Monarch Institute: FNSTPB504 Corporations & Trusts Law Assignment

This Corporations & Trusts Law assignment addresses key legal principles within the context of corporations and trusts. The assignment is divided into two assessment activities. The first activity focuses on negligence and risk management, requiring students to explain the elements of negligence, analyze a scenario involving a tax advisor's potential negligence, identify risk management practices, and provide an example of pure economic loss. The second activity explores business structures, including matters to consider when choosing a structure, analyzing a partnership scenario, identifying circumstances where company directors are liable for debts, and outlining the essential elements of a trust. The assessment covers topics such as negligence, business structures, director's duties, and trust elements, providing a comprehensive overview of corporations and trust law.

Corporations & Trusts Law
Assignment
Submission Instructions:
Key steps that must be followed:
1. Please complete the Declaration of Authenticity at the bottom of this page.
2. Once you have completed all parts of the assessment and saved it (eg. to your desktop
computer), log in to the Monarch Learning Management System (LMS) to submit your
assessment.
3. In the LMS, click on the file "Submit Corporations & Trusts Law assignment” in the
Corporations & Trusts Law section of your course and upload your assessment file/s by
following the prompts.
4. Please be sure to click “Continue” after clicking “submit”. This ensures your assessor
receives notification – very important!
Declaration of Understanding and Authenticity*
I have read and understood the assessment instructions provided to me in the Learning Management System.
I certify that the attached material is my original work. No other person’s work has been used without due
acknowledgement. I understand that the work submitted may be reproduced and/or communicated for the purpose
of detecting plagiarism.
Student Name*: Date:
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above student declaration.

Important assessment information
Aims of this assessment
This assessment covers the application of legal principles in corporations and trust law.
It requires the completion of a set of questions in relation to:- choosing a business structure; the
company as a separate legal entity, including management, directors duties and the external
administration of a company.
Share capital and fundraising, along with associations and trusts are covered with practice-based
scenarios. The assessment task includes client specific scenarios on a partnership agreement;
changing a business structure; a company takeover; and a business which encounters financial
difficulties.
The significance of case law is explored and a brief ASIC case study is also provided. The relevance
of several sections of the Corporations Act is also explored.
The advantages and disadvantages of incorporated and unincorporated associations which are
common in the community and not-for-profit sector are also analysed.
The framework of the Australian legal system is not assessed in this unit of competency as it is
assessed in unit FNSTPB505 Property Law.
Preparing your responses
Please refer to the beginning of the text and familiarise yourself with the sections on 'Case
Studies, Scenarios and Problem Questions', and 'How to answer a question'. This will assist you to
formulate your response.
Marking and feedback
This assignment contains 10 assessment activities based upon ten chapters of the textbook. Each
assessment activity contains specific instructions.
Chapter 1 is not assessed in this unit.
This particular assessment forms part of your overall assessment for the following unit of
competency:
 FNSTPB504 Apply legal principles in corporations and trust law (MCL002)
Grading for this assessment will be deemed “competent” or “not-yet-competent” in line with
specified educational standards under the Australian Qualifications Framework.
What does “competent” mean?

These answers contain relevant and accurate information in response to the question/s with
limited serious errors in fact or application. If incorrect information is contained in an answer, it
must be fundamentally outweighed by the accurate information provided. This will be assessed
against a marking guide provided to assessors for their determination.
What does “not-yet-competent” mean?
This occurs when an assessment does not meet the marking guide standards provided to
assessors. These answers either do not address the question specifically, or are wrong from a
legislative perspective, or are incorrectly applied. Answers that omit to provide a response to any
significant issue (where multiple issues must be addressed in a question) may also be deemed
not-yet-competent. Answers that have faulty reasoning, a poor standard of expression or include
plagiarism may also be deemed not-yet-competent. Please note, additional information regarding
Monarch’s plagiarism policy is contained in the Student Information Guide which can be found
here: http://www.monarch.edu.au/student-info/
What happens if you are deemed not-yet-competent?
In the event you do not achieve competency by your assessor on this assessment, you will be
given one more opportunity to re-submit the assessment after consultation with your Trainer/
Assessor. You will know your assessment is deemed ‘not-yet-competent’ if your grade book in the
Monarch LMS says “NYC” after you have received an email from your assessor advising your
assessment has been graded.
Important: It is your responsibility to ensure your assessment resubmission addresses all areas
deemed unsatisfactory by your assessor. Please note, if you are still unsuccessful in meeting
competency after resubmitting your assessment, you will be required to repeat those units.
In the event that you have concerns about the assessment decision then you can refer to our
Complaints & Appeals process also contained within the Student Information Guide.
Expectations from your assessor when answering different types of assessment questions
Knowledge-based questions:
A knowledge-based question requires you to clearly identify and cover the key subject matter
areas raised in the question in full as part of the response.
Good luck
Finally, good luck with your learning and assessments and remember your trainers are here to
assist you 
Assessment Activity 1:
Negligence and Risk ( Chapter 2)

