TABL 2741: RESEARCH ASSIGNMENT (Session 1, 2014)
Eastfield Ltd is a large property development company, specialising in the construction and maintenance of shopping malls all around Australia and in parts of the United States. Eastfield Ltd is listed on the Australian Securities Exchange (ASX) and is in the top 100 companies on the ASX. The large size of the business operations undertaken by the company requires a significant amount of debt finance to enable existing property development projects to be financed to completion.
The management at Eastfield Ltd is concerned about the financial implications of the global financial crisis (GFC) and the difficulty in securing credit, and, at reasonable interest rates to finance projects. The board of directors of Eastfield Ltd and the company’s senior management had a meeting in November 2009 to discuss ways to source debt finance in a way that was more efficient and cheaper for the company. As a result of that meeting, in March 2010, a new company was incorporated in Australia which is a wholly owned subsidiary of Eastfield. The new company is called Capital Pty Ltd and it is validly incorporated. Capital Pty Ltd appointed three directors, all of whom also sit on the board of Eastfield Ltd. Capital Pty Ltd has no employees of its own – the workforce is provided by Eastfield Ltd which Capital Pty Ltd pays from its own funds for the supply of labour. It is agreed that all of the profits of Capital Pty Ltd will be distributed as a dividend to Eastfield Ltd.
Records of the board meeting of Eastfield Ltd in March 2010 showed that the board meeting concentrated on discussing the benefits of creating a new corporate entity to provide in house financing. It showed that the directors of Eastfield Ltd decided on a strategic plan which called for a new corporate structure to supply Eastfield Ltd with debt finance for operational purposes which, according to the minutes, “will solve the problem of sourcing debt finance from a...
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