Corporation Law Assignment Analysing Legal Business Cases
Question
Task: Your task is to prepare a detailed corporation law assignment addressing the below questions based on different business case scenarios.
Answer
Question 1
In this section of corporation law assignment, explain what is the nature of the fiduciary duties owed by directors towards their companies? Give an actual example of a fiduciary duty owed by directors towards their companies. (Maximum 300 words)
ANSWER:
The concept of fiduciary duty is related to the activities that are being carried out in a good faith. These kinds of activities are often seen as a medium to protect the interest of an individual while the other individual is carrying out some activity that is based on unjust enrichment or benefits from the other. The common ideology is to protect the interest of individuals and prevent any kind of exploitation. These statutory services incorporated in an organization are for financial services, law and environment, consumer services, health and welfare, workplace safety, etc (The Australian Institute of Company Directors (p-4-6), 2021).
In Australian law, the directors are primarily responsible for the overall governance and control of the organization. It is possible to carry out activities and drive them strategically for the benefit of the company. This objective can be perceived as fiduciary activities or in the term of legal binding, it can be considered as a duty. One can define a set of activities as the notion of applicability of legal concepts. These activities of directors that are considered as duties begin with the notion of facilitating interest of the company driven with purpose. The aspects of these duties are considered in such a way that when they are breached, it is considered as personal liability of the director for which both civil and criminal penalties are applicable. These duties are also made sure that kind of order on information is not properly imposed on position. The directors must not get into a conflict of interests. They should prevent insolvent trading or insider information for their personal benefit. They maintain the financial record as well as its reporting in a proper and appropriate way. The legal binding for these duties is covered under the Corporations act of 2001 with penal proceedings will be carried out in case of breach under section 184 of the act (The Australian Institute of Company Directors (p-4-6), 2021).
Question 2
Answer the following questions relating to the partnership business structure:
(a) What are the 3 elements of the statutory definition of a partnership?
(b) Identify and in your own words, briefly explain the meaning and application of each element. (Maximum 150 words)
ANSWER:
a)Three elements of the statutory definition of partnership –
1. Contract: The contract is a legal binding document that contains the terms and conditions in accordance with which the contract is taking place. The aspect of collaboration is mutually agreed and the contract is the official documentation for its validation. The contract will be readily utilized in case of any dispute or to identify a breach. The contract contains the details of the organization and all the IPR associated with the business which also includes the departments and relationship of the organization with the others. Thus, the contract must be based on some specified scope and specific clauses (SECT 596 (p-1), 2021).
2. Association: It is one of the most important elements of the partnership. It describes the number of people in collaboration and is governed under the Companies Act of 2001. It defines the roles, position, and responsibility of each individual within the partnership to prevent any kind of conflict if occurred later. The concept of association is primarily considered to identify the major players in the partnership who will be decision - makers. This also considers the profit - making and its proper division among all the partners based on pre-decided percentage.
3. Control of Business: The aspect of control and operation is somehow part of contract and association. But the notion of control over various dimensions of the organization should be clearly distributed and demarcated. These are day to day activities being carried out within the organization are comprehensively discussed and considered in a partnership. There are two major aspects that is the kind of company and its goals. Both the partners must be in agreement to both of these. So, all the partners must align their motives and objectives with them to prevent the occurrence of any conflict in future.
b) In case of this context, as per the Australian Law, business partnership section actually divided into different sections, where individual persons or group of business personalities used to share and exchange their professional thoughts and concepts in order to gain utmost profit in the high competitive market in the global or domestic context. In this scenario, the Australian Law has been also mentioned that the presence of conflicting relationship among the business partners is not acceptable. However, every partners need to be focused to the aims, objectives and goals to achieve their ultimate success. Along with this, it is to be mentioned that the presence of cooperation of business partnership is highly required for business success and progress (Prassl, (p382)2012).
