A Corporation Has No Soul —

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

CORPORATE LAW1
Question 1
The Issue
The issue in relation to the given scenario is that what shall be the legal obligations in
connection to the parties.
Discussion of Rules
Section 588G as mentioned in Corporations Act enforced in the year of 2001, relates to
‘Insolvent Trading’1. The application of this particular section is done if an individual is the
director of an organization during the time period when a debt is incurred by the organization. It
is mandatory that the organization is going through an insolvency during that the incurrence of
the debt, or the organization becomes insolvent upon the incurrence of such debt. It is also
mandatory that when the debt has been incurred by the organization, rational grounds must exist
for suspecting that the organization is going through an insolvency or may become insolvent. It
may be said that when the individual is unsuccessful in preventing the organization from the
incurrence of the debt, the individual causes a contradiction of this section, if that particular
individual has knowledge in relation to the circumstances of the organization. Therefore, offence
is committed by an individual, if the organization suffers insolvency due to the incurrence of the
debt and the individual is the director during the incurrence of such debt.
As per section 180 of Corporations Act established in 2001, an officer or a director
should fulfill their responsibilities regarding the organization with proper diligence and adequate
care just like a practical and sensible person2.
1 Corporations Act, 2001 (Cth)
2 Ibid.

CORPORATE LAW2
As per section 181 of Corporations Act of 2001, an officer or a director should perform
their responsibilities regarding the organization in good faith. It must be mentioned that the
responsibilities of such officer or director may also include the performance of their obligations
for a proper purpose3.
As per section 182 of Corporations Act of 2001, an officer or a director should not
improperly or inadequately utilize their position in the organization so that they may gain private
welfares and benefits or welfares and benefits for any other individual. An officer or a director
should also not utilize their position in an improper manner, which may become the reason for
damage in relation to the organization4.
As per section 183 of Corporations Act of 2001, an officer or a director should not utilize
any kind of information in relation to the organization that is received by them for private gains
and benefits or for the advantage of any other individual. An officer or a director should not
utilize such information in an inadequate manner, which may become the reason for damage to
the company5.
In relation to fiduciary obligations and duties of the partners regarding partnership
businesses, it might be stated that it shall be the legal responsibility of the partners to give effect
to actions, which shall be for the advantage of the partnership business. A particular feature
regarding the partnership business is that a partner is considered as privately and legally
accountable in relation to the contracts that are established by the other existing partners in the
business. Another feature in relation to a partnership business is that a partner in a business
should always be honest and act accordingly and a partner should maintain a conduct and
3 Corporations Act, 2001 (Cth)
4 Ibid.
5 Ibid.

CORPORATE LAW3
comportment of fairness and good faith in relation to the other existing partners. A partner has a
responsibility to care just like a sensible and prudent individual in relation to the management
and course of the business. Another mandatory feature regarding a partnership business is that
any possible peril, jeopardy or advantage must be disclosed by a particular partner to the other
existing partners. Such disclosure of information shall help and support the partners to make
informed resolutions and assessments regarding the business6.
Analysis of Rules
In the provided scenario, the shareholders as well as the directors of the company named
‘SRT Pty Ltd’ are Sam and Rosa. They are beneficiaries regarding Tipping Trust. Charlotte and
Mia are considered as partners regarding their business of wholesale nature. In order to explore
the country of Australia Sam and Rosa sold the shares and extracted a tiny portion in relation to
the revenue. Charlotte changed and modified invoices of tax by adding ten percent further
charge. This information was not shared by Charlotte to Mia. Charlotte received the amount
relating to further charge. When Phillipa was hired by Sam and Rosa, she gave effect to certain
decisions regarding the financial structure of the company in order to cause development to the
company. However, such decisions were unable to save the company from its liquidation, instead
it became the cause for the liquidation of the organization. Debts that are outstanding must be
paid to creditors.
Applying the rule as stated in section 588G of Corporations Act, it may be said that Sam
and Rosa caused a violation of this section7.
6 Langford, Rosemary Teele. "High Court of Australia on Fiduciary Theory." (2016) Fiduciary Duty and the
Atmospheric Trust. Routledge,. 197-218.
7 Corporations Act, 2001 (Cth)