Question

Truth Enterprises Ltd (Truth) is a company that was incorporated in 2008. The constitution of Truth has the following stated object: “the business of the company is to invest in online retail fashion stores”. Truth has three directors, Rhonda, Maria and Miranda, who together own 20% of the company’s shares. The remaining shares are split equally between four investors: Mr JJ, Mrs Cale, Mr Giuseppe and Dr Rice. Since incorporation, Truth has not returned a great deal of profits to members. Mrs Cale, Mr Giuseppe and Dr Rice think they have an idea to greatly enhance the profitability of Truth. They put forth a proposal at a members’ meeting that Truth should purchase a number of high-end retail fashion stores (i.e. “bricks and mortar” businesses). Rhonda, Maria and Miranda are not keen on the members’ proposal. However, the three directors are informed that they will be removed from the Board if they do not comply with the proposal of Mrs Cale, Mr Giuseppe and Dr Rice. Although Mr JJ does not support them, Mrs Cale, Mr Giuseppe and Dr Rice have sufficient voting power together to action the removal of the three directors. Therefore Rhonda, Maria and Miranda feel compelled to act in accordance with the wishes of the 3 shareholders. Question 1: Answer all parts A, B, C and D A). Identify which section of the Corporations Act 2001 (Cth) gives members the power to remove directors in a company such as Truth Enterprises Ltd (1 mark). B). Identify which section of the Corporations Act 2001 (Cth) gives members the power to appoint a new director in a company such as Truth Enterprises Ltd (1 mark). C). What are the requirements to be appointed as a director? Refer to the relevant sections of the Corporations Act 2001 (Cth) in your answer . D). Discuss the consequences of a breach of constitutional objects for Truth Enterprises Ltd and its directors and shareholders, referring to the relevant sections of the Corporations Act 2001 (Cth) .

Answer 1