Corporation Law: Analysis of Case Scenarios

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

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Corporations Law:
Answer 1:
Issues involved:
The matters in issues arising out of the present case study are as follows;
a) Is determining the result of the present case,
b) Is determining the ideal result in the present case study,
c) Is determining whether the result will be different in case the loan was taken for causing
the refurbishment of the cloth shops and in case the bank officer was aware that the
relation of Sarah with the Board fell out of favour.
Rules of law:
The present case can be analyzed in the light of the doctrine of indoor management which
protects the interest of the outsiders in course of their dealing with the company. The said
doctrine evolved in the Royal British Bank v Turquand (1856) 6 E&B 327 which stated that
people who are making transaction with the companies are entitled to presume that the internal
affairs of the company have been complied even if they are not.
The outsiders referred here are the shareholders, investors and other who do not form the
part of the company. Here these persons are not require to enquire about the internal affairs of
the company such that whether they are followed accordingly if they are contended that the
transaction is done according to the articles and memorandum. This doctrine is helpful to the
external members or the outsiders whose interest is protected from the company. It further states

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that they can assume that the internal proceedings are performed as per the documents which are
provided to the company Registrar. This doctrine is based on the fact that the internal matters of
any company cannot be known to the outsiders. Moreover, if this doctrine was not there, the
company can escape the creditors by not accepting the act of the officials acting on behalf of the
company.
Apart from the common law doctrine, the Corporations Act 2001 (Cth) provides the
statutory provisions that controls and regulates the creation as well as operation of the companies
in relation to the constitution which may be adopted by the company and also the officer’s
powers and duties.
In this regard, sections 125, 126 must be referred in order to analyze the case scenario.
These two sections are contained in the Part 2B.1 of the Act which provides the powers of the
company and the methods by which such powers can be exercised.
Section 125 of the Act provides that the powers can be limited by the Constitution and
objects can be set. Section 125(1) of the Act provides that when there is a constitution held by a
company, it can put restriction or prohibition on exercising such powers by the company.
However, if the company exercises its power in such a way that it is in contradiction to its
constitution, then such act of the company will not be considered invalid. Moreover section
125(2) states that the constitution of the company can state the objects of the company. Any act
performed by the company cannot be held invalid just because it is in contradiction with the
objects set in the constitution or it is beyond the scope of such objects.
In addition to these, for discussing the issues of the case, section 126 of the Act has to be
referred. It provides that power of the agents to execute a contract on behalf of the company. an