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 4 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2 hours
Question 1.1
Explain the elements necessary for negligence to be established.
Negligence is an act done by a person without applying any skill with a careless and reckless
attitude which causes damages to the person (Ryan, Callaghan and Large 2015).
The following are the basic elements of negligence:
1. Duty: The basic outcome of the act depends upon the duty of the plaintiff to the defendant. The
act shall be done on the basis of the requirement set by the plaintiff.
2. Breach of Duty: The breach of duty occurs when the defendant fails to perform the specific task
or fails to meet the requirements of the plaintiff.
3. Cause in Fact: The plaintiff of the act has to prove in the court of law that the defendant was
unable to perform his/her duty which has caused injury to them.
4. Proximate Cause: It is a cause which provides information regarding the responsibility of the
defendant to perform a specific act which has been performed in a negligent manner and such
negligence has caused injury to the plaintiff.
5. Damages: The plaintiff of the case has to explain and prove in the court of law regarding the
damages and injury caused in the form of physical injury or damage to property from the
negligent actions of the defendant (Barry, 2017).

Question 1.2
Jayne is an accountant and business adviser. Christopher and Fleur run a highly
profitable business and sought advice from Jayne as to the best business structure
and practices to legally minimise their rising tax obligations. Jayne did so and
advised Christopher and Fleur to set up a particular kind of trust.
Two years later, following a change in government, the tax laws concerning trusts
were changed significantly. Christopher and Fleur are now obligated to pay 25%
more tax than they would have been under a company structure. They are angry
and believe Jayne has acted negligently. If they were to sue Jayne for negligence,
would they be successful? Why or why not?
Question 1.3
What risk management practices should a tax practitioner/adviser or accountant
adopt to minimise the likelihood of negligence occurring?
As per the above case scenario, it can be observed that Jane has given correct advice to
Christopher and Fleur as per the latest scenario of the date. Christopher and Fleur would not be
successful for using Jane as Jane is not responsible for the changes in policies and plans in the tax
structure of trusts made by the new government. If they sue Jane, then they would not be
successful for negligence as the liability of Jane was excluded when the new government
changed the policies.
The following are the risk management practices which a tax practitioner/ advisor/ accountant
will adapt to minimise the likelihood of negligence:
1. By avoiding risky clients and troublemakers to the organisation.
2. By ensuring the needs and requirements of the clients.
3. By ensuring a professional environment in the workplace.
4. By avoiding delegation of responsibilities to other personnel.
5. By having proper quality control policies and procedures in the organisation.

Question 1.4
Give an example of pure economic loss, stating the name of a relevant case.
A pure economic loss is a loss which has been arising from the negligence done by the defendant
to the plaintiff. Such negligence provides injury to the plaintiff in the form of physical injury or
injury to the property of the plaintiff. As per the case law of Hedley Byrne & Co Ltd v Heller and
Partners Ltd (1963) AC 465, it can be observed that Heller and Partners gave wrong information
regarding the financial position and creditworthiness Easipower limited, as a result, Hedley Byrne
suffered $17,000 loss which was a purely economic loss for her.

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 4 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2 hours
Question 2.1
What kind of matters should be considered when deciding upon an appropriate business structure?
Assessment Activity 2:
Choosing a business structure ( Chapter 3)
The following are the matters which are to be considered as the most appropriate business
structure:
1. Control over business operations.
2. Understanding liability of the business.
3. Understanding the cost of the legal structure.
4. Understanding the future needs of the organisation.
5. Understanding the tax structure for the organisation.
6. By having an effective administration in the organisation for meeting future goals
(Epstein, 2018).

Question 2.2
Steven and Lamont have recently set up an accounting practice in partnership. They have prepared a written
partnership agreement in which it states that any purchase over $1,000 shall only be made after both partners
agree. Steven and Lamont purchased all their office furniture and equipment from Mack at OfficeStuff. Mack
contacted Steven and offered the partnership a great deal on a computer package for $2,000. Lamont is out
seeing clients and cannot be contacted. Steven goes ahead and purchases the computer package. When
Lamont is informed he says the purchase is not valid and wants Mack to take the computer package back and
refund their money. Mack refuses. Discuss the issues raised and the likely outcome of these circumstances.
As per the above case scenario, it can be noted that Mack was not informed about the partnership
deed between Steven and Lamont. Steven broke the clause mentioned in partnership deed hence
Lamont has the right to sue Steven for the purchase of such equipment over $1,000. As per the
principle of agency the third party that is Mack is not responsible for any such liability and he has the
right to receive full payment (Cohen, 2017).

