The assessment: Background: You have recently graduated as an accountant/ financial adviser and your first position is w
Posted: Wed May 04, 2022 4:32 pm
The assessment:
Background:
You have recently graduated as an accountant/ financial adviser and
your first
position is with an integrated accounting and financial services
organisation in
Melbourne.
One of the clients in the company BW Enterprises Ltd a small
publicly listed
company. You have been asked by your senior manager to sit in on a
meeting of the
client and the directors and to take notes on the issues raised and
then to prepare a
report on the matters for review by your senior manager and the
managing partner.
Expectations in preparation of the report:
The organisation that you work for has a high profile in the
profession and therefore
expects all staff to demonstrate a high degree of
professionalism.
In the advice that you are to prepare you are expected to
demonstrate that you
understand the relevant law and how the law applies to the issues
raised by the
client and come to a logical conclusion.
You are also expected to be able to justify your conclusion by
reference to the
relevant legislation in the Corporations Act, ASIC Act, or any
other legislation you
think appropriate and case law.
Your senior manager has high expectations of you and will not
accept any
grammatical errors or unsubstantiated statements or conclusions
made in your
report. He will not tolerate any material copied from textbooks,
google or any other
source which you attempt to pass off as your own material.
You are currently under a three-month probation period with the
organisation and so
far, your performance has been deemed adequate.
Your performance on this task could determine whether you continue
being
employed or not.
The client and issues:
BW Enterprises Ltd is a small capital sized company incorporated in
Melbourne on 3
February 2000. The directors of the company are:
RMIT Classification: Trusted
Brian the CEO,
Gurinder the IT director
Voon-Ling the marketing director
Jose is the CFO and finance director
Swee-Lim is the purchasing director
All are executive directors of the company
All the executive directors own their respective shares in the
company via their family
trusts. Together they own 65% of the shares equally.
Chiew is a non-executive director who was nominated by the
Halliwell Ltd which
owns 15% of the shares in BW Enterprises Ltd. Halliwell Ltd owns
15% and the
public owns the remaining 20%.
The company has been involved in the manufacture, distribution and
installation of
solar panels and batteries throughout Australia and New
Zealand.
It has developed new technology in relation to the production of
solar panels but
needs more funding to get it into a commercial stage.
The financial results for the year ended 30 June 2021 show that the
company has
been profitable since 2015. However it has no income tax liability
because of the
prior year losses. The CFO Jose anticipates that the losses will be
used up by 2022
and that the company will have an income tax liability. The interim
financial
statements as at 30 April 2022 show the following:
Total assets: $37m
Liabilities: $28m
Net shareholder funds: $9m
The net shareholder funds is made up of:
the issued share capital $12m
accumulated losses: ($3m)
Operating revenue $15m
Operating expenses $12.5m
Due to the issues of COVID during the last 2 years and the current
conflict in
Ukraine, it has placed stress on the company’s financial position
and the ability to
develop the new technology. Many of the software developers and
engineers
involved were based in the Ukraine and this has slowed down the
development of
the new technology.
RMIT Classification: Trusted
Brian and Voon-Ling have requested a meeting to discuss several
issues that have
arisen and would like your advice on the matters plus any other
recommendations
you as experts may have considered.
Issues:
1. A draft resolution has been prepared by Chiew requesting that as
there are
retained profits of $9m as per the 30 April 2022 financial accounts
a dividend
should be paid to the shareholders. Halliwell Ltd have indicated
quite strongly
they are expecting a return on their investment soon or they may
dispose of
their shareholding in the company or seek a change of the board of
directors
to have a majority control of the company.
2. Gurinder is an aspiring politician and is seeking nomination for
one of the
major parties in the upcoming November 2022 State elections. As the
IT
director he acquired specialised software that allows the company
to track all
queries and requests for solar panels. It stores a lot of client
data useful for
the company when it finishes developing the new technology.
However Gurinder has also used the software and the data within
the
software to mail out to people political information to assist him
in the
upcoming state election.
Brian is not that concerned as he believes that if Gurinder gets
elected he can
help the company get State Government contracts.
Voon -Ling is not so happy but has not told the other directors
about this.
3. Due to the COVID out break the company obtained funding from the
State
and Federal Government to help it through. It also received
Jobkeeper
payments. However because of the financial support provided to the
company
by State and Federal Governments, the company had sufficient
funding to pay
the directors significant bonuses. Chiew as the non-executive
director
objected to this and felt that this was reducing the payment of
dividends to
shareholders. Halliwell Ltd the shareholder was also not happy to
receive
lower dividends because of the bonuses paid to the executive
directors.
The other directors are not happy about Chiew’s attitude and would
like to
remove him as a director but are mindful he represents Halliwell
Ltd which
owns 15% of the company.
4. The Board of directors is mindful since COVID of relying on one
country being
the sole supplier of parts and believe it would be wiser to spread
the
manufacturers between other countries as well as developing a
local
manufacturing base in Melbourne.
RMIT Classification: Trusted
Swee Lim as the purchasing director has been asked to look at
other
countries as well as Australia to develop alternative suppliers of
parts so the
supply chain issues caused by COVID do not arise in the
future.
Her god father has contacts in several countries in Asia and South
America
that could supply the parts cheaper than any other suppliers. She
was
authorised under her employment contract to order parts up to $2m
(AUD).
Any contract above that amount needed the approval of the Board
of
directors.
She called a meeting of the Board of directors but only she
Voon-Ling and
Brian turned up at the meeting.
Under the constitution of the company the quorum for Board meetings
is three
but one must include the non-executive director Chiew.
Swee Lim on behalf of the company signed the contract for
$5m.
Swee Lim’s god father also bought her a diamond necklace and gave
her a
“red packet” containing $50,000.
Swee Lim did not consider or undertake a review of the advantages
of
manufacturing in Australia on the basis that “Australia is not a
manufacturing
country”. She advised the board of the directors that it was better
to have
suppliers throughout Asia and South America and not in
Australia.
5. In a recent planning meeting attended by all the directors and
the senior staff
the issue of finance was raised.
To combat the current financial issues happening again the
directors agreed
that the company needed to raise funds to:
a) Reduce their current liabilities of $28m by $12m being the loan
from the
National Australia Bank Ltd.
b) Provide funds to pay future dividends of $1m per annum
c) Build up a cash reserve or buffer of $750,000.
They are unsure whether to seek money from the public or ask
Halliwell Ltd to
invest more or do a rights issue or some other alternative.
They are mindful that by issuing more shares to Halliwell Ltd they
could lose
control of the company.
Required:
From the information above you are required to provide advice to
the Board of
directors of BW Enterprises Ltd:
1. Discuss and analyse the legal issues that arise from the 5
issues mentioned
above. In your analysis you need to:
a) identify the legal issues
RMIT Classification: Trusted
b) explain the relevant law both the legislation and case law
c) apply the law to the facts and come to a conclusion
(15 marks)
2. If you believe the directors may be liable for breach of a
provision explain if
they have a defence and if not what the company could recover from
the
directors. (5 marks)
3. Discuss the various funding options available to the company
mentioned in
point 5 above and any other alternatives you think would be
appropriate and
which you think would be the best option to the company. (15
marks)
4. As a financial adviser if you recommend seeking funds from the
public what type of clients would you focus on and why? (5
marks)
Background:
You have recently graduated as an accountant/ financial adviser and
your first
position is with an integrated accounting and financial services
organisation in
Melbourne.
One of the clients in the company BW Enterprises Ltd a small
publicly listed
company. You have been asked by your senior manager to sit in on a
meeting of the
client and the directors and to take notes on the issues raised and
then to prepare a
report on the matters for review by your senior manager and the
managing partner.
Expectations in preparation of the report:
The organisation that you work for has a high profile in the
profession and therefore
expects all staff to demonstrate a high degree of
professionalism.
In the advice that you are to prepare you are expected to
demonstrate that you
understand the relevant law and how the law applies to the issues
raised by the
client and come to a logical conclusion.
You are also expected to be able to justify your conclusion by
reference to the
relevant legislation in the Corporations Act, ASIC Act, or any
other legislation you
think appropriate and case law.
Your senior manager has high expectations of you and will not
accept any
grammatical errors or unsubstantiated statements or conclusions
made in your
report. He will not tolerate any material copied from textbooks,
google or any other
source which you attempt to pass off as your own material.
You are currently under a three-month probation period with the
organisation and so
far, your performance has been deemed adequate.
Your performance on this task could determine whether you continue
being
employed or not.
The client and issues:
BW Enterprises Ltd is a small capital sized company incorporated in
Melbourne on 3
February 2000. The directors of the company are:
RMIT Classification: Trusted
Brian the CEO,
Gurinder the IT director
Voon-Ling the marketing director
Jose is the CFO and finance director
Swee-Lim is the purchasing director
All are executive directors of the company
All the executive directors own their respective shares in the
company via their family
trusts. Together they own 65% of the shares equally.
Chiew is a non-executive director who was nominated by the
Halliwell Ltd which
owns 15% of the shares in BW Enterprises Ltd. Halliwell Ltd owns
15% and the
public owns the remaining 20%.
The company has been involved in the manufacture, distribution and
installation of
solar panels and batteries throughout Australia and New
Zealand.
It has developed new technology in relation to the production of
solar panels but
needs more funding to get it into a commercial stage.
The financial results for the year ended 30 June 2021 show that the
company has
been profitable since 2015. However it has no income tax liability
because of the
prior year losses. The CFO Jose anticipates that the losses will be
used up by 2022
and that the company will have an income tax liability. The interim
financial
statements as at 30 April 2022 show the following:
Total assets: $37m
Liabilities: $28m
Net shareholder funds: $9m
The net shareholder funds is made up of:
the issued share capital $12m
accumulated losses: ($3m)
Operating revenue $15m
Operating expenses $12.5m
Due to the issues of COVID during the last 2 years and the current
conflict in
Ukraine, it has placed stress on the company’s financial position
and the ability to
develop the new technology. Many of the software developers and
engineers
involved were based in the Ukraine and this has slowed down the
development of
the new technology.
RMIT Classification: Trusted
Brian and Voon-Ling have requested a meeting to discuss several
issues that have
arisen and would like your advice on the matters plus any other
recommendations
you as experts may have considered.
Issues:
1. A draft resolution has been prepared by Chiew requesting that as
there are
retained profits of $9m as per the 30 April 2022 financial accounts
a dividend
should be paid to the shareholders. Halliwell Ltd have indicated
quite strongly
they are expecting a return on their investment soon or they may
dispose of
their shareholding in the company or seek a change of the board of
directors
to have a majority control of the company.
2. Gurinder is an aspiring politician and is seeking nomination for
one of the
major parties in the upcoming November 2022 State elections. As the
IT
director he acquired specialised software that allows the company
to track all
queries and requests for solar panels. It stores a lot of client
data useful for
the company when it finishes developing the new technology.
However Gurinder has also used the software and the data within
the
software to mail out to people political information to assist him
in the
upcoming state election.
Brian is not that concerned as he believes that if Gurinder gets
elected he can
help the company get State Government contracts.
Voon -Ling is not so happy but has not told the other directors
about this.
3. Due to the COVID out break the company obtained funding from the
State
and Federal Government to help it through. It also received
Jobkeeper
payments. However because of the financial support provided to the
company
by State and Federal Governments, the company had sufficient
funding to pay
the directors significant bonuses. Chiew as the non-executive
director
objected to this and felt that this was reducing the payment of
dividends to
shareholders. Halliwell Ltd the shareholder was also not happy to
receive
lower dividends because of the bonuses paid to the executive
directors.
The other directors are not happy about Chiew’s attitude and would
like to
remove him as a director but are mindful he represents Halliwell
Ltd which
owns 15% of the company.
4. The Board of directors is mindful since COVID of relying on one
country being
the sole supplier of parts and believe it would be wiser to spread
the
manufacturers between other countries as well as developing a
local
manufacturing base in Melbourne.
RMIT Classification: Trusted
Swee Lim as the purchasing director has been asked to look at
other
countries as well as Australia to develop alternative suppliers of
parts so the
supply chain issues caused by COVID do not arise in the
future.
Her god father has contacts in several countries in Asia and South
America
that could supply the parts cheaper than any other suppliers. She
was
authorised under her employment contract to order parts up to $2m
(AUD).
Any contract above that amount needed the approval of the Board
of
directors.
She called a meeting of the Board of directors but only she
Voon-Ling and
Brian turned up at the meeting.
Under the constitution of the company the quorum for Board meetings
is three
but one must include the non-executive director Chiew.
Swee Lim on behalf of the company signed the contract for
$5m.
Swee Lim’s god father also bought her a diamond necklace and gave
her a
“red packet” containing $50,000.
Swee Lim did not consider or undertake a review of the advantages
of
manufacturing in Australia on the basis that “Australia is not a
manufacturing
country”. She advised the board of the directors that it was better
to have
suppliers throughout Asia and South America and not in
Australia.
5. In a recent planning meeting attended by all the directors and
the senior staff
the issue of finance was raised.
To combat the current financial issues happening again the
directors agreed
that the company needed to raise funds to:
a) Reduce their current liabilities of $28m by $12m being the loan
from the
National Australia Bank Ltd.
b) Provide funds to pay future dividends of $1m per annum
c) Build up a cash reserve or buffer of $750,000.
They are unsure whether to seek money from the public or ask
Halliwell Ltd to
invest more or do a rights issue or some other alternative.
They are mindful that by issuing more shares to Halliwell Ltd they
could lose
control of the company.
Required:
From the information above you are required to provide advice to
the Board of
directors of BW Enterprises Ltd:
1. Discuss and analyse the legal issues that arise from the 5
issues mentioned
above. In your analysis you need to:
a) identify the legal issues
RMIT Classification: Trusted
b) explain the relevant law both the legislation and case law
c) apply the law to the facts and come to a conclusion
(15 marks)
2. If you believe the directors may be liable for breach of a
provision explain if
they have a defence and if not what the company could recover from
the
directors. (5 marks)
3. Discuss the various funding options available to the company
mentioned in
point 5 above and any other alternatives you think would be
appropriate and
which you think would be the best option to the company. (15
marks)
4. As a financial adviser if you recommend seeking funds from the
public what type of clients would you focus on and why? (5
marks)