Question 3
Maya Boyle’s dream is to buy her very own apartment unit in Sydney. After a 6-month search, she’s ecstatic to finally find the perfect unit, a brand new 2-bedroom unit located in Kirrawee. She made an offer. After just a week, she becomes even ecstatic because the developer of the unit accepted her offer, which is actually lower than the advertised price.
On Friday afternoon of that same week, she checked Moonlight Finance’s website and found that the franchise principal for the company in the Northern Beaches is Benjamin Owen. A photo of Benjamin’s dignified face appears in Moonlight Finance’s website, along with his full name ‘Benjamin Owen’ and below it, his title, “Moonlight Finance franchise principal – Kirrawee, Sydney.” Maya calls Benjamin’s mobile number and makes an appointment for him to visit her at her place the following Saturday morning. Unknown to Maya, that Friday morning, Benjamin’s franchise contract with Moonlight Finance had already been terminated by the company for breach; as a result Benjamin was no longer connected with the company.
The next morning, Benjamin drives up to Maya’s house in a Moonlight Finance Company car. When he comes into the house, he is wearing the shirt with the Moonlight Finance logo emblazoned on the left shirt pocket. He hands out his Moonlight Finance business card to Maya, which contains the same job title as that stated in the website. After discussing Maya’s lending requirements and assessing her financial capacity, Benjamin approves a $775,000 loan for Maya. Benjamin and Maya sign the loan contract, which is in the standard form used by Moonlight Finance and bears the company’s name. The following week, Maya pays the deposit and calls Moonlight Finance to draw down on the loan. The company informs her that as of last Friday, Benjamin was no longer connected with the company for the reason stated above. Moonlight Finance tells Maya that the company is under no obligation to honour the loan approval that Benjamin had given Maya, nor the contract that they entered into for that purpose. Maya comes to you for advice.
Advise Maya on the legal issues presented by the above case. Is Moonlight Finance obligated to honour the loan approval and grant Maya the loan? Discuss all your answers citing relevant case law and/or legislation. (Maximum 450 words)
ANSWER:
The situation clearly showcases that Moonlight has lost the collaboration with the company and the employee has still used the company’s uniform and business card to make a deal with the plaintiff, in this case, is Maya Boyle. Though he approved the loan of $775,000 for Maya he is no longer authorized to do so. In such a scenario, the company is not obliged to abide by the contract as Benjamin Owen is no longer their representative.
Benjamin uses the letterhead of the company for making the contract which is a part of the trademark and should not be used once the contract of the franchise has expired or been breached. Benjamin has also not informed Maya in any way regarding his termination and is no longer involved with the company.
Maya and the company, Moonlight Finance can file a case against Benjamin Owen for fraud or approving a loan contract on the behalf of the company when he was no longer representative. The number of differences that would occur for Maya can be retrieved from Owens as compensation for fraud. This case is fraudulent and mistrust will be administered under Section 596 of the Corporation Act of 2001. This act clearly states the person, who is Benjamin Owen in this case involved in the activity which he is not authorized to do in the name of the company will be held liable. This action also states that the defendant, who would be Owens in this case, will pay the losses either to the company or to the plaintiff (SECT 596 (p-1), 2021).
This case will also be considered under Australian Consumer Law. It implies on every company to follow its business and provide the designated services to their customers. So, from the consumer law point of view which safeguards the interests of consumer’s shows that Maya has been fraud by Benjamin Owens. And Australian code of conduct also specifies the franchises to fulfil the stated contract. This means that this contract is to be followed by the company to provide a loan but at the cost of Benjamin Owens. He will pay all the charges for discrepancies and will be held further liable by the company itself for misusing the company’s property (which in this case, he used letterhead). Similar to this, the Franchising Code of Australia also specifies that the interests of the consumers are to be kept irrespective of any scenario and if there is any misinterpretation between the franchise and the company, then this will be the subject of the Federal court of Australia. Maya is completely authorized to bring the case in front of the court and held the company responsibly and demand them to charge the compensation from Benjamin Owens (Franchising Code (p-1), 2021).
