Ask a question from expert

Ask now

CLAW314 Corporate Law Assignment Insolvency Business Operations

10 Pages2673 Words214 Views
   

Kent Institute Australia Pty. Ltd

   

Corporate Law (CLAW314)

   

Added on  2020-02-19

CLAW314 Corporate Law Assignment Insolvency Business Operations

   

Kent Institute Australia Pty. Ltd

   

Corporate Law (CLAW314)

   Added on 2020-02-19

BookmarkShareRelated Documents
Running head: BUSINESS LAWBusiness LawName of the studentName of the universityAuthor note
CLAW314 Corporate Law Assignment Insolvency Business Operations_1
1BUSINESS LAWInsolvency is the state of the company where the company does not have enough moneyto pay back its creditors and smoothly operate its business operations. There are few signsthrough which it can be made out whether a company is insolvent or not. Firstly the mostprominent sign of a company becoming insolvent is that it has reached the limit of its bankoverdraft and the bank is refusing to give it any further loan without personal guarantees. Thecompany does not have enough assets to secure short term loans and the suppliers are not willingto supply goods on credit. When the company is not able to pay back its creditors and or astatutory demand has been made by them with constant legal threats along with the winding uppetition it is also a sign of insolvency (Harnahan., Ramsey. and Stapledon 2017). A company isalso deemed to be in solvent when it does not have enough money to pay remuneration andsalaries to its employees. This means that the chances of the company meeting wages bills arevery slim. According to the company insolvency test accompany it is deemed to be in solvent incase it is not able to pay its liabilities when they fall due or the one or liability of the companybecomes more than the total Assets of the company. According to the cash flow test even if thecompany has believe that in the reasonable near future it would not be able to meet the demandsof its creditors it is said that the company is nearing insolvency. According to the balance sheettest a company is insolvent if the overall Assets of the company are more than its liabilities(Asic.gov.au 2017).In case of insolvency that directors of the company have to be proactive in relation totheir actions with respect to the company. First leader directors have to get rid of the mentalitythat the problem cannot be solved and must take appropriate action quickly in order to addressthe problem. The directors must increase supervising and monitoring the position of the companyfinancially where it is found that it is facing financial difficulties. Director should also be aware
CLAW314 Corporate Law Assignment Insolvency Business Operations_2
2BUSINESS LAWof a few danger signs such as world liquidity ratio continuous loss overdue trade creditors ortaxes and the inability to provide correct financial information in timely manner. The board ofdirectors must also seek financial and legal advice to develop an alternative plan for the companyin order to avoid insolvency. The directors have to understand that turnaround and restructuresare time consuming process and in order to properly prepare and implement them they have to bepatient (Brown 2015).It is the legal obligation on the directors to act in the best interest of the company in aproper purpose. There are certain obligations which have been imposed to the directors withrespect to common law and the Corporation Act 2001 (Cth) (CA) in Australia respect to themanagement of the company. The non-compliance with these responsibilities and duties canresult in various Civil and criminal sanctions and penalties along with this qualification ofdirectors for managing a company. Potential liability of directors in case of insolvency includesbeen personally liable to all debt which has been entered by the company when it has becomeinsolvent because section 588 G of the Corporation Act provides that a director must not engagein trade when the company has become insolvent or they have the knowledge that the companyis about to become insolvent. In the case of Carrello as liquidator of Perrinepod Pty Ltd vPerrine Architecture Pty Ltd (“Carrello’s case”) [2016] WASC145 a claim was made by theliquidators in relation to insolvent trading against directors of the company along with the parentcompany with respect to Section 588G and 588V of the CA. However in this case the liquidatorwas not able to prove that the company was indulging in solvent trading as the standard financialstatements did not depict conclusions in relation to the same. However when the company hadadverse adjudication determination against it with respect to $1.06 million it was found by the
CLAW314 Corporate Law Assignment Insolvency Business Operations_3

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Paper on Company’s Insolvency
|11
|2500
|115

Essay on Insolvency in Law
|11
|2330
|279

Commercial and Corporation Law
|12
|4002
|320

Assignment on Corporate Law Insolvency of Corporations
|8
|2786
|39

Assignment Of LAW | Insolvency Consideration - LG237
|11
|2559
|90

Corporate Law Assignment - Insolvency
|12
|2575
|44