Question2.3
Under what circumstances may company directors be held responsible for the debts incurred by the
company?
Question 2.4
What are the essential elements of a trust?
The following are the situation where the company directors may be held responsible for the debts
incurred by the company:
1. Unreasonable transactions made by the directors of the company which has led to debts for
the company.
2. Guarantees are given by the directors personally for the procurement of loan.
3. For fraud done in taxes.
4. Inappropriate trading techniques used for claiming compensation (Hedges et al., 2016).
The following are the essential elements of a valid trust:
1. The intention to create trust should be clear.
2. There must be certainty of object and subject for the creation of the trust.
3. Define the property to be held as trust (Tonkin et al., 2016).
4. Identify the beneficiaries of the trust to be created.

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 9 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2 hours
Question 3.1
What is the significance of the cases of Saloman v Saloman (1897) AC 22 and Lee v Lee’s Air Farming Ltd (1961)
AC 12?
Question 3.2
What is the principle on which a company limited by shares is formed?
Assessment Activity 3:
The Company, a Separate Legal Entity ( Chapter 4)
A company limited by shares is the company which is formed on the basic principle of having a limited
amount of liability to the members, shareholders and directors of the company to the extent of the
unpaid amount of shares held by the members of the company (Bourne, 2016).
The case of Salomon v Salomon (1897) AC 22 is an eye-opening case in the view of various legal houses
where the courts have started to disregard the separate legal identity status of the company in order to
reduce the chances of frauds by such companies (Dahal, 2018). Wherein the case of and Lee v Lee’s Air
Farming Ltd (1961) AC 12 there was a misuse of the status given to the company as separate legal
identity which helped to Mrs Lee to claim compensation under the workers compensation fund which
was misuse and misinterpretation of such status given to the company by others (Roach, 2016).

Question 3.3
Ruprecht and Lawrence are partners in Trident Holdings, a business which manufactures synthetic cork
products. The business is growing and Ruprecht and Lawrence are keen to obtain further capital, export their
products and also reward ten loyal long-term employees who have been with them since they started the
business. They decide to change their business structure to a proprietary limited company and request your
advice as to the following matters:
(a) What is the purpose of the Small Business Guide produced by ASIC?
(b) In what way can a proprietary limited company structure be used to reward employees?
(c) What is the maximum number of shareholders allowed for a proprietary limited company?
(d) Can the business continue to be called Trident Holdings? If not, what changes must be made?
(e) What is the difference between a small proprietary company and a large proprietary company?
The small business guide is made by the Australian Securities and Investment Commission which has
defined the duties and responsibilities and legal obligations of the directors of the company ( Price,
2016)
The employees of the company can be rewarded in the form of promotion and a rise in the salary of
the employees (McKeown, et al, 2018).
In a proprietary limited company can have minimum 1 shareholder and maximum 50 shareholders
excluding employee shareholders.
Trident holdings must change its name to Trident holdings Pty Limited after forming a proprietary
limited company.
Small Proprietary Company Large Proprietary Company
The revenue of the small proprietary company
should not exceed more than $ 25 million.
The revenue of the large proprietary company
should be minimum up of 25 million or more.
The small proprietary company should not have
more than 50 employees at the end of the financial
year.
The large proprietary company should have a
minimum of 50 employees or more at the end of the
financial year
( Barraket, et al., 2017)

(f) How may Ruprecht and Lawrence use the structure of the proprietary limited company to raise capital to
grow the business?
(g) Why is a company structure beneficial for a business involved in export?
Question 3.4
What rules govern the internal management of a company? Can these rules be varied? If so, how?
Question 3.5
What information must appear on every public document signed or published on behalf of the company? On
what other documents must this information appear?
A proprietary company can issue its capital by the way of issuing up of shares or by the way of loan. It
can be noted that the company can issue its share to not more than 50 people as it is a proprietary
limited company (Barraket, et al., 2017).
The company structure is the best suitable for the business involved in export because it reduces the
chances of personal liability which enables the management at the business organisation to take more
and more risks which might help them in earning more and more profits.
The internal management of the company is governed by the following:
(a) The constitution of the company.
(b) Replaceable rules.
(c) and, the combination of both.
The rules of the company vary from industry to industry. For example, the rules and regulations of an IT
company vary from the rules and regulations of the clothing industry (Mignone, 2016).
The following information must appear on every public document signed and published on behalf of
the company:
(a) The full name of the company.
(b) ACN (Australian Company Number) of the company.
Such information should appear on every public document and all the ‘eligible negotiable
instruments’ which are signed and issued by the company through its common seal (McQueen,
2016).

