CAN Ltd is a large operator of childcare centers and is listed on the ASX. The board of CAN consists of:
Maryanne (the executive Chairwoman),
Adriene (executive director and Chief Financial Officer),
Richard (non-executive director and Maryanne’s husband),
Luke (executive director and Chief Operating Officer), and
Pauline (non-executive director)
Maryanne built the company from a single center in the western suburbs of Melbourne and runs the company as her own business, even though she only owns 25% of the shares (which are held by a family trust and her husband Richard). Steven is the newly appointed company secretary (not a member of the board of directors), who was warmed by his predecessor ‘just do whatever Maryanne wants.’
In recent times Maryanne has been focused (some would say obsessed) with expanding the business into Asia and North America. This has resulted in her being away from the company for prolonged period of time, although she is in regular email contract. Maryanne often sends emails to staff early. Monday morning, and occasionally the emails come from her investment banking advisor Wilfred Paulson (partner with firm Paulson and Bernanke, a well-established banking advisory firm) directing senior staff (including members of the board0 to carry out particular tasks in furtherance of Maryanne’s strategy.
The other directors on the board have traditionally followed Maryanne’s lead and are reluctant to make any major decisions without her (or her investment bankers’ approval). Only 1 board meeting is held during the 4 months that Maryanne is overseas. During this time Pauline has had little involvement with CAN and is busy working in her full-time capacity as Marketing Manager of a major pharmaceutical company. Pauline assumes that Maryanne is being advised by a top firm and is totally in control of things.
In early June it becomes apparent that things are starting to fall apart without Maryanne. Steven becomes concerned that the company will miss it’s ASX annual reporting deadline and has been trying to reach Adriene but cannot reach her as it appears that she has moved and has not advised of her new contact details. Steven is concerned about several large financial transfers that have proposed to Aryne’s family company ‘Aryne’s investment Group’ (AIG) without obtaining the approval of the board (as required under the company’s internal rules). The cheques are for several million dollars, so Steven is alarmed, but they were signed by Maryanne and Steven signed off to allow the transfers to occur.
During this time Luke asks Steven to undertake a new share issue to Richard (amounting to approximately 15% of the company’s ordinary voting shares.) Richard has been complaining recently about wanting to gain more control of CAN to limit the role of ‘those pesky hedge funds and short sellers”. When Luke is asked by Steven what the purpose of the share issue is, he responds to Steven by saying “it’s what Maryanne wants…. Get It done or she will find someone who will!”. Steven completes the share issue and amends the company’s share register accordingly.
By the end of June Adriene is still missing and no word has been heard from, Maryanne or Richard. Meanwhile, rumors surrounding the problem at CAN have been circulating in the media, some suppliers have been complaining about not being paid. Employees are threatening to strike if they are not paid on time this month (the payment were late last month) and the company’s major bank recently refused an extension of the company’s debt facility.
On 10 August, the company’s major bank appoints a receiver to take over the business. It appears that Maryanne, Adriene and Richard have been involved in fraudulent activities and the company is hopelessly insolvent ASIC has announced a formal investigation into the company’s affairs. Steven, the remaining directors and investment bankers are concerned about their potential liability.
Advise CAN Ltd as to any possible contraventions of the law from above facts. DISCUSS what potential consequences may result if breaches of the law were established.