QUESTION ONE

Jack and John are university friends and decide to go into business in Auckland after leaving university. They start a home maintenance business. After a few months, they are asked to undertake a major renovation of an apartment block with Joe a builder. All three decide to record a written arrangement that is headed “Joint Venture Agreement”.

One of the clauses reads:

John will manage the apartment renovation with Joe and the parties shall share the net profits. Joe shall not be authorized to order any materials without the consent Jack.

It is decided that the business shall trade as 3J’s Renovations.

Several weeks later Joe orders and takes delivery of a large amount of paint from Fresh Painters Limited. Jack is furious as he does not like the color of the paint and suspects that Joe intends to use the paint on other jobs and refuses to authorize payment.

Required:

a. With reference to the relevant law, explain if the arrangement between Jack, John, and Joe is a partnership or a joint venture is.

Refer to: Barret – Understanding Company Law – Chapter 2 and the Partnership Law Act 2019

b. Advise Fresh Painters Limited of any rights it has under the Partnership Act 2019 to be paid the price of the paint bought by Joe.

Refer to Barret – Understanding Company Law – Chapter 2 and the Partnership Law Act 2019

QUESTION TWO

The concept of separate legal personality is fundamental to company law.

Required:

With close reference to leading cases, explain this concept and its relationship to the doctrine of limited liability. In your answer explain and analyze some of the critiques of this doctrine e.g., issues of moral hazard and the costs to society.

Refer to Barret – Understanding Company Law – Chapter 1 and the Companies Act 1993

QUESTION THREE 

Mr. Hayman operates a gas station. The station trades under the name Steve Hayman Motors, but the business is actually owned by a company set up by Hayman called “Harewood Holdings Limited”. Hayman applied to some suppliers for regular supplies of gas and signed the application form “Steve Hayman Motors”. Harewood Holdings Limited later went into receivership owing their suppliers $20,000.

a.Can the suppliers claim their money from Hayman rather than the company? Explain why by citing relevant statutory provisions.

b. What should Hayman have done?

QUESTION FOUR

Sarah and Pete are the directors and shareholders of Cool Reads Ltd, which carries on business as a book retailer. The company is just breaking even financially. Sarah and Pete believe Cool Reads can develop into a flourishing business because of its location in a rapidly gentrifying suburb.

At a book launch, Sarah and Pete meet Dennis, a well-known media figure, who has just published his first novel.  Dennis persuades them to have the company purchase 100,000 copies of his novel.  The copies are purchased using the company’s credit facility at GNZ Bank. The book is poorly reviewed in a national newspaper and does not sell.

The lessor of the company’s shop contacts Sarah and Pete because rental has not been paid on time. The company’s main supplier of books has also not been paid and Pete and Sarah are expecting a call any day about that unpaid account.

Sarah and Pete have been drawing small salaries as directors but have not received any dividends. They feel they are entitled to get something out of the business after all the hard work they have put in and wish to declare a dividend now.

Required:

Advise Sarah and Pete on what are the legislative requirements to properly declare a dividend and whether they, as the board of directors of Cool Reads Ltd., will be able to satisfy these requirements.

Refer to Barret – Understanding Company Law – Chapters 8 and 9 and the Companies Act 1993

QUESTION FIVE

Two cousins, Sean and Rochelle, registered Cookwell Ltd. as a limited liability company to purchase a business that supplies commercial cookware to restaurants. Shares in Cookwell Ltd. were allotted equally to Sean and Rochelle. Both were also appointed as the company’s directors. Neither was appointed managing director although, in practice, day-to-day decisions on running the business are left to Sean. Sean’s ex-wife, Delilah, was appointed as the company’s accountant.

Recently, Sean saw an acrylic painting by a well-known New Zealand artist for sale for $150,000. He thought the painting was particularly suitable for the board room and that the price being asked was a bargain. There was no time to contact Rochelle so Sean decided to go ahead with the purchase without informing her. The vendor insisted that Sean sign a written agreement. Rochelle, on learning of the purchase, is furious and seeks your legal advice.

a. With reference to the relevant law, advise Rochelle whether Cookwell Ltd. can refuse to go ahead with the purchase IF

• • Sean signed the agreement as ‘director of Cookwell Ltd.’ with Cookwell Ltd stated to be the purchaser; and
  • Cookwell Ltd.’s constitution contains no special provisions dealing with corporate capacity.  

Refer to Barret – Understanding Company Law – Chapter 10and 11 and the Companies Act 1993

b. Now assume that Cookwell Ltd.’s constitution has a provision in it requiring all contracts over $100,000 to have board approval and to be executed by both directors. If Sean and Delilah both signed the purchase agreement, describing themselves as directors of Cookwell Ltd, but did not tell Rochelle of the purchase, would the company be bound by the agreement? Explain why or why not with reference to the relevant law.   

Refer to Barret – Understanding Company Law – Chapter 10 and 11 and the Companies Act 1993

c. Now assume that the vendor of the painting is Commercial Bank Ltd, who have been Cookwell Ltd.’s bankers since the company was registered. If Sean and Delilah both signed the purchase agreement, describing themselves as directors of Cookwell Ltd, but did not tell Rochelle of the purchase, would the company be bound by the agreement? With reference to the relevant law explain why or why not.