LAW1501:Problem based essay

Task details

Use of the IRAC (issue-rule-application-conclusion) method is recommended forquestion 1. Please answer the TWO questions below. In seeking to identify the relevantlegal and ethical issue(s) within these questions, please refer to the textbook in the firstinstance, course notes and additional materials on ethics in corporate environments,both supplied by the examiner, and obtained from your own research. The textbookshould be your starting point. Pay careful attention to the question. What are the keyterms used? Review the sections of the textbook that deal with this term(s). When youare familiar with the area of law, consider what legal issue(s) exist based on the facts.Do not use the words Issue, Rule, Application as headings or subheadings in youranswer to question 1 if you do use of the IRAC method. The Assessment Moodle bookon StudyDesk contains useful information regarding the preparation and submission ofproblem-based essay questions.

Question

Global AI Technologies (GAT) Ltd is a forward-looking company launched in December 2017 in Melbourne providing Artificial Intelligence, voice services, IoT development,blockchain, mobile app, and AR/VR development. GAT has four directors andshareholders Matthew (CEO), Brian (CFO), Connie (non-executive director), and Krystalwho is not paid for her role although she attends the board meetings. Matthew is thefounding managing director and a majority shareholder with 37% of the issues sharesand Brian owns 12% of the shares. Connie and Krystal each have 10% of the issuedshares, and the remaining shares are owned by other shareholders.

Cyber Infrastructure Ltd announced its desire to takeover GAT by acquiring shares fromthe company. To try to persuade the shareholders not to sell their shares, Matthewissued a very positive profit forecast for the company for the year. Unfortunately, heneglected to sufficiently consider important financial information resulting inoverpricing of the value of the company. During his work as a director, Brian becomesaware that an opportunity exists for him to make a personal profit by selling some ofthe companys technologies to a company which he intends to form in the future. Brianconvinced Matthew and Connie to become involved in the sale and a subsequent boardmeeting approved the sale of several technologies developed by GAT. The sale price forthe technologies was later determined to be less than the actual price in the market.Krystal was denied the opportunity to ask questions at the board meeting and her votewas not counted in relation to the future of the business activities.

For the past 2 years, GAT has lost money on its operations and is not doing very well.Krystal takes a closer look at the financial performance of the company and raises herconcerns to the board, but her complaint was ignored. She was also extremely upsetwhen she did not receive a notice of the Annual General Meeting (AGM), and seriouslynow considering leaving the company. She advised the board that she wish to sell hershares, but unfortunately the negotiating failed because of the inability to agree uponan appropriate price to be paid for these shares.

Matthew had known that GAT was in financial difficulties in December 2020, but heassured the board, based on the advice of the auditor, that the company had a cashflowissue and its business problems can be solved in a short period of time. Matthew alsowith the help of a financial advisor developed a plan to restructure the services of thecompany to improve business activities. The plan requires GAT to incur some debtswhile insolvent, however, this would reasonably likely result in a better outcome andfinancial performance for the company. In the last 12 months, GAT faced major issuesand the board are considering placing the company into a voluntary winding up as itwas not able to pay its creditors.

Advise Global AI Technologies (GAT) in relation to the following:

Question 1 (20 marks)

Whether the directors have breached their duties under statute and common law?Your answer must also discuss how breach is law is associated with poor businessdecision making. Also advise if any defences can be used by the directors. Makeappropriate reference to case law in your answer.

Question 2 (20 marks)

A new board of directors have come in and engage you as an independent consultant tocritically use applied ethics to the various issues that have beset GAT detailed in theproblem question. Using applied ethics advise what internal governance procedures youwould use in-order-to address better business decision making. In your answer makesure you identify the poor decision making and how governance structures can addressthe problem.