Case Study Assignment on Corporations Act 2001

Running head: CASE STUDY ASSIGNMENT
CASE STUDY ASSIGNMENT
Name of the Student:
Name of the University:
Author Note:

1CASE STUDY ASSIGNMENT
Answer (a):
Issues:
The issue involved in the present case study is whether Shilpa and Sonal can be sued by
the liquidator for the recovery of the debts owned by the Sonu Pty. Ltd.
Rules/Law:
To analyze the given case study, the Corporations Act 2001 has to be referred1. Section
477 of the said act provides for the powers of the liquidators. As per sub section 2 of section 477,
the liquidator of a company has the power to defend or institute any litigation in the court in the
name of and on behalf of the company2. Similarly, he can appoint a solicitor who will assist him
in order to perform his duties. He can even sell or even dispose of all or any part of the property
belonging to the company. He also has the power to perform all such other things necessarily
required for winding up of the company and to distribute its property.
Section 588 FDA of the said act provides powers to the liquidators to pursue directors in
case of an unreasonable transaction made by them. In order to determine whether any transaction
made by the directors is unreasonable or not, the liquidator has to establish or prove certain
facts3. The liquidator can pursue a director when the company has paid or transferred its
property, and has issued the securities and the company has an obligation to make such
disposition of the property or payment, moreover the payment of money or disposition of
property was made to a director or to a person on behalf of that directors or to the close associate
of the director. The liquidator can only pursue the director for such unreasonable payment or
1 Horne, Andrew. "Call for review of Corporations Act." Governance Directions 69.8 (2017): 450.
2 The Corporations Act 2001 (Cth), s. 477.
3 The Corporations Act 2001 (Cth), s. 588FDA.

2CASE STUDY ASSIGNMENT
disposition when it is expected that any reasonable person in such situation of the company may
not have undergone such transaction after considering and weighing the benefit and loss of the
company.
Hence, it is seen that the liquidator under section 588FDA has a wide scope to pursue the
transactions of the company and they have the duty to look into any such transaction made with
the close associates or family members of the directors4.
Moreover, section 588FGA is an important section to be considered by the directors
when a company is about to be wound up5. If the liquidator of the company considers that a
preferential payment to the Australian Taxation Office (ATO) is made by the company, he can
take action to recover it6. If the liquidator can obtain an order from the court for the said
preferential payment against the ATO, section 588 FGA of the said act allows the directors to be
liable to the ATO for such preferential payments.
Moreover, the liquidators are also needed to look into and investigate the affairs of the
company for the period immediately before the liquidation. This investigation includes
considering the actions of the directors to find out whether they have infringed any of the duties
of the directors. The directors are said to breach their duties if they have not performed their
duties as per provisions of section 180 to 184 of the said act7.
4 Langford, Rosemary Teele, and Ian Ramsay. "Directors' Duty to Act in the Interests of the Company: Subjective or
Objective?." Journal of Business Law (2015): 173-182.
5 The Corporations Act 2001 (Cth), s. 588FGA.
6 Braithwaite, Valerie, and Monika Reinhart. The Taxpayers' Charter: Does the Australian Tax Office comply and
who benefits?. Centre for Tax System Integrity (CTSI), Research School of Social Sciences, The Australian
National University, 2019.
7 Hill, Jennifer G., and Matthew Conaglen. "Directors’ Duties and Legal Safe Harbours: A Comparative
Analysis." Research Handbook on Fiduciary Law, DG Smith, AS Gold, eds, Edward Elgar, UK (2017).