Question 3.6
Ruprecht and Lawrence have now filed a positive solvency resolution with ASIC. Why would they have done
so? Under what circumstances are they required to file a negative solvency resolution?
Question 3.7
What is the significance of s601AD(1) of the Corporations Act 2001?
Question 3.8
What is the relationship which exists between a promoter and the company being formed?
Section s601AD(1) of the Corporations Act 2001 helps in setting up the responsibility of the acts done
by the officers of the company prior to deregistration (Gilligan and Bird 2015).
Positive solvency resolution is a type of resolution passed by the directors of the company and
submitted to ASIC commission with an intention that the company will pay its debts when they are due.
Such type of resolution is passed by Ruprecht and Lawrence in order to assure ASIC that the company is
capable to pay its debts. The directors of the company can file negative solvency resolution under the
section 347 of the Corporations Act 2001 where there no surety to give that the company will pay its
debts to the creditors of the company (Horne, 2017).
The promoters are called as the parent of the company who takes all the necessary steps in the
formation of the company.

Question 3.9
Prior to incorporation, Claire entered into a contract with Phil to provide computers to a soon to be
incorporated company, Modern Family Services Pty Ltd. Upon incorporation, the directors of the company
refused to ratify the contract made by Claire as they can obtain the same services less expensively from
another business. Phil has spent time, expertise and money preparing to perform the contract.
Advise all parties of the issues raised and the likely outcome.
As per the above case scenario, it can be observed that Claire entered into a contract under s131(1) of
the Corporations Act 2001 with Phil to provide customised computers, such contract is termed as a pre-
incorporation contract where such contracts need to be ratified by the company. It can be observed
that such type of contract is not ratified by the company hence such contract has no legal validity,
therefore, it is advised to Phil that he has no legal grounds to sue Claire or the company.

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 4 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2 hours
Assessment Activity 4:
Management (Chapter 5)

Question 4.1
Outline the responsibilities and functions of the board of directors.
Question 4.2
How does a person become a member of a company?
Question 4.3
To what level of remuneration are directors entitled? Who has the power to decide on the remuneration of
directors?
The following are the responsibilities and functions of the board of directors of the company as per the
section 198A (1):
(a) One of the most important functions and responsibility of the director of the company is to
appoint and retain the general manager of the company.
(b) By providing appropriate and correct direction to the company.
(c) By establishing various policies for the benefit of the organisation.
(d) By having effective monitoring and control over the management of the company.
(e) By protecting the assets of the company for the benefit of the company.
(f) By safeguarding the investment made into the company (Elyasiani, and Zhang, 2015).
Under the section s114 of the Corporations Act there are various ways where a person can become a
member of the company, out of such various methods the following two ways are explained below:
(a) By being listed as a member at the time of formation of the company.
(b) By being a shareholder of the company as the shareholders are the members of the company
(Duong, and Evans, 2015).
Under section 200 A of the Corporations Act 2001, the board is responsible for setting up of director's
remuneration as well as the level and structure of the director's compensation.

Question 4.4
Please read the Case study on ‘Court decisions lift director standards: ASIC'. The case study can be located in
the section titled 'Chapter 5 Review Questions'.
Please answer the following questions in relation to the Case study:
a) What is the prime objective held by ASIC in relation to recent court rulings?
b) List the recent penalties ASIC has secured.
c) Do you believe ASIC plays an effective role as a corporate regulator? Why/Why not?
The basic objective of the ASIC is to increase the standard of care to the investment in the company to
protect the interest of the investors. ASIC wanted to lift additional duties and responsibilities for the
directors so that the performance of the company may increase with effective management and the
investment of the investors say protected. Another important reason for the ASIC was to provide
additional duties to the directors for the clearance of the financial statements of the company. ASIC
also ensured that the content released by the company should be ratified by the directors before
releasing it into the public (Clarke, 2018).
Metricon Homes has paid $50,400 for misleading buyers.
ASIC is considered as a corporate regulator of the companies in Australia as it has the right to search
and seize all the relevant documents which have led to non-compliance of laws. The basic aim of the
ASIC is to protect the rights of the investors, creditors and consumers from the illegal activities of the
companies (Ramsay, 2015).

Assessment Activity 5:
Directors Duties (Chapter 6)
Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 5 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 3-4 hours
Question 5.1
Do the directors owe the creditors of the company any fiduciary duties? Why or why not?
Question 5.2
Dirk is a member of the board of directors of Serious bucks Ltd. Just prior to his first board meeting, Dirk
agreed with the Chairman of the board that he would always vote in line with the Chairman's instructions, and
he has done just that throughout his term as a director. Dirk prides himself on being a 'team player'. Discuss
the issues raised by these circumstances.
The directors of the company owe fiduciary duties to the creditors as the interest of the creditors are
affected in case of the insolvency of the company as the creditors of the company become risk bearers
(Huebner, and Klein, 2015).
As per the above case scenario, it can be noticed that Dirk did the voting as per the instructions of the
chairman of the board but not for the benefit of the company hence Dirk cannot be considered as
‘team player'.