Question 4
One of the key duties of a director under the Corporations Act is the duty to prevent insolvent trading under section 588G.
Why is it critical that a director must not allow or participate in any board resolution allowing the company which he or she serves to trade while insolvent?
If charged with breaching the duty under section 588G, what statutory defences can a director raise?
ANSWER:
The element of insolvent trading refers to the continuance of trading when the company is insolvent. This kind of designation is given to a company when they are unable to pay their all debts. This situation is quite critical for the company and in such case the director must carry out a responsibility to check that no trade us being made. Section 558G establishes a duty for directors to prevent insolvent trading stating that the company is incurring debt and at that time director is present and that person won’t allow trades. If the director continues to trade in such situation, then it can cause more debts for the company and legally it is breach of liability and legal duty of the director. The director will be held personally liable for the legal proceedings and penalties in this situation (SECT 588G (p-1), 2021).
If the director is charged with the breach of duty under section 558G, then section 558 provides four clauses for the directors to present their defence. These defences are –
1. Stating the reasonable grounds of expectation or actual expectation that the director had with the company, portraying that is solvent.
2. If the director was absent in management activities due to some illness or other reasons which had obstructed him to carry out those tasks.
3. If the director is taking suitable steps to bring the company out of incurring debt.
Question 5
Harry McNess is a director and member of Enigma Pty Limited, a private investigation company based out of Brisbane. Apart from Harry, there are three other member-directors in Enigma. The four member-directors each own 25% of the total shares in the company. Enigma’s constitution provides that all company contracts that involve an expenditure of more than $75,000 must be signed by a minimum of three directors.
Harry has worked for 25 years as a director in Enigma. After working this long, Harry now feels that it is time the company appropriately rewards him for his years of faithful service. Harry believes the only appropriate reward is a luxury boat. He visits a boat dealership and buys a 20-foot yacht worth $150,000. He purchases the boat in the name of the company and signs the contract. The other directors find out and they are incensed by what Harry has done. They wish to immediately void the contract Harry signed with the boat dealership. The problem is that the boat has already been delivered and the dealership does not want it back.
Explain whether Harry had the power to sign the contract to buy the boat in the company’s name. Is Enigma Pty Ltd. bound by the contract? If so, what remedies does the company have against Harry? (Maximum 450 words)
ANSWER:
There are four partners of the company and one of them buys boat in the company. Thus, this is case of breach of partnership agreement. In this case, Harry McNess will be held liable for breach in the partnership agreement. The partnership dispute can be raised by the rest of the partners in accordance with the Section 28.
The act of Harry will be considered as being carried out for the sole interest without informing his partners. He is liable to inform the partners as well as take their agreement for this purchase as it is being made in the name of company. Though he has a share of 25% only and thus, he will be applicable to spend from his share. If the purchase is to be made in the name of company, then all four partners must agree to the contract made with the boat company. And if Harry solely wishes to purchase the boat, then he must purchase it in his own name from the money belonging to his 25% share (Partnership Act 1892 (p6-8), 2021).
In this case, the rest of the partners can file a case against Harry if they wish to break the existing contract made in the name of company or they can also pursue to claim the liquidity damage that was incurred to company. It means they have option to allow Harry keeping the boat in the name of company if he pays the full amount from his own pocket. But it will cause other issues in the future, basically related to claims and ownership (Australian Capital Territory (page-5), 2021). The legal binding for this whole procedure is administered under Partnership Act of 1983. Harry should have made the purchase in accordance with the section 26 of the Act but the other partners were not in agreement for this. As according to section 26, anything bought in the name of firm belongs to firm. Thus, Harry will be held liable citing this section itself which he breached to do so. The other partners can enforce a notice to expel (section 30) Harry in light of this event or they can break the contract made in the name of company and receive the monetary compensation for this turnaround and damage (SECT 588G (p-1), 2021).
