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(Solved) Assignment on Relevant Law

   

Added on  2021-06-14

6 Pages2187 Words68 Views
1ContentsSolution A...................................................................................................................................................2Issue........................................................................................................................................................2Relevant Law...........................................................................................................................................2Application..............................................................................................................................................3Conclusion...............................................................................................................................................4Solution B....................................................................................................................................................4Issue........................................................................................................................................................4Law..........................................................................................................................................................4Application..............................................................................................................................................5Conclusion...............................................................................................................................................5Bibliography................................................................................................................................................6

2Solution AIssuei.Whether the director of Fruut Pty. Ltd (Fruut) have violated section 180 (1) of theCorporation Act 2001. ii.Whether section 180 (2) have any effect in the given situation?Relevant LawThe Corporation Act 2001 is the legislation that deals with the working of a company, its officersand employees. The House of Lords has established in [ CITATION Sal964 \l 1033 ], thatonce a company is formed then it has a distinct personality of its own and has a separatelegal existence, that is, a company is an artificial person and have its own identityseparate that from its officer, shareholders and employees. [ CITATION Ger10 \l 1033 ]However, a company is not a natural person and thus its working is carried out by its officers anddirectors. Section 9 of the Act submits that any person who is employed as a director is acompany director and also comprises of shadow and de facto directors. When a person isnot appointed as director but is conducting all the acts that a director is required to do ofsuch a company then the person is also a de facto director and holds the position of adirector under section 9 of the Act [ CITATION Cha10 \l 1033 ]. Section 198A of the Actempowers a company director to carry the acts on behalf of the corporation. But, the Corporation Act 2001 has imposed with few statutory obligations or duties that everydirector must carry out. Section 180 (1) of the ActSection 180 (1) of the Act is an obligation that is imposed on company director and officers toact with care and diligence. The acts must be carried out like a normal prudent man musthave acted in the similar situation if such a person is the director or officer of thecompany or they are holding the post which is imposed with directorial duties. [ CITATIONAus13 \l 1033 ]Every director and officer when undertaking acts on company behalf must consider the solvencyof the company, its financial status, the impact of the act on the company and thus actwith care and diligence and is analyzed in [ CITATION Sta90 \l 1033 ].A director is accountable for the compliance of section 180 (1) even when the duty is delegatedby him. When any director is taking financial decisions then he must use his own mindand knowledge prior relying on any financial report. If the director rely on the judgmentof any other person without due reasons and the company suffers loss then the directorhas not acted within the preview of section 180 (1) of the Act. The duty under section 180 (1) is extended to non executive directors and is also declared inAWA Ltd v Daniels (1992). The duty must be comply with every person who is acting asthe company director and is held in [ CITATION Dan952 \l 1033 ].But, section 180 (1) is not rigid in nature and there is an escape route that is given to thecompany directors under section 180 2) of the Act.

3Section 180 (2) of the Act is the business judgment rule which emphasis that when any directoror officer (a) acts with good faith and honesty (b) and is of honest belief that the decisionis in the interest of the company (c) and that the reasons are correct to the best of hisknowledge (d) and have informed all director before taking the decision; then, it is heldthat the director must have comply with his duties under section 180 (1) of the Act. Section 181 Every company officer must act in good faith for the company’s interest and with properpurposeSection 182 and 183No misuse must be done by the officer regarding the company information and position and isheld in [ CITATION RvB95 \l 1033 ].Section 588G No insolvent trading must be carried out.ApplicationFruut grows/sells fruit trees. The director and shareholders of the company are Rik (manages daytoday financial affairs) and Patel (in-charge).Thus, as per section 9 they must comply with their directorial responsibilities.Lana is an accountant and attends meetings of the board and help in decision making. She alsotook bank guarantee on behalf of Fruut. Thus, as per section 9 and [ CITATION Cha10 \l1033 ], Lana is the de factor director and must comply with all directorial duties. Because of failing business, Rik decided to move. He decided a new premise owned by WatelPty Ltd. however, Rik is found to be in violation of section 180 (1). He did not act withdue care and diligence and he decided to take lease if the place without others consents,that is, Patel and Lana. However, Section 180 (2) can be availed because before finalizingthe decision of moving Rik acted in good faith. He believes that since the shop is locatedat the front of a large block of land with excellent soil, thus, it can be profitable for thebusiness considering the fact that there was no other company selling nearby. So, thedecision of Rik was based with honesty, good faith and with belief that the decisions willbe profitable for the company. Patel and Lana are also in violation of section 180 (1) because they did not question the lease thatis taken by Rik without informing them. They did not acted with due cared and diligencein the interest of the company. Conclusion It is thus concluded that all the company directors that is Patel, Rani and Rik are found to be inviolation of section 180 (1) of the Act as the decision of moving to the new premises is

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