Question 5.3
Nim is a director of Avarice Ltd, a successful multimedia and marketing company. Avarice Ltd is keen to grow
its business and wants to take over another successful marketing business, Marketers Rule Ltd. This is
discussed at a board meeting and it is decided to attempt the takeover in three months. As it happens, Nim's
sister Ann is an executive director of Marketers Rule Ltd, a fact he does not disclose to the board of Avarice
Ltd. Nim informs Ann of the intended takeover and also buys 200,000 shares at $20 a share. Ann also increases
her own shareholding, but prior to the takeover, resigns as a director of Marketers Rule Ltd to set up her own
marketing business. Ann takes with her a wonderful new software marketing package she has developed while
working as a director at Marketers Rule Ltd.
Avarice Ltd proceeds with the takeover, at which point the share price of Marketers Rule Ltd increases to $100
a share. Nim and Ann sell their shares in the takeover and make a large profit. Subsequently, Avarice Ltd and
Marketers Rule Ltd discover Nim and Ann's conduct and demand an explanation.
a) Have Nim and Ann acted properly in fulfilling their duties as directors? If not, why not?
b) What are the possible consequences of their conduct?
c) With reasons, explain whether the 'business judgement rule' will be relevant in these circumstances?
From the above case scenario, it can be observed that Nim and Ann have violated section 1043B to
1043K of the Corporation Act 2001, as they did not reveal their relationship to the management of the
company. They can also be held responsible for the breach of duties and the company has the right to
file a suit against them.
The consequences for such conflict of interest upon the breach of duties as the director of the
company may result in civil or criminal punishments outlined in section 184, 1043B to 1043K of
Corporations Act 2001.
The ‘business judgement rule' will not be applicable in the above situation as they have knowingly
deceived the management of both organisation regarding relationship as a brother and sister which has
arisen the conflict of interest and they have generated profits in an improper manner.

Question 5.4
What is ASIC's role when criminal proceedings are brought against a director?
Question 5.5
What are the possible defences a director accused of breaching s588G of the Corporations Act may raise?
ASIC is considered as a corporate watchdog in Australia, where under section 13 of ASIC Act it has the
right to conduct an investigation into the matters of the company where they suspect that any breach
of the law has been done. ASIC generally require original documents to be produced in the court of law.
Upon breach of duties by the directors, ASIC has the power to investigate against the directors which
may lead them civil and criminal liability (Gilligan, and Bird, 2015).
The following are the possible defences which a director accused of breaching s588G of the
Corporations Act may rise:
(a) If the director of the company has the reasonable reasons that the company will remain solvent
even after the occurrence of particular debts.
(b) At the time of occurrence of debt the director has been informed by the skilled and competent
person that the company will remain solvent even after such debts.

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 8 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2 hours
Question 6.1
What is 'equity finance'? What is 'loan finance'? What is the main difference between them?
Assessment Activity 6:
Share Capital and Fundraising ( Chapter 7)
Equity Finance: It is the source of raising capital in the business organisation through the process of
issuing of shares to the public where a certain percentage of ownership of the company is given to the
public (Jensen, Leth Petersen, and Nanda, 2015).‐
Loan Finance: It is also a source of finance where the business organisation raises its capital through
availing loan upon the mortgage of certain property or certain goods which are up of certain value
(Gaul, Jones, and Uysal, 2016).
Difference between Equity Finance and Loan Finance:
Basis Equity Finance Loan Finance
Interest Payable In equity finance, the interest is not
payable to the shareholders.
In a loan, finance interest is payable to
the people who have provided loans.
Mortgage There is no mortgage of properties. There is a mortgage of properties.
Ownership In equity, finance ownership is given to
the shareholders.
In loan finance, there is no provision of
providing ownership to the people.

Question 6.2
What is share capital? What purpose does the concept of share capital fulfil?
Question 6.3
List the rights held by shareholders of ordinary shares.
Question 6.4
Chin Ho has inherited two bundles of shares from her grandmother from two different companies. The first
bundle is cumulative preference shares and the second bundle is redeemable preference shares. Explain what
this means.
As per the section 1.5.6 of the Corporation Act, the share capital is that part of the company's capital
that confirms upon the issue of shares to the public. The basic purpose for issuing of shares is to raise
capital from the interested shareholders to raise capital for day to day business operations.
As per the section 1.5.6 of the Corporation Act, the following are the rights that shareholders have:
(a) Shareholders have the right to share the profits of the company.
(b) Shareholders have the right to vote in the meetings of the company.
(c) Shareholders have the right to buy new shares.
(d) Shareholders have the right to influence the decision of the management.
Cumulative preference shares are the shares who gets the preference and the right to receive
dividends, and if such dividends are not paid over the years and it becomes accrued which can be paid
at the time of distribution of dividends on a priority basis from the other shareholders (Fatima, 2014).
Redeemable preference shares are the shares which have a fixed maturity date mentioned at the time
of issuing up of shares; such shares are redeemable by the issuer in cash to the shareholder.

