SuperExpert

SuperExpert

It is 18 August 2015. Delish Pty Ltd (‘Delish’) is a large
private company which operates a family catering business across
Western Australia and Northern Territory. Over the past 18 months,
Delish’s board of five directors (Mr and Mrs Turner, their
daughter, their son and Richard Jones, a family friend) had
discussed expanding their operations into Australia’s southern and
eastern states. To achieve this, the company needed to obtain
finance (borrow money) from a bank to cover the costs of the
expansion of the business and the necessary staff. However, at a
board meeting in March 2015 the board decided (3-2 against) not to
proceed with the expansion at that time, and to reconsider the
matter next year. The daughter (Karen) and Jones were both very
keen to expand the business and were very unhappy at the
risk-averse decision of Mr and Mrs Turner and their son to block
the plan. Karen took the business plan (for expansion) to a bank
manager in Adelaide to see if a bank would be prepared to provide a
loan. The bank manager was impressed with the business plan and
told Karen that he would be prepared to recommend a loan to Delish
to support the expansion. Excited, Karen convinced Jones to join
her in co-signing both a loan agreement and a charge over all of
Delish’s assets and undertaking (business) to secure the loan of
$7.5 million (these documents were signed in April 2015). Without
the knowledge of the other three directors, Karen and Jones then
arranged for the loan funds to be spent in setting up the company’s
new businesses in Adelaide and Melbourne. Unfortunately, just three
months later most of the borrowed money had been spent but the
businesses in Adelaide and Melbourne had been total failures. At a
board meeting in early August 2015, Karen and Jones finally told
the other three directors what had happened. Yesterday the bank
formally wrote to the company (a letter was sent to Delish’s
registered office in Darwin) seeking total repayment of the loan
which was in default (repayments which fell due in June and
JulyMarch and April 2015 were not paid and so the bank was
contractually entitled to demand or ‘call up’ the entire loan). If
the loan is not repaid within two weeks, the bank will enforce its
charge to recover the loan. The three directors who never approved
of the expansion plans (nor the loan) have today co-signed a letter
for and on behalf of the company to the bank, stating that Delish
is not liable to repay the loan and that the charge is void because
the company never approved of the transactions. The directors are
all of the view that if Delish is liable to repay the bank loan,
then the company is unable to meet all of its debts as and when
they become due and payable. Jones is not only a director but also
a shareholder with 20,000 shares in Delish. The other 80,000 shares
in Delish are owned by various people associated with the Turner
family. Jones has just become aware that in April 2015 Mr Turner
(Delish’s Managing Director) convinced a long-standing client of
Delish (a government department) to engage another caterer,
Rapacity Caterers Pty Ltd (‘Rapacity’) to provide catering for a
large expo event. Jones understands that this large catering
contract is worth almost $500,000. Mr Turner’s close personal
friend is the managing director of Rapacity and has recently had
some hard times and difficulties with his business. Mr Turner
wanted to do his friend a good turn and therefore told a ‘white
lie’ to the government client, saying that Delish was too busy to
do the job but that Rapacity was an excellent alternative.
(Rapacity did end up getting the contract.) Rapacity’s managing
director offered Mr Turner a 5% ‘kickback’ payment for the referral
but Mr Turner refused, saying that he just wanted to do a favour
for a good friend and would not accept any personal gain. Q(a) Is
Delish bound by the loan agreement and charge which Karen and Jones
have signed? If more information would be required to provide a
complete answer, state what that information is and why it would be
relevant. If Delish was liable to repay the loan, describe what the
directors should do and how the bank could enforce its rights and
interests. Q(b) Explain what can be done about the government
contract which Mr Turner referred to Rapacity. In your answer focus
on who might be aggrieved by what has happened and just who has (or
who might have) the legal right to do something about it

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