Memorandum of Advice

TO: Seasonal Clerk
From: Chris Werner, Senior Corporate Law partner, Marilyn & Mick
Would you please prepare a memorandum of advice addressing whether our client, Maxwell Pty, is liable to pay for the purchase of the property, and whether it can take action against either Georgie or Chris.
Maxwell Pty Ltd (‘Maxwell’) has six directors, there are three executive directors: Georgie is the managing director, Michael is the chief financial officer and John is the company secretary. Lexi, Chris and Natalie are the non-executive directors. All six directors own 10,000 shares in Maxwell, they are the only shareholders.
Maxwell’s main business involves purchasing land and building apartments on that land to sell to the public. Maxwell’s constitution contains two important clauses:
Clause 5: No director, without the consent of the Board, shall engage directly, or indirectly, in any business in competition with Maxwell Pty Ltd.
Clause 12: All contracts exceeding $200,000 can only be entered into by two of the three executive directors signing the contract and affixing the common seal to the contract, and only where a director’s resolution has authorised them to do this.
After a few rough months at Maxwell, John told the board that he was resigning as a director and company secretary. However, Michael did not inform ASIC and John remained on the ASIC register as company secretary and director. Meanwhile, Georgie discovered a large parcel of land next to a development that Maxwell was currently building. The land was up for sale, and Georgie spoke to Geoff, an agent for MS Agents. Geoff told her there had been significant interest in the property and it was available for $400,000 if she could sign the contract of sale that afternoon. Georgie quickly drove around the corner to John’s house. She told him that the contract needed to be signed quickly, and it didn’t matter that John had resigned as she thought he was still on the ASIC register. Georgie returned to Geoff’s office with the signed contract and with the seal affixed. Georgie keeps the seal in her purse. Geoff was a little concerned that Georgie was able to get the contract signed so quickly, but she assured him that the company secretary lived just around the corner. Geoff looked at the contract and saw the company seal. He accepted the signed contract. He did not look at the ASIC register. The contract of sale settles in 30 days.
When the other directors discover what Georgie had done, they are furious that she acted without their knowledge. They also thought the sale price was too high. They want to find a way to get out of the contract. Georgie provided the board with a valuation from MS Agents which set out the price for the land as between $325,000-385,000, but that the price of the land was certain to go up in the next five years.
Following the signing of the contract of sale Lexi discovered that the property Maxwell had purchased is owned by SCV Pty Ltd (‘SCV’). SCV buys land in rough areas and waits until the area improves, then sells the land at a profit. She also found out that Georgie owns 25% of the shares in SCV Pty Ltd and is a current director.
After doing some more research into the sale, Natalie learns that Chris is a silent partner in MS Agents. Chris did not inform the board of his position as a partner in MS Agents. However, when confronted by the board Chris told them he only had a minor role in setting up the partnership, he is involved only intermittently in the management of the partnership and he had transferred his interest in the partnership to his wife who receives all the profits from partnership.
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