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Apr 02, 2024

Assignment Task

The problem

William and Alfred Burton established a number of successful businesses in the motor industry under the name of Burton Motors years ago. The businesses and assets were held in a network of companies known as the Burton Motors Group, with Burton Motors Group Holdings Pty Ltd being the holding company of companies in the network. The businesses were managed by William and Alfred, both of whom were appointed as life-long directors of Burton Motors Group Holdings Pty Ltd in terms of the company constitution. The primary business of the enterprise was ownership and operation of new and used car dealerships, and the supply of motor vehicle parts. Over time, their business interests expanded into a range of other business endeavours, including property investment and development.

William had a controlling interest of 52% in Burton Motors Group, while the remaining 48% was held by Alfred. William’s 52% interest in the Burton Motors Group was held through a family company, William’s Family Co Pty Ltd. William and his second wife, Elizabeth, were the directors of William’s Family Co Pty Ltd Pty Ltd, with the shareholders being William (50%), Elizabeth (10%), William’s daughter, Brenda (10%) and her husband, Ben (10%), and William’s daughter, Chloe (10%) and her husband, Caleb (10%). William passed away and upon his death, William’s estate was left to Elizabeth and his two daughters. His death left Elizabeth as the sole director of William’s Family Co Pty Ltd.

Alfred was appointed as the executor of William’s estate and he also held William’s shares on trust while the estate was being finalised, until these were eventually transferred to Elizabeth, Brenda and Chloe as per the terms of William’s will. Alfred continued to manage the business of the Burton Motors Group on William’s passing and over time, increasingly involved his sons to assist him with the business. Elizabeth felt completely overwhelmed being left as the sole director of William’s Family Co Pty Ltd. Alfred offered to assist, but Elizabeth, under the influence of Ben and Brenda, rejected his offer. Instead, she increasingly relied on Ben and Brenda, both of whom are chartered accountants, to look after the business interests of the family. Chloe and Caleb (marine biologists) had been away on an expedition to Antarctica due to their involvement in research on understanding and recovery of the Antarctic blue whales and were not involved in the business. As a result of the nature of the research project they were involved in, they had been absent for months and not in a position to maintain regular contact with family and friends due to the remoteness of their location.

Ben and Brenda were extremely unhappy that William’s death left Alfred as the sole director of Burton Motors Group Holdings Pty Ltd. They were suspicious that Alfred was not looking after the interests of William’s family in managing the business of the Burton Motors Group. Ben, who had ambitions to become a professional director and who was aware that the directors of Burton Motors Group Holdings Pty Ltd received a generous remuneration, indicated to Alfred that he (Ben) should be appointed as a director in William’s place. Alfred refused to entertain this idea. Ben and Brenda were constantly haranguing Alfred regarding his management of the business of the enterprise and threatened ‘to sue’ Alfred if he continued to refuse to facilitate Ben’s appointment to the board of Burton Motors Group Holdings Pty Ltd. Their aggressive conduct and distrust caused a significant amount of tension among family members, to the extent that Alfred eventually refused to meet with them, or to answer their calls, and he also ignored their written communications.

Ben and Brenda informed Elizabeth about suspicions that they had been harbouring about the way in which the business of the Burton Motors Group had been managed since William passed away. They alleged that Alfred and his sons entered into a range of transactions on behalf of the Burton Motors Group that would be beneficial to the family interests of Alfred’s family, but contrary to the interests of the William family group. These include (allegedly) loans made by Burton Motors Group to companies outside the group at a very low interest rate, with companies benefiting from the loans being controlled by Alfred and his immediate family members. They convinced Elizabeth about the need for William’s Family Co Pty Ltd to institute proceedings against Alfred and his sons for not acting in the best interests of Burton Motors Group. Elizabeth only had a vague idea of what was involved in the business and was more than happy to leave everything in their hands. She agreed for them to pursue such a course of action, as long as she would not have to be involved. To that effect, she called a general meeting of members of William’s Family Co Pty Ltd to appoint Ben and Brenda to the board of the company and subsequently resigned. She did not notify Chloe and Caleb of the meeting in light of the fact that they were probably unreachable. In the meanwhile, Ben and Brenda insisted on causing William’s Family Co Pty Ltd to take action against Alfred and his sons for not acting in the best interest of Burton Motors Group Holdings Pty Ltd. After very lengthy and expensive litigation, the case against William and his sons failed due to inability to demonstrate that William’s Family Co Pty Ltd suffered any losses or that Alfred received any personal benefits as a result of his position as director of Burton Motors Group Holdings Pty Ltd. A cost order of $2.13 million was made against William’s Family Co Pty Ltd.

Chloe and Caleb were surprised when they arrived back in Australia to discover that Ben and Brenda had been appointed to the board. They were very distressed to hear about the loss suffered by William’s Family Co Pty Ltd as a result of the $2.13 million cost order against it and the potential impact of this on regular dividend payments, which they intended to use to support further expeditions to Antarctica. They felt uncomfortable about Ben and Brenda being on the board and were unsure about the validity of their appointment. Their preference would have been to have an independent person appointed to the board to assist Elizabeth. They also wondered if there was any way that the losses caused by the cost order could be recouped in some way. They tried to arrange a time to discuss this with Elizabeth, Ben and Brenda. Elizabeth was willing to do so, but Ben and Brenda were not agreeable to discuss any business matters with Chloe and Caleb and ignored their attempts to arrange a meeting.

Chloe and Caleb were unsure about how to deal with these issues and decided to approach you for advice. At the initial meeting with Chloe and Caleb, they informed you that they were shortly due to depart on another trip to Antarctica, but that they would be returning to Australia for a few days during April. They indicated that they would appreciate written advice upon their arrival in Australia on 22 April, so that they can consider the advice and next steps before they have to leave for Antarctica again.

On that basis y ou have agreed to put your initial advice to Chloe and Caleb on these and other relevant issues in writing and to send them this advice no later than after which they will decide whether they need to meet with you again to take matters further.

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Total: GBP120

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