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Submitted By dungtrinh
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TEAM ASSIGNMENT – SEM 2 - 2013-07-30

Lily and Morris are the directors and shareholders of Zap Graphics Pty Ltd. Recently, the company has began to suffer cash flow problems and needed additional capital. Lilly persuaded Rodney, a close friend of hers, to invest $100,000 in Zap Graphics Pty Ltd. Lily and Morris held a directors meeting and decided to issue Rodney with two shares in the company. A general meeting of shareholders also appointed Rodney as the director of the company. At the shareholders meeting Rodney said that he would not be attending board meetings and wanted to be treated as a “silent partner.”

The company’s financial position improved as a result of Rodney’s $100,000 investment, as well as the considerable efforts of Lily and Morris. Despite the company’s increased profits Lily and Morris decided not to declare a dividend for the current year. Instead they gave themselves pay raises and arranged for the company to lease two new Mercedes-Benz cars for their personal use.

Rodney began to attend directors meetings and made a number of suggestions to improve the profitability of the business. He also questioned Lily and Morris about their pay raises. Lily and Morris resented these questions and took the following actions:

- They formed another company, Lily, Morris & Carol Graphics Pty Ltd, in which Rodney was not involved and diverted a valuable government design contract that they had been negotiating to their new company.

- They also called a shareholder’s meeting at which it was resolved that Rodney would be removed from his position as a director. The meeting also approved the diversion of the government design contract to Lily, Morris & Carol Graphics Pty Ltd. Lily and Morris made sure that Rodney did not receive notice of this shareholders’ meeting.

Advise Rodney what legal remedies he has in these…...

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