Corporations Law_Refund plan for angered Child Care stakeholders

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On the 7th of March 00, Child Care Centres Australia issued the share offer prospectus, to raise capital amounted to a sum of $8.5 million. The various directors signed the prospectus on the May 00 to approve the offer. The capital raised was meant for the acquisition of 46 child-care centers in Western Australia, which belong to two companies, Mulberry Tree and Jellybeans groups.


The capital raising was a success until there was a dramatic downgrading of profit forecasts. The profit forecasts given in the prospectus were $.8 millions for 00-00 and $5. millions for 00-004. The new forecast given for 00-00 was $05,000, down from $.8 millions. The reason given by the group was drastic decline in the number of children in its centres due to its ‘occupancy improvement program’ that drove up the costs. Child Care Centres Australia said that the group only knew about this shortfall of occupancy rates shortly after the capital raising, and trading for its shares was halted on the 1 May 00, which was less than a week after completing its capital raising.


CCA is asking the ASIC which is investigating the issue to consider modifying the Corporations Act to buy back their 5.6 million shares issued at $1.5 a share from the shareholders. This is to allow the investors to have time to consider whether to invest in this company or not said Child Care Australia in a statement to the ASX.


Corporations Law


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Section s 181(1) requires a director or other officer to exercise their powers and discharge their duties in good faith and in the best interests of the corporation.


Section s 710, Prospectus general disclosure test


A prospectus must contain all the information that investors and their professional advisers would reasonably require to make an informed assessment of the matters.


Section s 710(1) specified the information that must be disclosed, this include


§ The right and liabilities attaching to the securities offered; and


§ The assets and liabilities, financial position and performance, profit and losses and prospects of the body that is to issue the shares, debentures or interests.


Comments


Profit, dividend and other financial forecasts in a prospectus can significantly influence a person’s decision whether or not to invest. Hence, under section s 710(1) the company required to disclosed its financial position and performance. When Child Care first issued the share prospectus, the directors believed that they disclosed the fair and true view of the company’s forecast net profit. But, when they aware of the shortfall in occupancy, which slashed the forecast net profit’s figure, instead of keeping it, they announced the forecast and willing to buy back the shares issued.


This action shows that the directors exercise their powers for the best interest of the company. In Greenhalgh v Arderne Cinemas Ltd [151] Ch 86 expressed that the duty to act in good faith in the best interest of the company means that the directors must act in the best interest of the shareholders as a collective group.


Allison Jackson, The Sydney Morning Herald, Business & Money, May 1 June 00, page 4


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