At a recent board meeting of Welstar Ltd, Victor, one of the company’s directors, became aware that Welstar was about to buy a large parcel of shares in Flexizin Ltd, a listed company. After buying the Flexizin shares Welstar intended to make a takeover bid for the rest of Flexizin’s shares. Victor thought that when Welstar Ltd’s initial purchase became public knowledge it would signal Welstar’s takeover intentions and that Flexizin’s share price would increase significantly. He therefore arranged for his wife’s company, Spousal Investments Pty Ltd, to buy shares in Flexizin Ltd ahead of Welstar’s purchase. Spousal Investments Pty Ltd later sold the Flexizin Ltd shares after Welstar’s takeover bid was publicly announced and made a large profit.

You as a professional accountant are asked to write a formal letter to generally advise ASIC whether there has been a breach of the Corporations Act 2001 (Cth) in the above circumstances.

You should consider to use both primary and secondary sources, e.g. legislation, case law, text books, journal articles and websites, to demonstrate your research skills in support of your advice in the letter. Wherever necessary, you should reference the sources in the letter.  (5 marks)

Letter format and communication skills.

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