Regal Cinematic Ltd Case Study - Law Assignment Help

Assignment Task :

QUESTION 1 (director duties)  

Regal Cinematic Ltd (Regal) owns and operates a cinema in Burleigh Heads on the Gold Coast. Petra, Yu Yan and Rebecca are the only directors of Regal. Petra was appointed the managing director due to her extensive knowledge about operating cinemas. Both Yu Yan and Rebecca are non-executive directors. Regal has a number of unrelated shareholders. 

Over the last few years, Regal’s financial position has steadily deteriorated. While Petra is aware of this, she has not passed any financial information on to the other directors or indicated concern. In fact, she has repeatedly told them that the company is performing wonderfully. Yu Yan and Rebecca have received the company’s financial reports, but they never look at them closely because they assume that Petra or the company’s auditors would alert them to any problems. 

By January 2020, things have started to get dire for Regal. Attendance at its cinema has dropped significantly after a competitor opened a new cinema nearby that offers premium in-cinema dining. Regal’s cash reserves are running low and Petra is post-dating cheques to avoid running out of money. In a few instances, cheques have been presented when Regal had insufficient funds and they bounced. 

On 20 January 2020, the manager of Regal’s bank calls Petra with the news that the bank will be forced to suspend Regal’s overdraft facilities unless the company improves its financial position. 

At a board meeting on 1 February 2020, Petra informs the board that she has a revolutionary idea for Regal. She proposes that Regal enter into leases for two more cinemas located in Burleigh Heads. She suggests that undertaking this transaction will mean revenue increases and could even make Regal a potential takeover target for its competitor. Yu Yan and Rebecca are intrigued and tell Petra to do whatever she has to do to get the transaction finalised. 

After the meeting, Petra approaches a commercial leasing agent who informs Petra he has two cinemas available for lease. The agent says the cinemas are in wonderful condition and will be just what Regal needs. Petra inspects the cinemas with her friend Frank, who is an accredited residential building inspector. Petra thinks the cinemas are acceptable and Frank says he can’t see any structural problems with the buildings. 

On 1 March 2020, the Regal board has another meeting and Petra gives an update regarding the leases. She also says that Regal needed $2 million to place signage on the new cinemas.
Petra says she has reached an agreement with Regal’s bank for it to loan the company $1 million, and she suggests that Yu Yan and Rebecca each contribute $500,000 in exchange for shares in Regal. Yu Yan and Rebecca agree. 

On 5 March, the leases are signed, Yu Yan and Rebecca transfer a combined $1 million to the company and a credit agreement is entered into with Regal’s bank for $1 million. The new signage is completed on 10 March and Petra has arranged a grand opening for the 15th of March. 

However, on the 13th of March Petra receives a letter from the Gold Coast City Council saying that Regal is not permitted to open the two new cinemas because they do not have adequate fire exits and the fire sprinkler system needs to be replaced. After some preliminary investigations, Petra discovers that it would cost over $5 million to install additional fire exits and upgrade the sprinkler system. 

By 20 April 2020, the directors have no alternative but to place Regal into voluntary administration, and the company subsequently goes into liquidation. 

The liquidator now wishes to commence an action against the directors (a) alleging the directors breached their duty of care, skill and diligence; and (b) for insolvent trading. 

What would you advise Petra, Yu Yan and Rebecca about their respective situations?
 

QUESTION 2 - 

GML is a listed public company. Mr Addis owns 11,000,000 shares in GML. He wants to increase his shareholding to 15,000,000, so at a board meeting in November he asks his fellow directors to approve the issue to him of 4,000,000 shares at $2.50, which is a 10% discount to the current market price. He says if the board does not approve the share issue, he will resign. The board unanimously approves the share issue, and it goes ahead. XYZ Pty Ltd is a minority shareholder in GML and it objects to this share issue. 

(a) Have the directors contravened any part of the Corporations Act? If so, what action can ASIC take against them? Explain. 

(b) If there has been a contravention against the company, can XYZ Pty Ltd bring any action on behalf of the company and what is the likely outcome and what are the likely remedies? Explain. 

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