Reference no: EM133297719
You are a practicing solicitor with a special interest in company law.
A client of yours, Sara-Jane, has a long-standing interest in renewable energy. Several years ago, she placed a patent on a new process for electrifying cars. On 3 January, she registers a company called Ecars Pty Ltd with ASIC. Sara-Jane is the sole shareholder and Managing Director of the company.
On 2 January, Sara-Jane also signed a contract with New Metals Pty Ltd in terms of which they would supply 2,000 kg of lithium, a crucial component of her Ecars. The contract specified that both payment and delivery would take place on 25 January. Sara-Jane signed this contract as 'Sara-Jane Johnson, Managing Director, Ecars Pty Ltd'.
The manufacture of Ecars also requires the manufacture of specialised microchips. On 6 January, Sara-Jane signed a contract to buy a machine that can produce microchips costing $2 million from Macromicrochips Pty Ltd. She signed this contract as 'Sara-Jane Johnson, Managing Director, Ecars Pty Ltd.' The contract required Ecars Pty Ltd to pay for the machine in 3-monthly instalments of $300,000, the first instalment falling due on 1 August. The machine was delivered and production began.
Subsequently, in order to raise more capital for Ecars Pty Ltd, Sara-Jane persuades a number of relatives to invest in the company. Because she issues a large number of shares, Sara-Jane ends up no longer having a majority holding in the company, and on 15 January the shareholders elect a new board, consisting of Luke, Kate and Tessa. Luke is elected as the new Managing Director, replacing Sara-Jane. The new board met on 20 January and decided not to proceed with the contract with New Metals Pty Ltd as they believe they can source lithium more cheaply from another supplier. They sent a letter to New Metals Pty Ltd informing them that Ecars Pty Ltd would not pay for, or take delivery of, the lithium.
Sara-Jane also decides to branch off privately into the business of selling firearms - for which legislation requires a licence. The legislation prohibits the granting of a licence to 'any person who has a criminal conviction involving drug possession.' Unfortunately, Sara-Jane had been convicted of drug possession during her student days, so she registers another company, Lighthouse Firearms Pty Ltd, of which she owns 99 shares and her husband, Bob, 1 share, with Sara-Jane as Managing Director and Bob as Company Secretary. She asks Sophie to lodge an application for a licence on behalf of the company with the relevant state-based licensing authority.
On 10 July, the employees at Ecars Pty Ltd go on strike, and because of this, the company's income was severely reduced and it was unable to pay the $300,000 instalment to Macromicrochips Pty Ltd. Meanwhile, Lighthouse Firearms Pty Ltd has received a letter from the licensing authority refusing the licence application, citing Sara-Jane's previous conviction as a reason.
Sara-Jane has now approached you for legal advice in relation to;
1. a law suit brought against her by New Metals Pty Ltd for breach of contract,
2. a law suit brought against her by Macromicrochips Pty Ltd claiming $300,000, and;
3. the letter received by Lighthouse Firearms Pty Ltd refusing the licence.
Using the ILAC model, provide your best advice to Sara-Jane.