Law of Investments and Financial Markets!Part B will involve consideration of a set of facts which...

Question

Law of Investments and Financial Markets!Part B will involve consideration of a set of facts which give rise to legal problems concerning interaction with a provider of financial products and services. You will be asked to set out a legal analysis of considerations in the form of advice to a client.RMIT Classification: Trusted RMIT Classification: Trusted RMIT Classification: Trusted Image sourced from The Australian.com.au (online) Graduate School of Business and Law Assessment Two LAW2428:  Law of Investments and Financial Markets Assessment Task 2: Comprises Part A (25%); and Part B (15%)  Part B: Legal problem solution  Part B involves consideration of a set of facts (below) which give rise to legal problems concerning interaction with a provider of financial products and services. You will be asked to set out a legal analysis of considerations in the form of advice to a client.  · Part B assessment is worth 15%; · The written response is expected to be 1,000 words (plus or minus 10%). Note that content in footnotes is not included in your word count. Please submit this through the assignment portal in Canvas, as a separate submission to the discussion boards Part B: Legal problem solution: The facts Gretelle walks into the BAVARIAN BANK and explains she has inherited $621,000 from her mother’s estate which she wants to invest. The concierge, asks her to sit down and arranges for her to meet with a financial adviser named Beverley Baden Wolfe to discuss her investment options. Beverley asks Gretelle to answer some questions. Gretelle explains she is 20, is worried about her family situation, wants to move away from the forest and rent near the Castle grounds in the city, and is looking for a stable, long term investment option that yields moderate returns.  Beverley considers some options, and informs her about a new share offering for GINGERBREAD LTD, an unlisted public company which has secured an agreement to buy out two large existing drinks and confectionary businesses. There are also options for hybrid securities with this prospectus. Gretelle agrees to subscribe to 50% ordinary shares and 50% so called ‘hybrids’, which she elaborates are redeemable preference shares with a 5 year maturity date. Gretelle transfers $600,000. Hansen is considering investing in GINGERBREAD LTD, as his sister told him it was a sure fire winner. He reviews the prospectus and learns the company is seeking to raise capital by issuing 2.5 million fully paid shares and 500,000 preference shares. The initial price per share is $3.21 cents.  Hansen reads the document and completes the application form seeking an allotment of 150,000 ordinary shares.    Things were going well! Ten months after listing, the shares were trading between $4.10 to $4.90. After twelve months however, the share price plummeted to $1.10 cents. Then three months later it was trading at 75 cents. Now, 18 months later, it is hovering between five to 14 cents. Hansen reads through the prospectus again, and is reminded the directors state they have secured two exclusive contracts to acquire other businesses. In fact, negotiations had taken place, but all contracts fell over as there were concerns about the liquidity of the company.  After 19 months, GINGERBREAD LTD had not issued any dividends. Gretelle is aware of a news story claiming that three directors (the Pigg brothers) have each been paid $AUD 2.1 million in short term incentives and bonuses. Gretelle asks Beverley about this, who explains this is usual because it encourages the managers to perform in her interests. Soon after, GINGERBREAD LTD falls into liquidation. Beverley tells Gretelle that only secured creditors can be paid so she may have lost all her investment. Gretelle does not think this is correct. She is worried about her brother. And to make matters worse, her father is about to remarry!  Identify the issues in this scenario, and then provide a discussion of the issues that you identify. To help you, consider the following matters in this scenario: · Do Gretelle or Hansen have any rights to pursue GINGERBREAD LTD and/ or its directors in relation to claims made?  · Do Gretelle or Hansen have any rights to pursue GINGERBREAD LTD for shareholder returns?  · Do Gretelle or Hansen have any available legal remedies, as members of GINGERBREAD LTD? 12 Law of Investments and Financial Markets: Legal Problem Scenario  Criteria  High Distinction: 80- 100%   Distinction: 70-79%     Credit: 60-69%     Pass: 50-59%  Fail:

Tanmoy · Accepted Answer

Part B: Legal problem solution
Do Gretelle or Hansen have any rights to pursue GINGERBREAD LTD and/ or its directors in relation to claims made?
Gretelle or Hansen have the rights to sue the unlisted public company Gingerbread Ltd or its directors with respect to the claims only against the 50% investment made in the preference shares. The preference shares are allowed to make payment of capital which is credited as paid-up capital till the commencement of the winding up order. Further, the arrears on preference dividend are also entitled for payment to the shareholders at an agreed rate. If Gingerbread Ltd decides not to make payment of dividend, then the preferential shareholders cannot sue the company in such instances. Further, there are no voting rights available for the preferential shareholders of the company. Thus, preference shares are a less risky investment yet the payment amount may be lower compared to the equity shares. But, for the part of the ordinary equity shares Gingerbread Ltd will not be able to get the benefits of ordinary shares in the form of dividend. Further, even if the shareholders have the right to the dividends as and when they are paid, Gingerbread Ltd are not obliged to distribute them legally. Gingerbread Ltd in such instances will illustrate that the profits of the company have been expended towards payment of creditors, preference shares and the short-term incentives and bonuses of three directors (Julie Palmer, 2020). 
Hence, Gretelle or Hansen can make claims to the amount of preference shares held by them in Gingerbread Ltd but will not be allowed to claim any amount with respect to the equity share capital invested by them. In the famous case of Pierce Leslie & Co. Ltd v. Violet Ouchterlony, 1969 SCR (3) 203 it was ordered by the Supreme Court that winding up of the company comes first the dissolution. Hence, the shareholders as well as the creditors of Gingerbread Ltd cannot be regarded as its beneficiaries and successors for claiming the shares or dividend during the winding up process (Tripti Malhotra; 2021). 
Do Gretelle or Hansen have any rights to pursue GINGERBREAD LTD for shareholder returns? 
Winding up of a company is a process whereby the life of a company comes to an end. The property of the company is managed for the benefit of the creditors and the directors or members.

RMIT Classification: Trusted RMIT Classification: Trusted RMIT Classification: Trusted Image sourced from The Australian.com.au (online) Graduate School of Business and Law Assessment Two LAW2428: Law...

Answer To: RMIT Classification: Trusted RMIT Classification: Trusted RMIT Classification: Trusted Image sourced...

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment