Corporate Law

This document provides study material and solved assignments on Corporate Law. It covers topics such as fiduciary duties of directors, implications of insolvent trading, and the safe harbour rule. Real-life case studies are included to enhance understanding. Suitable for students studying Corporate Law.

Running head: CORPORATE LAW
Corporate Law
Name of the Student
Name of the University
Author Note

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PART A
Answer 1
A director company is entrusted with the management of the company and has the power
to act on behalf of the company. This creates an agency relationship between the company
and its director. The presence of an agency relationship creates a fiduciary duty for the
director to be ensured in his actions. Fiduciary duties implies duty of trust and faith to be
ensured. This requires the directors to act in a way that will ensure the well being of the
company. Official relationship will require the directors two different from causing detriment
to the company and remain faithful to the company. Insolvency is a detriment to the company
as it deprives the company of its power to repay its debts out of its own assets. It pushes the
company towards liquidation as a result of which the company loses its identity and it is put
to an end. The duty of a director to refrain from indulging into insolvent trading has been
provided u/s 588G pertaining to the Corporations Act 2001 (Cth) (Austlii.edu.au, 2019). This
can be treated as a restriction to be imposed upon the directors to keep them away from the
commission of insolvent trading. As insolvency cannot be construed as a benefit or advantage
to the company and the same pushes the company towards liquidation causing detrimental the
company, it will not be treated as a duty of faith and loyalty. Hence refraining from
insolvency trading can be said to have fiduciary duties being insured by the directors. Hence
duty to prevent insolvency trading is a fiduciary duty(Austlii.edu.au, 2019).
Answer 2
The duty of a director to refrain from indulging into insolvent trading has been provided
u/s 588G pertaining to the Corporations Act 2001 (Cth). This can be treated as a restriction to
be imposed upon the directors to keep them away from the commission of insolvent trading.
The mere affinity of a company insolvency in the event of any actions being taken by the

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directors will also be construed as insolvent trading. However, the Corporations Act 2001
(Cth) u/s 588GA extends defence towards the directors who are suspected to have
involvement in the insolvent trading in relation to the company (Austlii.edu.au, 2019).
However, this safe harbour rule that extends a defence towards the directors of the company
can only be availed by them if they can establish that the actions they have undertaken
furthering the company towards insolvency has been taken for the purpose of ensuring good
faith and for the purpose of restoring a beneficial position to the company. The directors are
required to prove that the actions they have taken enhancing the process of insolvency for the
company was the best action that could have been taken under a given situation. They must
also ensure that the action they have taken was objected to uplift the interest of the creditors
of the company and was to make the best of the assets of the company to pay out the
creditors. Their action should be the best possible action that it could have been taken in the
event of an upcoming insolvency.
Answer 3
The directors of a company are protected under the Corporations Act 2001 (Cth) u/s
588GA who are claimed to have involvement in the activity of insolvent trading. However,
this protection is only available to those directors who have acted in innocent manner for the
purpose of bringing benefits and advantages to the company. If it cannot be proved by the
directors that their actions were taken in a good faith the same will attract s 588G. This
section puts a prohibition on the directors stay away from being involved in any activity that
might push the company towards insolvency (Austlii.edu.au, 2019).
On other hand, u/s 180(2) pertaining to the Corporations Act 2001 (Cth), a director is
extended immunity of being held liable for the breach of general duties as a director
(Austlii.edu.au, 2019). For the purpose of this section the directors need to prove that their
conducts were undertaken guarantee interest of the company to be retained. This section does

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not protects a director from entering into insolvency trading but it protects a director for the
purpose of the breach of duty as a director of the company. Hence, both s 588G and s 180(2)
of the Act are aimed at providing immunity to the directors of the company, but the former
one only provides immunity to the directors in case the director has been involved in
insolvency trading and the latter one immunes the directors from their contravention of any of
their duties as a director of the company.
Answer 4
Although s 588GA of the Act provides immunity director who are suspected to have
involvement in insolvency trading. However such an immunity needs to be subjected to
certain restrictions that that the directors need to overcome wild seeking resort under this
section. The first restriction in this regard is the assumption that the director involved in
insolvency trading have acted in the best way possible in a particular situation. In all the
transactions that he has entered into while combating the verge of insolvency was to ensure
the best interest of the investors as well as the company. The second restriction in this regard
is the intentions of the director to guarantee the best interest of the company to be ensured
from their acts while combating with the verge of insolvency. They need to ensure that all the
debts and all the actions that they have undertaken on the quest to defeat insolvency was to
ensure the benefits of the company. The third restriction in this regard is the fact that the
directors are able to pay remuneration to their employees while they are yet to be declared
insolvent (Austlii.edu.au, 2019).
Answer 5
U/s 588G pertaining to the Corporations Act 2001 (Cth), the directors are barred from
inflicting insolvency or the probability of insolvency from the actions and activities they are
undertaking. For the purpose of holding a director liable for the act of insolvency trading as
prohibited u/s 588G it needs to be proved that actions of the director has a direct relationship

