This article discusses various provisions of the Corporation Act 2001 (Cth) and relevant case laws to address issues related to mortgage claims, appointment of directors, and disqualification of directors. It also provides practical applications of these provisions and case laws in different scenarios.
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Running Head: BUSINESS LAW Business Law Name of the Student: Name of the University: Author Note
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1BUSINESS LAW Question 1 Issue The issue identified by going through the facts stated by the problem is that whether ABC ltd can successfully claim the mortgage in relation to the land owned by Sailaway Pty Ltd which has been mortgaged for getting a loan. Rule The issue which has been identified would be addressed by applying the relevant provisions of the Corporation Act 2001 (Cth) which governs organizations in Australia. It has been provided through the provisions of section 127 of the Act that a document in relation to the company will only be entitled to be legally valid if it has been signed by at least two directors of the company along with or without the common seal of thee company. It has been provided through the provisions of section 128 of the Act that any person who is dealing with the company has the right to rely on assumption which are provided in section 129. It is provided through the provisions of section 129(5) of the Act that any document which appears to have been signed as per the provisions of section 127(1) has been executed legally. In addition as per the provisions of section 129(6) of the Act any document which appears to have been fixed with the common seal as per the provisions of section 127(2) has been executed legally.
2BUSINESS LAW However, the provisions of section 128(4) of the CA specifies that an assumption is not entitled to be made under the provisions of section 129 if the person making the assumption suspected or knew at the time of the dealing that the assumption is not correct. The provisions have been discussed in the case ofSunburst Properties Pty Ltd v Agwater Pty Ltd and Soyfer v Earlmaze Pty Ltd. Under the provisions of section 129(3)(b) it has been stated that a person has the right to assume that a person who is held as the agent or officer of the company has the power to discharge duties which are customarily exercised by the type of agent in any other company. Further in the case of Royal British Bank v Turquand (1856) it has been stated by the court that any outsider who is linked in a dealing with the company has no obligation to make an inquiry whether the rules which are provided in the internal management of the organization have been acted in accordance with. Another case which dealt with similar issue is the case ofBank of New Zealand Pty Ltd v Fiberi Pty Ltd. The directors did not comply with the requirements of the constitution and executed the document through a fake company secretory for mortgage. The court held that the transaction was valid as per the assumptions under section 129(1) of the CA. However an exception to the famous indoor management rule had been provided in the case of Northside Developments Pty Ltd v Register-General (1990) 170 CLR 146. In the given situation it was held by the court that when the third party does not make an inquiry which would have been made customarily or normally by any person in the same position the doctrine of indoor management rule can be denied to such person. Application
3BUSINESS LAW It has been provided through the scenario that Bill and Alan are the directors and shareholders of the companySailaway. Alan who is also the chairman of Broadacres has obtained a loan by putting a land owned by Sailaway on Mortgage. The Loan has been obtained from a financing company called ABC Finance Ltd. He has managed to secure a loan of $1.5 million from ABC to be directed to Broadacres. However in the given situation Broadacres has failed in business and is unable to pay the loan and ABC want to exercise their right on the land which had been mortgaged by Alan. It has been stated by the provisions of section 129(5) that where a document appears to have beensigned by two directors of the company as per section 127(1) it can be assumed that the document is duly executed. It has also been stated by the above discussed cases ofRoyal British Bank v Turquandthat when a third party deals with the organization it can assume that all internal regulations of the organization has been complied with. In addition the rule had been discussed by the case ofBank of New Zealand Pty Ltd v Fiberi Pty Ltdwhere the court held the contract valid even when it was signed by a fake secretary.It has been provided through the scenario that Alan has forged the signature of Bill, however through section 129(5), 127(1) and the cases ofBank of New Zealand Pty Ltd v Fiberi Pty Ltd andRoyal British Bank v Turquandit can be stated that ABC has the right to assume that the document has been signed properly and all internal rules of the company has been complied with. Evidently, it can be stated that the mortgage deal between Sailaway and ABC is binding and valid. However it has also been provided in the scenario that, Tom who was the manager of ABC had the knowledge that Sailaway does not deal with real estate transactions through the earlier dealings which took place between them. It had been provided through the case ofNorthside Developments Pty Ltd v Register-General that there is a specific situation when the indoor management rule can be exempted. In this case it was held by the court that when the third party
