Company Law
Flinders Partners
Consultants and Corporate Advisors
MEMORANDUM
Confidential
From
To
[##Your name]
Date
[##Day Date Month Year]
Michelle M. Moorehouse
cc
[##Your Tutors Name]
Commercial Law Advice – Alpha Heath Capital Pty Ltd.
[##Your analysis here]
[ComLawDept: 7144852]
Internal Memorandum Not For Distribution Page 1 of 2
Assessment Brief
Assessment 2: Case Study Assessment
Word Limit: 1500 words (excl. references)Assessment Type: Online Submission
Due date: 9:59am Weds 23 September 2020 (AEST)
Weighting: 40%
Background
You are a graduate rotating through the Commercial Law Department of a Flinders Partners, a national
corporate advisory firm.
Task
See attached memorandum from your supervising partner.
Your submission is to be made on the Assignment Two page on Canvas.
Referencing guidelines
You must acknowledge all the sources of information you have used in your assessments.
Compliance with a specific citation style is not required. Harvard style (author, date) or Oxford Style
(footnotes) can be used but should be consistent throughout the document.
A full bibliography is not required.
Refer to the RMIT Easy Cite referencing tool to see examples and tips on how to reference in the
appropriated style. You can also refer to the library referencing page for more tools such as EndNote,
referencing tutorials and referencing guides.
http://www.lib.rmit.edu.au/easy-cite/
https://www.rmit.edu.au/library/study/referencing
Page 2 of 2
Grading Rubric
[ComLawDept: 21092020]
Internal Memorandum Not For Distribution
Flinders Partners
Consultants and Corporate Advisors
Memorandum
Confidential
CC
Sharon Murphy
Alex Wong
HYDRO FRACKING LTD CORPORATE GOVERNANCE ISSUES
Our client, Hydro Fracking Limited (HFL), has received an information request from the
Australian Securities and Investments Commission (ASIC) relating to conduct of the company
and some of its directors. The CEO of HFL has provided us with some instructions on the facts
leading up to this request and raised other related corporate governance issues.
The CEO requires our urgent advice and we have a virtual meeting her later in the week.
I am tasking you with:
Reviewing the client file and the client instructions (both attached); and
Providing me with a memorandum containing your written analysis in response to the
question that I have raised. Please keep your analysis to a maximum of 1,500 words.
Your analysis will help inform our clients response to ASIC.
Please submit this for my review no later than 9:59am Wednesday 23 September 2020, so that
I have sufficient time to consider your analysis on this matter prior to the meeting.
Note that I am on personal leave for the next two days and will not be contactable. If you have
any questions or need further information to complete your analysis, please just include this in
your memorandum and we can obtain further instructions from the client.
Thanks in advance.
Kind regards,
From To
Michelle M. Moorehouse
Senior Partner
Commercial Law Department
Date
Monday 21 September 2020
Graduate Analyst
[ComLawDept: 21092020]
Internal Memorandum Not For Distribution
Flinders Partners
Consultants and Corporate Advisors
CLIENT FILE EXTRACT
Background
Hydro Fracking Ltd (HFL) is an Australian company incorporated in 2012. The registered
office in is Melbourne and has offices in Adelaide and Perth. HFL does not have a written
constitution. HFLs corporate mission is to introduce the Shale Revolution to Australia by
developing new unconventional gas projects.
Hydraulic fracturing (also known as fracking) is a process of stimulating oil and gas wells
through high pressure, fracturing shale rock formations and unlocking previously trapped oil or
gas. Fracking a type of unconventional gas is controversial and is strongly opposed by
environmental activist groups. Generally, gas has a lower emissions profile compared to coal
for energy generation. This finding is disputed by some researchers and remains the subject of
scientific debate. Opponents of fracking also point to the fact that the hydraulic fracturing
process has environmental risks around water usage, water contamination, and other air
contaminants. Accordingly, in jurisdictions where it is permitted, hydraulic fracturing is subject
to stringent environmental regulations. However, the CSIRO notes that Australia has vast
resources of unconventional gas1 and Australias Chief Scientist has noted that the Federal
government considers natural gas to be a reliable transition fuel.2
The board of Hydro Fracking Ltd consists of five directors:
Edward is the Chairman of the Board. He does not have any executive role. He is also a
director of the South Australian Rural Finance Ltd.
Louise is the Chief Executive Officer.
Richard is the Chief Financial Officer and the Company Secretary.
Philippa is a non-executive director as nominated by Global Fracking Corporation.
Monique is a non-executive director as nominated by NRG Super.