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with the undergoing of the company towards insolvency (Austlii.edu.au, 2019). Insolvency
depicts a situation where the company loses all its ability or to certain extent its ability to
repay the debts that it owes to the creditors as well as the investors. The directors need to
have the intention to cause such a situation by their acts to be held liable for the same. In
general when a situation of insolvency arises the directors are required to A wheel expert
advice for the purpose of combating the same. Liquidators and administrators are required to
be employed for the purpose of the management of the estates of the company to ensure the
best interest of the creditors. However disease herbal rule allows the director to proceed in
dealing with the insolvency of the company which is probable to arise in the near future.
However this rule requires director to guarantee promotion of the advantages position of the
company. It extends a chance to the director too much with the shareholders in order to
ensure the best out of the situation for the company as well as its creditors and investors. The
directors are free to act on their own in fighting with the situation of insolvency. This is a
scope given to the directors to manage the situation of insolvency in building the best results
from the states of the company without depriving any person of any of their rights.
A debtor company who does not have the means to repay the debts that it owes to other
individuals and has made it evident with the declaration that they are going to insolvency
resulting in there inability to make payment towards such debts will be required to be termed
as voluntary insolvency. Division 3 that has been introduced to the Act providing the
provision of safe harbour has provided the directors with scope to indulge into mischief that
can be detrimental to the creditors and investors. This conferred directors with the scope to
event there liability after causing insolvency trading and describing the creditors and
investors from their money under the disguise of voluntary insolvency. This is a loophole that
has been created in the Act to provide directors and immunity from their misdeeds that has
been committed to accrue personal benefits at the cost of the interest of the investors and

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creditors. The directors seeking resort under this section by providing reasons, which are
fabricated and untrue. The arbitrariness of the directors to indulge into insolvency trading will
rise and the directors will be carefree in ensuring the benefits of the creditors and investors. It
has conferred the directors with the right to declare insolvency in an independent manner
without caring for the interest of the creditors as well as the investors. The scope of the
directors to Windows into insolvency trading will become brother as we can seek resort under
the safe harbour rules. A great risk will be inflicted upon the creditors being an aware of the
intentions of the directors (Austlii.edu.au, 2019).
PART B
Answer 1
The director belonging to the Linchpin Capital Group namely Mr Daly was involved in the
misappropriation of $20 million which has been raised by the company why inviting
investments for a fund (www.abc.net.au, 2019). This can be treated as violation of the duties
of the directors that are required to be insured under the Corporations Act 2001 (Cth). Mr
Daly has instrumented a ponzi scheme, which has been formed for the purpose of inviting
new investments for repaying the previous ones. This can be treated as a violation of the duty
of the director to activate diligent manner with ensuring proper care as provided u/s 180(1).
The acts of Mr Daly was also not in conformity with the provisions provided u/s 182 as he
has utilised the money from the investment fund to serve his own benefits causing
disadvantage to the company. Mr Daly also failed to satisfy the provisions u/s 182 as he has
acted for the purpose of achieving personal benefit at the cost of the interest of the company.
He has also violated the provisions u/s 183 by using the position for accessing information
that has been used by him to cause detriment to the company. He has also utilised his position
what into the company as a director for the purpose of causing abuse to the investors of the
company which is a violation the provision u/s 184. Moreover he has failed to furnish all the

