Case study exam

Michael, Scottie and Dennis are students who are keen to make some money in their spare time in order to kick-start their future. Michael owns a small van, Scottie has a lawnmower and Dennis has a computer. They thought about starting a lawn mowing service business and decided to establish a company, Skippy Pty Ltd, to launch their dream business with everyone as equal shareholders and directors in the company.

Dennis prints flyers for the business and the three business partners dropped them in the local neighbourhood mailboxes and distributed at the train and bus stations. It did not take long for them to develop a stream of regular clients, and it suddenly became a lucrative business. Because of the increase in the demand, Scottie decides to purchase on a loan a state-of-the –art lawn mower for $100,000 from a company called RodMow. Scottie told RodMow that he was the Head of Operations as well as a director of Skippy Pty Ltd. Scottie did not inform nor consult Michael and Dennis about this purchase.

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As the business continued to grow, Dennis then hatched a plan to develop a separate business with some of their existing clients and started channelling some of their income to his other business.

The company’s business suddenly slowed and their profits dried up. As a result, Skippy was unable to service its loan with RodMow for the lawn mower that Scottie ordered. RodMow are now demanding Skippy to pay for the lawn mower.

Answer the following questions with reference to specific provisions of the Corporations Act 2001 (Cth) and case law:

Advise Michael and Scottie if they can lodge a complaint against Dennis for breaches in the Corporations Act.

If the contract between RodMow and Scottie was signed just before they registered the company, are Dennis and Michael liable for the payment of lawn mower? Can RodMow rely on the fact that Scottie represented himself as the Director and Head of Operations in the company? Explain your answer

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