TEEZLA Ltd Manufacturing Plant in Busselton, Western Australia (‘BUSSO) Case Study Accounting Assignment Help

Assignment Task
 

Scenario Question 
TEEZLA Ltd (‘TEEZLA’ or the ‘company’) produces really fasts electric cars and trucks. TEEZLA’s constitution is in the form of the replaceable rules under the Corporations Act, save for two (2) Articles:Article 1:The company may engage in any activity directly related to, or incidental to, electric motor vehicles.

Article 2:The company may, by special resolution, remove any director from office.
Andrew, Benny, Clarinda and Danny make up TEEZLA’s board. Pursuant to a written employment contract, Andrew was appointed as TEEZLA’s managing director for a period of five (5) years from 1 January 2005. Although Andrew was not formally reappointed at the end of five (5) years, the rest of the board generally defer to Andrew’s views and permit him to carry out his former duties. Benny, who holds a Degree in Managerial Accounting from Macquarie University, is TEEZLA’s chief financial officer (‘CFO’). Clarinda and Danny are non-executive directors.Clarinda has only attended three (3) board meetings since she joined the board three (3) years ago. She was asked to join the board due to her expertise in high voltage science. Since Clarinda travels extensively, she usually leaves routine business to the other directors.Danny is also the managing director and sole shareholder of FLAWED Pty Ltd (‘FLAWED’), TEEZLA’s main competitor in the electric vehicle market. TEEZLA’s capital structure is as follows:
Ordinary Voting Shares Preference Voting Shares
In the past two (2) years, TEEZLA’s financial position has worsened, and it is currently experiencing significant cash flow problems.On 1 January 2016, BEEZOS (‘BEEZOS’) sought expressions of interest for the purchase of its manufacturing plant in Busselton, Western Australia (‘BUSSO). Mr Pitt, BEEZOS’s managing director, contacted Danny to see whether he would be interested in acquiring BUSSO on behalf of FLAWED, which owned several manufacturing plants in SE Western Australia, close to the lithium mines.Mr Pitt also contacted a number of other prospective purchasers, however he did not contact Andrew or any other TEEZLA representative as he did not consider TEEZLA a viable purchaser in view of its well-publicised financial difficulties.Danny telephoned each TEEZLA director informing them that Mr Pitt had approached him regarding the BUSSO sale. Danny asked each director whether they had any issue with him purchasing BUSSO on behalf of FLAWED. Andrew said ‘go ahead, it’s not as if TEEZLA could take up the offer. We are going to have to sell a large percentage of our own manufacturing plant and equipment if there is any chance of us staying financially afloat.’The other directors stated that they had no problem with FLAWED’s proposed purchase of BUSSO given TEEZLA’s precarious financial situation. Thereafter, FLAWED’s acquisition of BUSSO saw it realise a $20 million profit in the first year.As the Electric motor vehicle industry was in a downward spiral, on 25 February 2016, Andrew convened a board meeting to discuss his proposal to shift the company’s core business from electric cars to open cut coal mining. All members of the board attended. Despite Andrew’s enthusiastic presentation regarding his recent visit to coal mines in the Margaret River, Benny states in horror:‘What you are suggesting is reckless Andrew. The future is electric cars. Not dirty lumps of coal. None of us have any experience with coal mining and management. I refuse to support such an extreme change in corporate strategy. In any event, we’ve experienced extreme difficulty in paying our debts over the past six (6) months. We are barely able to pay creditors within the contractual time for payment and are regularly late paying some debts. To protect ourselves, the most prudent course of action is to cease trading immediately and appoint an administrator.

Andrew responds:
‘I realise that this proposal is a bit of a shock, but I have the best interests of the company at heart. We need a positive cash flow – and fast. We must immediately shift the direction of our company if we are to survive. I have been in intense negotiations over the past month to sell all of TEEZLA’s manufacturing plants to a multinational entity, WING DING’s LLP, for $35 million. I play golf with the WING DING’s CEO, Sergio Garcios, every Monday and I know that they are looking to expand rapidly. I guarantee that I can sell TEEZLA’s manufacturing plants within the next week if you approve.’Danny said:‘I’ve got a couple of concerns about this Andrew. Do we have a current valuation of TEEZLA’s manufacturing plants to ensure that we are getting the best price for it? Shouldn’t we advertise for expressions of interest?’Andrew responds:‘I can assure you that there is no one out there that would offer more for TEEZLA’s plants than WING DING is offering. Ideally a valuation would be nice, however given our financial position, time is of the essence. We just don’t have that luxury.’


Clarinda states:
‘Finance is not my speciality, so I would be more comfortable with a written valuation or asking for expressions of interest - but you guys are the experts, I’m happy to rely on you. However, if we are planning on moving into open cut coal mining production, we do need to engage a technical adviser. I know a fantastic company called LUMPA COAL CONSULTING Ltd (‘LCC’) which is highly regarded Australia wide. I strongly recommend that we engage it.’
Unknown to TEEZLA’s board, Clarinda’s son Henry is a director and 80% shareholder of LCC. Also unknown to the board, Andrew is a director and a majority shareholder of WING DING. All directors then vote and approve the following resolutions (with the exception of Benny):To approve the sale of TEEZLA’s Manufacturing Plant and equipment to WING DING LLP for $35 million; and To enter into a three (3) year consulting contract with LCC.
(Assume WING DING LLP is a public company and is subject to the Corporations Act as it is also listed on the ASX. Do not address here that it is a foreign company as well.) The following week, separate contracts for the sale of TEEZLA’s manufacturing equipment to WING DING LLP and for engaging LCC are completed. It turns out that TEEZLA’s plants are state of the art and could have easily been sold for a close to market value of $50 million.
On 20 March 2016, Andrew telephoned every TEEZLA shareholder advising of an extraordinary general meeting of TEEZLA to be held on 27 March 2016. (All shareholders agreed to the shortened time from notice of meeting to the holding of the meeting). During those calls, Andrew informs each shareholder that the company’s bank is unwilling to make further loans, despite his best efforts in securing further debt finance. Any future investment in open cut coal mining, Andrew maintained, will therefore need to be partially funded through a preference share allotment. Andrew, who has always secretly disliked Benny, convinces Clarinda and Danny that TEEZLA’s survival depends on changing the line of business, removing Benny from the office of director and preventing him from causing trouble in the company. Andrew subsequently forwards a notice of meeting compliant with s249L of the Corporations Act, setting out the following resolutions (the ‘27 March Resolutions’):
    

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