Question 6.5
What is a reserve capital?
Question 6.6
How is the price for an option calculated?
Question 6.7
Elizabeth owns 20,000 shares in Tudor Ltd. Elizabeth has received from the directors of the company a
renounceable one-for-four rights issue at the discounted price of 5% below market price. Explain what this
means and the choices available to her.
It is a type of capital made by the company which are sourced from the profits of the company with an
intention to write off the expenses of the company (Cornett, et al., 2018).
The price for an option is calculated on the basis of the six basic elements. The following are the six
basic elements:
(a) On the basis of the current market price of the underlying stock.
(b) Interest Rate.
(c) Dividend Yield (Gould, 2015).
A right issue is given by the listed company to the existing shareholders at a price which is lower than
the market before issuing the shares into the public. Elizabeth can purchase right shares which will be
available to her at a 5% lower than the market price.

Question 6.8
Why is there a general prohibition to a company purchasing its own shares?
The company uses certain methods like buyback in order to increase the earning per ratio and it will
also reduce the number of outstanding shares for the company (Gould, 2015).

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 6 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2-3 hours
Assessment Activity 7:
External administration of Companies ( Chapter 8)

Question 7.1
Under what circumstances would directors appoint an external administrator?
Question 7.2
Who may be an administrator?
Question 7.3
List the ways in which property of the company is protected during the administration.
An external administrator is a person who is appointed by the directors of the company when they
think that the company is insolvent or the company is likely to become insolvent (Dickfos, 2016).
An administrator is an independent person who does not have any conflict of interest with the
company or parties associated with the company(Dickfos, 2016).
The property of the company can be protected by appointing an external administrator, after such
appointment, no creditors, shareholders or any member has the right to claim certain properties of the
company. The external administrator will discharge the funds to the creditors and shareholders which
are mentioned in the law(Dickfos, 2016).

Question 7.4
Yummy Tummy Pty Ltd (Yummy Tummy) is a 44-year-old business which manufactures and retails desserts.
Yummy Tummy operates 17 shops throughout Australia which are leased from shopping centres and its
products are also sold through gourmet shops and restaurants. Yummy Tummy employs 400 people, owns two
large commercial bakeries freehold and two commercial bakeries subject to a mortgage with the Global
Domination Bank.
Currently, the business is performing poorly. Yummy tummy is 3 months behind in payment to its flour
supplier. So far all employee wages and entitlements have been paid, but the directors are worried about the
financial position of the company.
What is the risk to the directors of Yummy Tummy if they take no action to address the company's financial
problems but instead simply continue to trade?
Question 7.5
How may creditors or consumers of Yummy Tummy find out if it has gone into external administration?
As per the section 588G of the Corporations Act 2001, it is the duty of the director to prevent such
insolvent trading in the organisation, upon failure in meeting such requirements the directors of the
company may face legal consequences for such continuation in insolvency trading.
If the company decided to go on external administration than the creditors and the consumers of the
company may find such information on the newspapers of the country.

Question 7.6
What are the circumstances under which an application may be made for a compulsory winding up?
As per the section 459P of the Corporation Act 2001, the following are the circumstances for their
compulsory winding up of the company:
(a) When a resolution has been passed by the board of directors for winding up by the court.
(b) When the default has been made by the company for holding a statutory meeting.
(c) The business of the company has not been started from the date of incorporation under the
act.
(d) The company is unable to pay its debts.
(e) When the licence of the company has been revoked by the constitutional institution.

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 4 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 1-2 hours
Assessment Activity 8:
Associations ( Chapter 9)

Question 8.1
What is the difference between an unincorporated and an incorporated association?
Basis Unincorporated Association Incorporated Association
Registration It is a registered legal entity. It is a un-registered legal entity.
Separate Legal
Entity
It has a separate legal entity apart from its
members.
It does not have separate legal entity
apart from members.
Legal Capacity It has the capacity to sue or be sued by
others.
It does not have the capacity to sue or
be sued apart from others.
(Foster, 2017)

Question 8.2
Briefly summarise the matters that should be addressed in the rules of an incorporated association.
Question 8.3
Lewis, the chairman of the committee of the Flemington Football Club Inc has also entered into a two-year
contract with GreatGrounds Gardeners, to maintain the football oval and grounds.
All went well for the first ten months, but despite providing their services, GreatGrounds Gardeners have now
not received payment for three months. Who is liable for the debt owed to GreatGrounds Gardeners? Give
reasons for your answer.
Would your answer be different if Flemington Football Club Inc was not an incorporated association? If so,
how and why?
The following matter should be discussed in the rules of an incorporated association:
(a) Rules regarding the name and purpose of the organisation.
(b) Rules regarding the membership of the organisations.
(c) Rules regarding the eligibility of the members of the organisation.
(d) Rules regarding disciplinary action to the members.
(e) Rules in relation to grievance procedures to the members.
(f) Rules regarding the general meeting of the incorporated association.
(g) Rules regarding resolutions, special resolutions, and minutes related to meetings(Foster, 2017).
As per the above situation it can be observed that the Flemington Football Club Inc is a separate legal
entity apart from its members and the contract was made by Lewis on behalf of the Flemington
Football Club Inc from the GreatGrounds Gardeners, hence the Flemington Football Club Inc is liable for
the debts of GreatGrounds Gardeners (Verevis, and Ryan, 2018).
If the Flemington Football Club Inc is not an incorporated association under the law than it will not have
a separate legal entity apart from its members and hence Lewis can be held responsible for the dues of
GreatGrounds Gardeners.

Question 8.4
List five advantages of becoming an incorporated association.
The following are the five advantages of becoming an incorporated association:
(a) An incorporated association has a separate legal entity from others.
(b) It is considered a non-profit organisation hence it will not attract any tax liabilities.
(c) The incorporated association has a distinct identity from its members hence it has the capacity
to sue or be sued by others.
(d) An incorporated association can enter into contracts in their own name.
(e) No liabilities to the members of the association(Verevis, and Ryan, 2018).

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 8 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2-3 hours
Assessment Activity 9:
Trusts ( Chapter10)

Question 9.1
What are the major commercial reasons that people choose to create and operate express trusts?
Question 9.2
Identify the following types of trusts?
a) The trust document confers on the trustee discretion to select who is in the designated class of potential
beneficiaries is to receive any benefit and to decide the amount of any benefit o be paid.
b) The trust creates and grants to each beneficiary proprietary interests in the trust property or the income
derived from that property. The trustee has no discretion regarding the distribution of income and property.
c) The trust creates and grants to each beneficiary a fixed equitable interest in the capital and income of the
trust calculated by reference to the proportion of units each beneficiary holds in relation to the total number
of units issued.
An express trust can be created by the use of spoken language or written agreement made by the
settler of the trust. The intention of trust is made perfectly clear to the beneficiaries and trustee of the
identified property.
(a) Discretionary Trusts.
(b) Discretionary Family Trusts.
(c) Unit Trusts. (Bryan, Vann, and Thomas, 2017).

Question 9.3
Peter has been appointed a trustee of Nina's testamentary express trust. The trust document states that the
trust applies to "...most of my estate, including my shares and two-thirds of my antique collection." It goes on
to state that "half of the two-thirds of the antique collection is to be held for the grandchildren that loved me
most". Can Peter fulfil the terms of Nina's trust?
Give reasons for your answer.
Question 9.4
What law governs trustees?
Question 9.5
Is there any conduct by the beneficiary which may prevent them from being granted an equitable remedy for
breach of fiduciary duty by the trustee?
The terms and conditions of Nina cannot be fulfilled as it cannot be decided in law that who loved Nina
the most. The statements of Nina are not specific in nature hence it cannot be fulfilled.
The Trustee Act, 1958 governs trustees in Australia.
The following are the conduct done by the beneficiary which may prevent them from being granted an
equitable remedy for breach of fiduciary duty by the trustee:
(a) Fraud did by the beneficiary.
(b)Remuneration not given to the trustee(Bryan, Vann, and Thomas, 2017).

Question 9.6
What are the only circumstances under which a trustee is not bound to carry out the terms of the trust
instrument?
Question 9.7
Elaine is the trustee of a trading trust and enters into a contract with a service on behalf of the trust. The
business of the trading trust is not financially sound and when the service is complete there are insufficient
trust funds to pay the debt.
Giving reasons for your answer, explain who will be liable to pay the outstanding debt.
Question 9.8
How is the existence and continuity of a trust affected by the death of a beneficiary?
The following are the circumstances under which a trustee is not bound to carry out the terms of the
trust instrument:
(a) If the trust instrument mentions such activities which are against the law.
(b) If the permission has been received by the court of law for the cancellations of settlor’s
instructs in the trust instruments (Dal Pont, 2015).
Elaine the trustee of the trading trust is responsible for the due debts of the as she entered into the
contract with the service agency without analysing the funds in the trust.
When the beneficiary of the trust dies than the benefit will be transferred to the successor of the
beneficiary and the trust will exist and will continue to work on a regular basis (Bryan, Vann, and
Thomas, 2017).