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accounts of the transactions that he has been effecting under the position as a director as was
required to be furnished u/s 191. Hence, Mr Daly was in breach of directors duties mentioned
in the Act.
Answer 2
Two other directors belonging to the Linchpin Capital Group has been acting in
contravention of their duties as a director as provided u/s 180(1), 182, 182, 183, 184 and 191
of the Corporations Act 2001 (Cth). Firstly one of the directors have utilised the money that
has been misappropriated from the funds of the company to arrange his daughter’s wedding.
The lavish arrangements of the wedding has been borne with the investments of the investors
in the company. On the other hand another director has been finding his dispute settlement
with his wife with the money that has been drawn out from the investment fund of the
company. Moreover these two directors has failed to prohibit the breach of the duties that has
been committed by Mr Daly. They were assisting him in all his endeavours and failed to
prohibit him from such activities. This needs to be treated as a breach of section 180 as this
cannot be treated as a diligent act on the part of the directors. Moreover their acts were
confirming their intentions to reap personal benefits from the detriment of the company and
its investors. This again shows of contravention of section 181. Moreover, they also failed to
ensure the benefits of the company and has failed to restrain Mr Daly from indulging into the
activities that might cause detriment to the company and enjoyed the benefits availed from
the same (www.abc.net.au, 2019).
Answer 3
The Linchpin Capital Group has been inviting investments from the public to be invested
in their investment fund. This fund has no proper purpose or operation other than serving the
needs of the directors. It has no plans to yield return for the investors. The only plan upon
which the fund has been created was to repay the investors from the money raised through the

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invitation of fresh Investments. Hence it can be stated that apart from inviting new
Investments this company had no other means to pay out its debts and satisfy its already
existing investors. It can be stated that the company was only a step away to be rendered as
insolvent. Hence, all the trading activities of the directors will be treated as insolvent trading
(www.abc.net.au, 2019). This is because all your funds has been exhausted and the money
they have borrowed from the lenders has been utilise for their own benefits. This implies that
the company has been approaching the stage of insolvency and any act of the directors in this
furtherance will be treated as insolvency trading.
Answer 4
The Corporations Act 2001 (Cth) u/s 588GA extends defence towards the directors who
are suspected to have involvement in the insolvent trading in relation to the company.
However, this safe harbour rule that extends a defence towards the directors of the company
can only be availed by them if they can establish that the actions they have undertaken
furthering the company towards insolvency has been taken for the purpose of ensuring good
faith and for the purpose of restoring a beneficial position to the company. The directors are
required to prove that the actions they have taken enhancing the process of insolvency for the
company was the best action that could have been taken under a given situation. They must
also ensure that the action they have taken was objected to uplift the interest of the creditors
of the company and was to make the best of the assets of the company to pay out the
creditors. Their action should be the best possible action that it could have been taken in the
event of an upcoming insolvency. But, in the present situation, the defence u/s 588GA is not
available to the directors of the Linchpin Capital Group as they failed to requirements of this
section (www.abc.net.au, 2019).

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Answer 5
The safe harbour rule has the effect of extending immunity to the directors of a company
from indulging into activities that has the effect of pushing the company to take up
insolvency. However, to ensure an immunity under this rule the directors of the company
alleged to have indulged into such an activity has to prove that they have been adopting the
best action possible under the particular situation they have been facing. Moreover, all the
actions they have been undertaking needs to be in conformity with the interests of the
company as well the creditors. The interest and the benefits of the creditor and investors
needs to be given utmost importance. Hence, it can be stated that in the present scenario, the
directors of the Linchpin Capital Group will not be extended with the immunity under this
section (www.abc.net.au, 2019).

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Reference
www.abc.net.au (2019). Document shows concerns about board culture inside billion-dollar
financial advice firm. [online] ABC News. Available at: https://www.abc.net.au/news/2018-
09-21/financial-advice-company-linchpin-lied-to-asic-document-suggests/10287240
[Accessed 19 May 2019].
www.abc.net.au (2019). 'It's been brand damaging': Investment fund chief denies claim he
used funds to pay for daughter’s wedding. [online] ABC News. Available at:
https://www.abc.net.au/news/2018-08-24/company-directors-borrow-money-from-clients-as-
asic-investigates/10157236 [Accessed 18 May 2019].
The Corporations Act 2001(Cth)
Austlii.edu.au. (2019). Australasian Legal Information Institute. [online] Available at:
https://www.austlii.edu.au [Accessed 18 May 2019].
The Stake Man Pty Ltd v Carroll [2009] FCA 1415
Austlii.edu.au. (2019). Australasian Legal Information Institute. [online] Available at:
https://www.austlii.edu.au [Accessed 19 May 2019].