The rest of the partners will impose a civil penalty in accordance with the division 3 and 4 of part 5.7 B, which is the new section of 588G. Harry will be held under Corporate Law Reform with the sections 588 G, 588 U,and 588 Y.
Question 6
Joshua Fowler is the managing director of a family company, Berrymedia Pty Ltd. Joshua’s other brother, Karl and three sisters Lucinda, Claudia and Eden are the other shareholders and directors of the company. They always disagree and argue when it comes to the management of the company’s affairs.
Berrymedia has never actually held a shareholders’ meeting in the past, since the shareholders, except for Joshua and Lucinda, do not bother to attend these meetings. However, an annual general meeting now needs to be held and Joshua is worried that he needs to call and conduct the meeting.
Explain to Joshua the procedure he has to follow under the Corporations Act both in calling and holding the annual general meeting. (Maximum 300 words)
ANSWER:
The Corporation Act of 2001 governs the annual general or shareholder meeting of any company under part 2G (2-4). The Corporation' act defines the set of rules and procedures that must be followed by the shareholders or partners of the company as an obligation. The meeting is called or announced by the director in accordance with section 249 C. Joshua must ensure that the notice of meeting to be given to all the partners of the company (Sewell, (p-86), 2018). This notice legally informs the individual about the meeting and its legal obligations (CORPORATIONS ACT 2001 (point-1), 2021).
Joshua must clearly define the purpose of the meeting and they should be laid in the notice itself. He must state the chairman of the meeting and what are the decisions that are going to be made. He should clarify the list of requirements that would be needed such as a financial report, legal papers, or some kind of contracts or policies, etc. It should contain the information of any new appointment or special resolutions being made or the purpose of business in it.
The biggest element that governs the call for a meeting is purpose. The notice must contain the purpose as the subject for obliging all the shareholders to participate. He should clearly specify the place and timing of the meetings as well as duration too. The principal rule to conduct the meetings is to democratize the process of decision making in the company. So, Joshua must take voting on decisions being made so that a majority of agreement can be attained. He must also provide a report for the annual performance or ongoing performance of the company. Thus, few reports become prominent to update and represent, they are financial reports, director’s reports, and auditors report. Joshua must provide a suitable opportunity to each member so that they can keep their point or comment on the management of the company.
References
Australian Capital Territory (page-5), 2021.Partnership Act 1963. [online] Legislation.act.gov.au. Available at:
CORPORATIONS ACT 2001 (point-1), 2021. CORPORATIONS ACT 2001 - SECT 250RBusiness of AGM. [online] Www5.austlii.edu.au. Available at:
Federal Register of Legislation, 2021. Corporations Act 2001. [online] Legislation.gov.au. Available at:
Franchising Code(p-1), 2021. Franchising code of conduct. [online] Australian Competition and Consumer Commission.Corporation law assignmentAvailable at:
Partnership Act 1892 (p6-8), 2021. Partnership Act 1892 No 12. [online] Legislation.nsw.gov.au. Available at:
Prassl, J., 2012. Law, Corporate Governance and Partnerships at Work: A Study of Australian Regulatory Style and Business Practice. Industrial Law Journal, 41(3), pp.379-383.
SECT 588G(p-1), 2021. CORPORATIONS ACT 2001 - SECT 588GDirector's duty to prevent insolvent trading by company. [online] Www5.austlii.edu.au. Available at:
SECT 596 (p-1), 2021. CORPORATIONS ACT 2001 - SECT 596Frauds by officers. [online] Www5.austlii.edu.au. Available at:
Sewell, B., 2018. Corporate law: Navigating the safe harbour for small-to medium-sized enterprises. LSJ: Law Society of NSW Journal, (43), pp.82-83.
https://sklawyers.com.au/wp-content/uploads/2020/09/ben-sewell-lsj-april-2018.pdf
The Australian Institute of Company Directors(p-4-6), 2021. INDIVIDUAL General duties of directors. [online] Aicd.companydirectors.com.au. Available at:
