Law of Business Associations - Week 11

This article discusses scenarios involving over-expenditure of company resources and conflict of interest between the owner and shareholders of Street Motors Ltd. It provides legal suggestions to overcome these issues.

Running Head: Law of Business Associations
LAW OF BUSINESS ASSOCIATIONS
WEEK 11

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Law of Business Associations
Executive Summary
The first scenario involves over-expenditure of company resources by Bruce Willis; the
managing director of ColdMya Pty Ltd. ColdMya is not accountable to provide for reasonable
costs of redecoration. The second scenario involves conflict in interest between the owner and
shareholders of Street Motors Ltd. It can be concluded Todd Swift can bring legal charges
against the Mr. Street for employing methods that enable him to drain fiscal assets from the
company to increase revenues for his family business.

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Law of Business Associations
Table of Contents
Answer 1..........................................................................................................................................4
Answer 2..........................................................................................................................................5

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Law of Business Associations
Answer 1
The present scenario involves over-expenditure of company resources by Bruce Willis, the
managing director of ColdMya Pty Ltd. Although the company decides to pay for expensive
renovations done in his home, one of the board members believes this to be unethical. Hence, the
following segments analyse the possible suggestions that can be provided to overcome company
resolution to pay for the renovations.
As per the Fair Work Act 2009, organizations are entitled to provide relevant resources to its
employees during their tenure. In this case, ColdMya extends the time and surrounding of work
for its managing director, Bruce Willis. This involves Mr. Willis to entertain corporate guests
and shareholders in his home, for the purposes related to company processes. However,
according to the contract, these renovation costs are to be under reasonable barriers to
expenditure. After the submission of a financial statement, it is seen that the bills for house decor
done by Mr. Willis can siphon a significant sum of money from the organizational cash assets.
Lee can thereby approach the committee as per the considerations of Corporations Act 2001,
Section 3A. This legislation states the transparency of the company levies on the contractual
amount of the aforementioned expenses. In this scenario, reasonability of the expenses must be
mentioned in the contract to avoid future issues1. As a shareholder, Charles can demand a better
utilization of company resources, thereby casting more stringency to the contract. ColdMya Pty
Ltd must revise the contract by barricading the maximum sum that can be covered by the
company.
As seen above, it can be concluded that Mr. Willis has taken advantage of his position in
ColdMya Pty Ltd and exploited the fiscal resources of the company to pay for extravagant
decorations in his home. As per the contract that has been implemented between ColdMya and
Bruce Willis, the company is accountable to provide for reasonable costs of redecoration.
However, as per the presence financial statement, the extravagant renovations done by Mr. Willis
cannot be applicable for a grant provided by the organization.
1 Susan Block-Lieb. ‘The UK and EU Cross-Border Insolvency Recognition: From Empire to Europe to Going It
Alone.’ (2016) 40(2) Fordham Int'l LJ 1373.

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Law of Business Associations
Answer 2
The present scenario involves a conflict in interest between the owner and shareholders of Street
Motors Ltd. Instead of a leaseback sale; the company decides to sell showroom sites to White
Knight Investments, which is run by the chairman of Street Motors. The primary conflict arises
when sale value is considerably lower than the lease-back rent burdened on Street Motors.
Street Motors Ltd has decided through a board meeting to sell its showroom sites to White
Knight Investments Pty Ltd. This decision has been taken in the presence of the entire board of
directors. However, it is later revealed to a shareholder, Todd Swift that White Knight
Investments is owned by Frank Street, who is also the chairman of the seller company, Street
Motors. In the contract between these two companies, it is agreed that White Knight Investments
would lease the sites back to Street Motors. Lack of independent valuations of the real estates in
this event has enabled White Knight Investments to obtain the properties against reduced sale
price and impose high leaseback rent on Street Motors. According to Corporations Act 2001
Section 18, chairperson of a company is mandated to work in the best interest of the
organization2. However, Frank Street has violated his duty to increase revenues for his family
company, by siphoning it off Street Motors. Thus, this entitles Todd Swift, as a prominent
shareholder of the company to press legal charges on Frank Street.
The present scenario involves the conflict of interest shown by one of the directors of Street
Motors. Stark contrasts in selling price and lease-back rent have given rise to unethical and
illegal practice. As studies above, it can be stated that Todd Swift can bring legal charges against
Mr. Street for employing methods that enable him to drain fiscal assets from the company. Mr.
Swift can inform the relevant information about this transaction to the board of members and
press legal charges for breached in duties caused by Mr. Street.
2 Ian G Williams, and Adrian J. Walters. ‘The model law: is it time for the UK to change tack?.’ (2016) ABI Journal
16-17.

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Law of Business Associations
Reference List
Journals
Block-Lieb, Susan. ‘The UK and EU Cross-Border Insolvency Recognition: From Empire to
Europe to Going It Alone.’ (2016) 40(2) Fordham Int'l LJ 1373.
Williams, Ian G., and Adrian J. Walters. ‘The model law: is it time for the UK to change tack?.'
(2016) ABI Journal 16-17.