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Comment by amalcon | Hacker News Reader

That's exactly what corporations are actually for: allowing investment without exposure to liability in excess of the investment.

What I suspect was done here was that Investments sold the voting rights to Holdings for A$1, which in turn sold them on for the A$4.5M. It's a clever little trick that can almost certainly be dressed up to be legal by more knowledgeable people than myself.

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Right, I guess what I'm really questioning is who let him take on that much liability without having him personally guarantee it. I can't get a small business loan for my brand new corporation, pay it all to myself as compensation, and walk away saying "oh well, the business failed."

The shares had an outstanding capital raising thingy going (don't know the terms)

Each individual share held the requirement to pay $2 at some later point.. So what he did was purchase a bunch of shares worth about -$1.99 for 1 cent each. It's on the market - so noone had to approve he could actually pay the later $2 installment.

He then managed to separate the value (voting rights) from the liability (oustanding $2/share) and profited from the value.

Ok, so basically the system wasn't really set up to deal with this strange asset. Because if I sell a put option (which means I may be required to buy shares later on), my brokerage is definitely going to enforce margin requirements to make sure I can afford those shares if things don't go my way.

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