Question 1

Muhjid, Salomon and Fang are the only directors of SleepWell Pty Ltd, a company that sells mattresses. Sleepwell does not have a constitution. Muhjid wants to remove Fang from the board as he believes Fang has stolen money from the company's bank account. Which of the following is correct:

Accepted Answer

A)   Fang could only be removed by a members' special resolution;
B)   Fang would be automatically disqualified as he has committed a serious criminal act;
C)   The company needs to give Fang two months' notice before removing him;
D)   Fang can be removed by the company passing an ordinary resolution;
E)   As a director, Fang would be able to enforce the constitution and thereby maintain his place on the board. D

Question 2

Hiroko was on vacation in Cairo. Egypt has a law that says it is illegal to purchase antiquities with the intent to remove them from the country. The penalty is punishable by imprisonment for a period up to 50 years. Hiroko purchased a small statue from a street vendor. Unknown to Hiroko, the statue was actually 2000 years old and was stolen from an archaeological site. The local authorities discovered that Hirko purchased the statute and arrested her. After a trial, Hiroko was convicted but was given a lenient sentence in the form of a $1000 fine due to the mitigating circumstances. Immediately after she paid the fine, she returned to Australia. On her return, her friend offered her a director position with his company. Even though she has not been convicted of any offence in Australia, she is nonetheless disqualified form managing a corporation in Australia.

Accepted Answer

A) True 
 B)False  True

Question 3

Define and distinguish (a) an executive director and a non-executive director; and (b) the chair of directors and the managing director.

Accepted Answer

(a) An executive director and a non-executive director:
• An executive director is a person who is both a director and a full-time employee of the company.
• A non-executive director is a person who is external to the operations of the company and not an employee.
 (b) The chair of directors and the managing-director:
• The chair of the board of directors is appointed by the directors to chair the formal board meetings. Their main role is to exercise control over the meeting and to ensure that procedures are followed in accordance with the company's constitution. The chair signs the minutes of the meetings. The chair has a casting vote on resolutions should the vote of the directors be tied.
• The managing director is a person to whom the board of directors may delegate its functions. The managing director is normally an executive director, that is, they are usually a full-time employee of the company, as well as being a director.

Question 4

Harambe is a director of Gorilla Ltd and is the chair of the board. Gorilla Ltd does not have a constitution and relies on the replaceable rules in the Corporations Act. Which of the following is correct:?

Accepted Answer

A)   If Harambe wants to call a directors' meeting, he must obtain the consent of all the other directors before doing so;
B)   If Harambe is a major shareholder of Gorilla Ltd, he cannot be a director as that would be a conflict of interest;
C)   Directors' resolutions of Gorilla Ltd require the support of at least 50% of the vote;
D)   Gorilla Ltd's board of directors could pass a circulating resolution if it is supported and signed by 50% of the directors;
E)   Harambe has a casting vote on resolutions in the event that the vote of the directors is tied;F)  Both (c)  and (e)  are correct.

Question 5

All companies are required to have a company secretary.

Accepted Answer

A) True 
 B)False

Question 6

The replaceable rules in the Corporations Act provide that directors can be appointed by shareholders or other directors, but if appointed by directors the appointment must be approved by shareholders in accordance with the replaceable rules.

Accepted Answer

A) True 
 B)False

Question 7

In accordance with the replaceable rules under the Corporations Act, at least two directors must be present at the directors' meeting before business can be validly conducted provided the company is not a single director company.

Accepted Answer

A) True 
 B)False

Question 8

Profit-based bonuses are a way that managers can align members' interests to their own.

Accepted Answer

A) True 
 B)False

Question 9

Franz is a director of Blue Sky Ltd. The constitution of Blue Sky Ltd provides that Franz will act as a director for 5 years from the date of his appointment. 3 months after being appointed, Franz has decided he no longer wants to be a director of Blue Sky Ltd. Franz can resign by giving the company written notice of his resignation notwithstanding the 5-year period required by the constitution.

Accepted Answer

A) True 
 B)False

Question 10

What is meant by the term "de facto" director?

Accepted Answer

The answer of What is meant by the term "de...

Question 11

What action would you recommend to members who disagree with decisions made by directors?

Accepted Answer

The answer of What action would you recommend to members...

Question 12

June's husband is a director of Nasty Food Ltd. June regularly gets involved in the business of Nasty Food Ltd. Indeed, she regularly provides suggestions to the board and the board are accustomed to act in accordance with the June's instructions and wishes. Even though June has not been validly appointed as a director, she may still be deemed to be a director thereby incurring all the duties and responsibilities like the other directors of Nasty Food Ltd.

Accepted Answer

A) True 
 B)False

Question 13

How are decisions made at a directors' meeting?

Accepted Answer

The answer of How are decisions made at a directors'...

Question 14

The constitution of Maverick Enterprises Ltd provides, inter alia:
"The board of directors can remove any director from office by passing a directors' resolution."
Barry is a director of Maverick Enterprises Ltd. If the other directors pass a resolution removing Barry from office, he will be removed from the board.

Accepted Answer

A) True 
 B)False

Question 15

When is a director disqualified from office?

Accepted Answer

The answer of When is a director disqualified from office?...

Question 16

When members disagree with the action of the board of directors, they can:

Accepted Answer

A)   Alter the constitution with an ordinary resolution;
B)   Vote the directors out of office;
C)   Pass a resolution overriding what the directors have done;
D)   Call a director's meeting to vote the directors out of office;
E)   Sue the directors for breaching the fiduciary duties which the directors owe to the shareholders.

Question 17

What is meant by the "organs" of the company?

Accepted Answer

The answer of What is meant by the "organs" of...

Question 18

How would you explain the role of the Australian Securities Exchange (ASX) principles of good corporate governance?

Accepted Answer

The answer of How would you explain the role of...

Question 19

The constitution of New Wave Tunes Pty Ltd provides the following article:
"A director's term of appointment expires after 3 years from the date the director is appointed. At the end of the 3 years, the director is deemed to be terminated and must be re-appointed by the shareholders passing an ordinary resolution."
Mary was first appointed as a director of New Wave Tunes Pty Ltd on January 1, 2015. She has never been reappointed by the shareholders but has continued to act as a director. Which of the following is correct?

Accepted Answer

A)   Mary is not a director as she was not validly appointed after her initial term expired.
B)   Since Mary has been acting as a director while not been validly appointed, she will be deemed to be automatically disqualified from managing a corporation.
C)   Mary will be deemed to be a de facto director because she has not been validly appointed as a director but continues to act as a director.
D)   Any act done by Mary after her initial term expired is invalid and ineffective because she was not validly re-appointed as a director.
E)   The abovementioned article in the constitution is invalid because the Corporations Act says the maximum term for a director's appointment is one year and thereafter the director must be re-appointed by the shareholders.

Question 20

Since de facto directors are not formally appointed, they do not owe any duties to the company.

Accepted Answer

A) True 
 B)False

Exam 7: Corporate Governance and Company Management

Muhjid, Salomon and Fang are the only directors of SleepWell Pty Ltd, a company that sells mattresses. Sleepwell does not have a constitution. Muhjid wants to remove Fang from the board as he believes Fang has stolen money from the company's bank account. Which of the following is correct:

Define and distinguish (a) an executive director and a non-executive director; and (b) the chair of directors and the managing director.

Harambe is a director of Gorilla Ltd and is the chair of the board. Gorilla Ltd does not have a constitution and relies on the replaceable rules in the Corporations Act. Which of the following is correct:?

All companies are required to have a company secretary.

The replaceable rules in the Corporations Act provide that directors can be appointed by shareholders or other directors, but if appointed by directors the appointment must be approved by shareholders in accordance with the replaceable rules.

In accordance with the replaceable rules under the Corporations Act, at least two directors must be present at the directors' meeting before business can be validly conducted provided the company is not a single director company.

Profit-based bonuses are a way that managers can align members' interests to their own.

What is meant by the term "de facto" director?

What action would you recommend to members who disagree with decisions made by directors?

How are decisions made at a directors' meeting?

When is a director disqualified from office?

When members disagree with the action of the board of directors, they can:

What is meant by the "organs" of the company?

How would you explain the role of the Australian Securities Exchange (ASX) principles of good corporate governance?

Since de facto directors are not formally appointed, they do not owe any duties to the company.