (ii) and (iii) in the company’s constitution, advise Bill whether he can succeed in not paying Ultimate Computer Programs.
[10 Marks]

 

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