Lyle, Sanchez and Sanjeev are directors of an ASX listed company called Tiara Minerals Ltd (TML). TML has several mines in Western Australia which primarily produce gold, diamonds and lithium. potential issues arising from these facts
Lyle, Sanchez and Sanjeev are directors of an ASX listed company called Tiara Minerals Ltd (TML). TML has several mines in Western Australia which primarily produce gold, diamonds and lithium.
TML suffered a catastrophic failure of infrastructure at its two largest mines due to a severe cyclone which has meant that it will not be able to process any mining for the next two years. Further, labour costs have driven up the cost of producing these minerals.
The board of TML is concerned that the company share price is declining so the board decides on a plan to provide Sanjeev funds to sure up the share price. The board gives Sanjeev $10 million of TML’s money for this purpose.
Sanjeev uses the money to buy 90% of the shares in a company called GDL Pty Ltd. Sanjeev holds the remaining 10% of the GDL shares personally. Sanjeev is the sole director of GDL. He uses the money as follows:
▪ Sanjeev acquires $6 million worth of TML shares on the ASX▪ Sanjeev acquires $2 million in energy shares from himself. These energy shares have fallen approximately 50% in the past two years as renewables drive down the wholesale price of electricity. He sells the shares to GDL at the price that he paid 2 years ago.▪ Sanjeev lends $2 million to himself by way of an unsecured loan.
A subsidiary company of TML, called Junior Co Pty Ltd (JCPL) is concerned about the financial situation of TML. JCPL has about $15 million on deposit with Wealthy Common Bank Ltd. JCPL is considering transferring this $15 million to TML to help it meet its liabilities.
The board of TML was given a confidential presentation by a geologist called Penny Pennypincher. She has been using new electromagnetic technology to identify areas that have high probability of containing gold. She asked the TML board to invest $50 million in the technology.
The board of TML stated that they like the technology but do not have sufficient funds to invest in the technology.
Sanchez thinks that the technology is amazing and likely to revolutionize gold mining. He approaches Penny and states that he thinks this technology is the way of the future and he may be able to come up with the funds she needs.
Penny and Sanchez started her company called Penchez Pty Ltd. Sanchez came up with the money for Penny Pennypincher’s technology and the venture is successful. They have just received a commission of $100 million for a mine they identified.
Any potential issues arising from these facts?