Washington State University Business Law Exam Questions

WSU Company Law Q2 2020Intra-Session Exam
Released: 8 pm Friday 22 May 2020
Due: 8 pm Sunday 24 May 2020
Word Limit = 1,500 words
Total Marks = 30 marks
Notes:
• You should refer to legislation and cases where relevant.
• You should use a full name/citation for cases and legislation the first
time, but can use a shorted name/citation thereafter.
• All questions are compulsory.
• Do not include a bibliography/reference list.
• Please submit your exam paper to the Intra-Session Exam Turnitin Link
on vUWS. The exam paper must be a Word document.
• You can only submit your paper once.
• Late submissions will not be accepted. So allow enough time to upload
your exam paper, taking into account possible slow internet speeds.
PART A Short Answer Questions (15 marks)
Question 1 (5 marks)
What is ASIC and what is its role? Provide examples to illustrate your answer.
Question 2 (5 marks)
What is ‘corporate governance’? Provide examples to illustrate your answer.
Question 3 (5 marks)
Discuss the concept of ‘corporate liability’. Provide examples to illustrate your discussion.
Part B of this exam is on the next page.
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PART B: Problem Based Questions (15 marks)
Question 1 (8 marks)
Premier Commercial Investments Pty Ltd (‘PCI’) is a investment company based in
Parramatta that focuses on buying and developing commercial property sites and then
onselling them. It decides to expand into the retail property market with a focus on buying
and then leasing retail properties. To do this, PCI creates a wholly-owned subsidiary
company called Premier Retail Leasing Pty Ltd (‘PRL’) to develop this side of the business.
PCI’s three directors appoint themselves as PCL’s three directors. This is convenient because
it means they can discuss matters for both companies at the same time when they have
their board meeting each month. They make sure, however, that afterwards they write up
separate board meeting minutes for the two companies. Over the next three years, they
operate the retail leasing business by borrowing heavily from Westbank Ltd to buy
properties and then make loan repayments from the money they receive in rent.
After three years, the business has become successful to the point where, PCI arranges an
interest-free loan from PRL, when PCI’s cash-flow becomes tight. However, in January 2020,
the coronavirus causes retail property prices to plummet and PRL defaults on its loan
repayments to Westbank. PRL now does not have enough assets to pay back all the money
it owes Westbank.
Advise Westbank as to what legal rights it may have.
Part B, Question 2 of this exam is on the next page.
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Question 2 (7 marks)
Ali, Betty, Carmel, Devaki and Eli are enthusiast stamp collectors and want to start an online
business that buys and sells historical collector-item stamps from around the world. They
decide to set up a company to do this. All four agree to put in $5,000 each to buy shares in
the company. Ali and Betty are assigned to put in an application to ASIC to register a
company called ‘Stamps R Us Pty Ltd’. Carmel is to look into getting a web design company
to design a website and get a quote. She visits Software Designs Pty Ltd in Parramatta CBD
and the salesman spends some time showing her various web design packages. Carmel is
very impressed with the ‘Super Delux’ package but is a little concerned about the $15,000
cost. The salesman informs her, however, that they currently have a 30 per cent sale on that
package, but that it finishes at 5 pm that day. Carmel excitedly calls Ali from the store, who
has been the driving force behind creating the business, to get his thoughts. He says ‘Yes.
Let’s do it’. Carmel signs the contract on behalf of both Stamps R Us and Ali, then and there.
Eli is assigned to investigate buying some stamps that the new company can have as stock
when it first launches. He visits his local stamp dealer, Charlie, of Charlie’s Stamps Pty Ltd,
who is very keen to get Eli’s business. Charlie tells Eli that if the new business buys stamps
from him worth over $10,000, he will give Eli a rare 1901 Australian Federation stamp, now
worth around $2,000 as a personal gift to show his appreciation. Eli is excited about this. He
contacts the group at their next meeting and they agree to buy $11,000 worth of stamps.
However, he doesn’t mention the personal gift. He goes ahead and buys the stamps and
receives the Federation stamp.
The following week, Ali and Betty’s application is successful and the company is registered.
All five become directors. However, at their first board meeting, Betty, Devaki and Eli are
unhappy about the cost of the website package and refuse to accept the contract, saying
the basic package would have been more than sufficient.
Advise the parties of their respective legal rights and liabilities.
End of Exam
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