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4BUSINESS LAW does not make an inquiry which would have been made customarily or normally by any person in the same position the doctrine of indoor management rule can be denied to such person. Further it has been stated through the provisions of section128(4) of the CA that an assumption is not entitled to be made under the provisions of section 129 if the person making the assumption suspected or knew at the time of the dealing that the assumption is not correct. Thus as Tom had knowledge in relation to the suspicious nature of the transaction it was his duty to let his close friend who executed the transaction know about the suspicious nature of the dealing as a reasonable person. Thus as per the provisions of the section 128(4) and the Northside case the indoor management rule would not be applicable in the situation and the transaction is not valid. Conclusion ABC cannot exercise their mortgage right over the land owned by Sailaway. Question 2(a) Issue The issue which has been identified in relation to the situation is that who can be appointed as the directorsNo-Tax Agents Pty Ltdlegally under the provisions of the CA. Rule It has been provided through the provisions of section 201B of the CA that in order to be a director a person has to be a natural person (Not an artificial person as created by law eg private compan) who has at least attained the age of 18 years. He must not have been disqualified by the
5BUSINESS LAW provisions of the existing law from managing the affairs of a company. He must have provided consent to work as a director under the provisions of section 201D of the CA. The general definition of a director signifies him or her as a person who has been employed as the officer of the organization and has the obligation of managing the business and being the member of the board. Under the provisions of section 206B as person is automatically disqualified from being the director of a company if it is found that they have been adjudged guilty in a criminal offence or have been declared bankrupt. As per section 206B (1) (a)(1) a person cannot be a director if he is convicted of an offence in relation to decision making which affects the substantial or whole part of business. Under section 206B (1) (a)(2) a person cannot be a director if he is convicted of an office in relation to decision making which affects financial standings of the company. Under section 206B (1) (b)(2)a person cannot be director if he has been convicted of an offence involving dishonesty and imprisonment of 3 months or more. The disqualification period as per section 206B (2) (a) starts on the day of conviction and ends 5 years after the day. Where there is imprisonment the disqualification period under 206B (2) (b) is five years after getting released. Application The wish of Conrad that his home company should be appointed as a director of the company in context cannot be executed. This is because it has been specifically provided through the provisions of section201B that a director has to be a natural person and as a company is an artificial person it cannot be a director. Further Marcia will also not be eligible for being the director of the company under the provisions of section206B. This is because it has been provided through the section that as
6BUSINESS LAW person is automatically disqualified from being the director of a company if it is found that they have been adjudged guilty in a criminal offence or have been declared bankrupt. Here Marcia is serving imprisonment forfalsifying company account and still has a five month period left. It has been provided through(1) (b)(2)a person cannot be director if he has been convicted of an offenceinvolvingdishonestyandimprisonmentof3monthsormore.ThusMarciais disqualified. Further where there is imprisonment the disqualification period under 206B (2) (b) is five years after getting released. Thus Maria can only be the director after 5 years of being released. Conclusion Both the company and Marcia cannot be the directors of the company Question 2(b) Issue The issue which has been identified in this section is that whetherConradcan be prosecuted by ASIC for making 2-3 companies insolvent even where the liquidator did not find any fault on his part. Rule It has been provided through the provisions of section 206F of the CA that ASIC has the power to disqualify a person from being the director of a company. The period for which such person can be disqualified as the director is a period of 5 years. Under section 206F (1)(a) ASIC has the right to disqualify a person from managing the company if within a period of 7 years immediately before the notice under section 206F(b)(i) is issued the person was the officer or
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7BUSINESS LAW director of two companies and within 12 months of the person ceasing to be the director the company has entered liquidation and a notice in relation to the inability of the company to pay its debts have been provided by the liquidator under section 533(1) Under section206F(b) the ASIC notifies the person why he should be disqualified and gives them an opportunity to be heard. Under 206F(c) if the ASIC is satisfied that it is justified to remove the director he is removed. The ASIC also considers public interest under 206F(2)(b)(ii). Application It has been provided in the scenario that Conrad’s family company has been subjected to liquidation. The liquidator has not found any proof that there has been fault on the part of the director. However ASIC has a record that over the last 9 months Conrad has a similar record with two other company. In the situation it has been stated bysection 206F of the CA that ASIC has the power to disqualify a person from being the director of a company. Under section 206F (1)(a) ASIC has the right to disqualify a person from managing the company if within a period of 7 years immediately before the notice under section 206F(b)(i) is issued the person was the officer or director of two companies and within 12 months of the person ceasing to be the director the company has entered liquidation and a notice in relation to the inability of the company to pay its debts have been provided by the liquidator under section 533(1). Thus as the same situation has happened with Conrad and liquidator has provided notice under section 533(1), the ASIC may suspendConrad for managing the corporation for a period of 5 years. While doing so it will consider position of Conrad and public interest. Conclusion ASIC may suspendConrad for managing the corporation for a period of 5 years