Activity instructions to candidates
 This is an open book assessment activity.
 You are required to read this assessment and answer all 5 questions that follow.
 Please type your answers in the spaces provided.
 Please ensure you have read “Important assessment information” at the front of this assessment
 Estimated time for completion of this assessment activity: 2-3 hours
Assessment Activity 10:
Superannuation Obligations - The Basics ( Chapter 11)

Question 10.1
What are the advantages of compulsory employer funded superannuation to Australian workers and the
Australian economy? Are there any disadvantages?
The following are the advantages of compulsory employer funded superannuation to Australian
workers:
(a) There are different varieties of superannuation funds which an employer can invest in as per
the needs and requirements of the employees (Cummings, 2016).
(b) It helps in providing regular savings to the employees working in the organisation.
(c) It helps in diversifying the investments of the employees to get better returns.
(d) It helps in providing greater economies of scale.
(e) Such funds are easily transferable into retirement funds.
The following are the disadvantages of compulsory employer funded superannuation to Australian
workers:
(a) The savings of the employer is made for an only the pre-determined period.
(b) It creates a dependency of the workers upon employer funded superannuation funds.
(c) The funds will show inefficiency in the tax rate.
(d) Employer-funded superannuation funds are less flexible in nature.
(e) Fewer chances of diversification of funds for the employees.

Question 10.2
What do you think are the advantages and disadvantages of being a member of a defined benefit fund?
Why are defined benefit funds becoming increasingly uncommon?
A defined benefit fund is the funds which are made with a special formula which provides a high rate of
return to the employees working in a company or the government department over the years of job.
The following are the advantages of defined benefit funds:
(a) It gives a higher rate of return to the employees working in the organisation.
(b) It encourages savings of employees (Cadman, and Vincent, 2015).
(c) It is a guarantee of the life of the employee.
The following are the disadvantages of the defined benefit fund:
(a) The basic disadvantage of the defined benefit fund is that the fund also dies when the
employee dies, as a result, no assets shall be given to the family members of the employees.
(b) Such an offer is given to the older employees of the organisation who have been the members
of super funds.
The reason where the defined benefit fund has been reduced to a certain level that it is not available to
the ordinary employee as it is available to the experienced employee of the organisation. Another
major reason for such a decrease in the funds that the fund dies along with the life of the employees.

Question 10.3
What is an eligible rollover fund?
Question 10.4
Moe, Larry and Curly have licensed trustees of SensationalSuper, an RSE. The fund has not been performing
well and the trustees are keen to increase investment return to members. Moe and Larry decided that the
best course of action is to invest in higher-risk activities where the investment return is greater. Curly points
out that higher risk means higher loss if the investment is not successful. Moe and Larry laugh at him saying
'no pain no gain'. The trustees invest 50% of the available funds in a digital animation and movie company,
whose first three projects fail. The loss to the fund is massive. It is also revealed that two directors of the
movie company are Larry's daughters from his first marriage.
Discuss the issues and possible consequences raised by these circumstances.
It is a fund which is duly registered by the Australian Prudential Regulation Authority which can accept
benefits from various funds who are no longer eligible for the membership of such funds(Cadman, and
Vincent, 2015).
From the above case scenario, it can be understood that there has been a conflict of interest between
Larry and his daughters where Larry did not inform Moe and Curly about the daughters of Larry as the
directors of the company. Hence Moe and Curly has the right to sue Larry regarding the
misrepresentation of facts to them and can seek compensation from Larry.

Question 10.5 Crossword puzzle
Test your knowledge: Complete the following crossword puzzle
Across
1. A holding account for lost members or inactive members with low account balances. Eligible rollover fund.
2. Superannuation was part of a Second and third pillars reform package to deal with the ageing of Australia's
population.
3. Who are the trustees in the SMSF?
A member of the trust who is not in employment with another member unless any such relations are showed.
Down
1. Age before which superannuation savings cannot be withdrawn if a person has retired.
Age between 55 to 60 years.
2. Regulated and low taxed savings scheme designed to encourage taxpayers to save for their retirement.
Taxing retirement incomes.
3. Fund into which employer will pay superannuation contribution if the employee does not choose their own.
Superannuation guarantee.
4. A superannuation fund runs for profit with no restrictions on members and many investment options.
Super invest fund.
5. The phase during which superannuation is being saved.
Savings during the pre-retirement phase.
6. The person who holds an RSE licence and is responsible for the management of an RSE.
APRA regulated trustee. (Donald, 2017).
7. The Review which recommended the introduction of MySuper was the Government Review.
8. The authority responsible for regulating RSE’s is the Australian Prudential Regulation Authority.
9. The phase in which a member is receiving payment from their superannuation savings.
Retirement phase
10. In a MySuper product, there may be either a ‘single diversified investment strategy' or a ‘super

investment strategy’.
5
10 1
2
3
3 6
4
2
8
1 7 9

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