Corporate Law Assignment - (Doc)

Added on - 04 Oct 2020

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Corporate Law
Table of ContentsINTRODUCTION...........................................................................................................................1PART A...........................................................................................................................................11. Is the duty to prevent insolvent trading a fiduciary duty? Why or why not?.....................12. How does the safe harbour defence Section 588GA operate?...........................................13. Who does it (s588GA) protect, and is this different to the business judgement rule s180 (2)?Give reasons...........................................................................................................................24. Are there any restrictions on the operations of s588GA defence? If so, what are they?....35. Do you think the changes to Division 3 will have an effect on the number of voluntaryinsolvencies in Australia in the future? Why or why not?.....................................................4PART B............................................................................................................................................41. Did Mr. Daly breach any directors' duties? If so, which ones and how?...........................42. Did any of the other directors breach their duties? If so, which duty and how?................53. Do you think the company was trading while insolvent? Give reasons.............................64. if the company was trading while insolvent-are there any defences available to Mr. Dalyand /or other directors? If so, what are they? Give reasons...................................................65. Would the new safe harbour defence assist the directors? If yes, how? If no, why not?...7CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................9
INTRODUCTIONCorporate law is the body of rules and legal provisions that governs incorporation andaffairs of companies in a country. It regulates rights and obligation of individual engaged withforming, owning and managing an entity1. A company comes into existence when it getsregistered under Corporate Law of a particular country. Also, it can be dissolved through lawonly. It consists features which should be there in an organization to get the status of a companyin Australia. The report covers discussion on safe harbour defence in s588GA and number ofquestions related to duties of directors on the basis of “The talented Mr. Daly”.PART A1. Is the duty to prevent insolvent trading a fiduciary duty? Why or why not?According to Section 588G of Corporations Act, 2001, insolvent trading means if acompany has been become insolvent and direct giver permission to obtain or incur new loan ordebt, then defaulting director will be held personally liable for new debts. Corporate Laws inAustralia has gone through number of reforms whereby this amendment took place. A director isunder a duty to raise the alarm of financial difficulties so as to protect company as well asinvestors who have invested in it. It is necessary to take suitable actions and decisions formanaging the assets in an efficient way for keeping the trust of investors and public2. Thus, it canbe said that, a director has fiduciary duty to inform internal management about condition of acompany so that appropriate measures can be taken to save it from dissolution. Also, noadditional debts should be incurred knowingly, when the corporate has already becomeinsolvent. The reason being, a director is fully aware about the most confidential data andinformation which has not been made public and have potential to fluctuate prices of stocks andother major aspects. Failure to exercise and make right decision regarding getting more funds inthe insolvency phase, the director who has taken such action will be held liable. Directors areexpected to act honestly and in good faith. Furthermore, this is about being ethical andtransparent about activities going within an organization. A director has huge responsibilities andshould always abide by legal provisions mentioned under Corporation Act 2001.1Allen, W. T. (2017). Our schizophrenic conception of the business corporation.InCorporate Governance(pp. 79-99). Gower.2Baker, M. (2018).Translation and conflict: A narrative account. Routledge.1
2. How does the safe harbour defence Section 588GA operate?Corporations Act, 2001 describes safe harbour as a protection to director from limitedcivil incidents of insolvent trading. It is a defence which can be used in particular situations.Section 588G(2) is new section for this safe harbour to be applied as a defence. A director willnot be held personally liable for a debt incurred by an insolvent company in the following cases:debt incurred after doubt of company might become insolvent has generated.Director establishes one or more alternatives.Debt obtained with a view to have improved situations with better outcomes.Debt incurred directly or indirectly with any such course of action3.There is underlying requirement of this defence mechanism under which a director has totake positive steps to develop and implement plan for restructuring of the company. This must bedone with the assistance of a qualified professional who is appointed once corporate insolvency.There are two events in which a director cannot take the benefits of safe harbour defencewhich are as follows:for the payment of employment entitlementsfulfilling the taxation reporting requirements.Within a prior period of 12 months.However, before going for this option, a director must prove that:presence of reasonable grounds to believe the company was solvent.Had not been involved in management due to illness or for some other valid reason.All the reasonable steps were taken to avert incurring the debt.In nutshell, it is a powerful defence which has the potential to save a director frompersonal liability due to incurring of loan while company has become insolvent and director hada plan to rescue the business from such situation4.3Bottomley, S. (2016).The constitutional corporation: Rethinking corporate governance.Routledge.4McQueen, R. (2016).A Social History of Company Law: Great Britain and theAustralian Colonies 1854–1920. Routledge.2
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