QUESTION:

QUESTION:

Sharon, Fiona and Michael are the shareholders of a company called SFM Pty Ltd. Sharon is the managing director and Michael is a director. Sharon would like her son in law Tasi to become a director of the company. Her son in law is 27 but lives in Fiji. He left Australia 18 months ago to live in Fiji as his company which sold properties to investors ran into some “financial difficulties.” The regulator, ASIC is preparing to take legal action against him Fiona and Michael are not keen on another director being appointed. The company runs a fashion design business. Due to the downturn in the retail and discretionary spending retail sector and competition from overseas brands the company is suffering from very tight cash flows. The Bank will not lend any more money to the company and the shareholders will not take up more shares in the company. Various experts and economists have indicated that the retail sector will take at least 5 years to recover. Sharon wants to fire staff and not reduce her salary. She feels that Michael does not do enough work in the company and he should reduce his salary. Michael is aware that many migrants to Australia would like to buy a business to assist them in getting their permanent residency status in Australia. One such person has expressed an interest in buying the business. You are the accountant for the company. Michael is not happy about the above comes to you with the following queries: 1. How can we prevent Tasi being appointed as a director? 2. Is the company insolvent and if so what are the consequences for me? Required: Please answer Michael’s queries.