Shareholding:
HFL is a subsidiary of Global Fracking Corporation (GFC) an American company
incorporated in the state of Delaware and listed on the New York Stock Exchange. GFC own
60% of HFLs shareholding. The remainder of the shares are held by institutional investors,
including NRG Super, an Australian industry superannuation fund.
Insurance:
All directors hold a Directors & Officers Liability Insurance in the amount of $10 million each.
1 See eg,
2 See eg,
[ComLawDept: 21092020]
Internal Memorandum Not For Distribution
Flinders Partners
Consultants and Corporate Advisors
CLIENT INSTRUCTIONS
A number of issues are brought to our attention:
In February 2020, HFL concluded a deal for the grant of an exclusive license over land in the
Cooper Basin in South Australia. This will allow HFL to begin exploratory assessments for
unconventional gas. The owner of the land, Matheson Pty Ltd, will be paid $1.2 million per year
for three years. Edward was in charge of the process of securing the land license as delegated
by the board. Even though other land in the area was also available, Edward was only ever in
discussions with Herbert Matheson, the sole director of Matheson Pty Ltd. It is now discovered
that Herbert Matheson has significant personal debts that are owed to the South Australian Rural
Finance Ltd, after a long drought. The license fees will allow Herbert Matheson to pay off all of
his debts and avoid bankruptcy. Edward did not provide a formal report to the board but the
other directors were pleased that access to land has been obtained. At a directors meeting, the
directors voted to approve the deal and give Edward and Richard the authority to execute the
contracts in HFLs name.
In August 2020, HFLs accountants discovered a number of financial irregularities. It was
revealed that a total of seven false invoices had been paid by HFLs accounts payable team
amounting to $275,000. The invoices were discovered because the ABN and business name on
the invoices had been faked and the GST component of the invoice was incorrectly calculated.
It was revealed that the bank account on the fake invoices was traced to Edwards wife. When
Edward was confronted by Louise, he claimed that he had gambling debts and needed the extra
money. He has agreed to pay all of the money back but is refusing to resign from the company.
Philippa and Monique are furious at this incident not just because of Edwards fraud but
because earlier this year the board had delegated Louise and Richard the responsibility of
implementing a new financial management system that was meant to use the latest Artificial
Intelligence and Machine Learning technologies to immediately detect suspicious invoices.
However, because Louise and Richard were too busy, this job was delegated to an external
contractor to manage. Unfortunately there were several flaws in the computer software which a
competent IT person would have recognised and fixed. Louise is embarrassed about this.
In September 2020, NRG Super made a formal complaint to ASIC that alleging that the
executive directors are “unfit to hold office. They also claimed that the company were full of
carbon criminals that were wrecking the environment although it did not provide any further
evidence of this. NRG Super wants to pull its investment from HFL and cut any further
association with the company. Accordingly, NRG Super directs Monique to resign. At 3:15pm
on Friday 18 September 2020, Monique telephones Louise and says I am calling to resign as
a director of HFL effective immediately, please do not contact me again.
[ComLawDept: 21092020]
Internal Memorandum Not For Distribution
Flinders Partners
Consultants and Corporate Advisors
REQUIRED QUESTIONS
1. Louise is worried about being called a carbon criminal. She recently heard a conference
presentation where the presenter emphatically claimed, Directors have a duty under the
Corporations Act to ensure their company mitigates against the risks of climate change.
Evaluate the truth of this statement.
(5 marks)
2. Advise Louise as to whether there is any merit to ASIC bringing any action against any or all
the directors for a breach of their statutory duties as directors of HFL. If ASIC are successful,
outline the potential penalties or remedies that a court could impose against the directors.
(Note: consider only statutory duties, but you should refer to case law as relevant)
(25 marks)
3. Louise wants to remove Edward from the Board of Directors. Consider each of the following
possibilities and discuss any procedural requirements.
(a) If Victoria Police charge Edward with obtaining financial advantage by deception
(an indictable offence under section 82 of the Crimes Act 1958 (Vic) carrying a
maximum sentence of 10 years imprisonment), will he automatically cease to be
a director of HFL?
(b) Can the Board remove Edward as a director of HFL?
(c) Can GFC remove Edward as a director of HFL?
(2.5+2.5+2.5 = 7.5 marks)
4. Advise Louise as to whether Monique has validly resigned as a director of the company.
(2.5 marks)
(TOTAL: 40 MARKS)
LAW2450 Assessment Two Brief – S2 2020
Memorandum to Graduate – 21 September 2020
