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Assignment on Corporate Law (pdf)

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Added on  2021-06-17

Assignment on Corporate Law (pdf)

   Added on 2021-06-17

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Running head: CORPORATION LAWCORPORATION LAWName of the StudentName of the UniversityAuthor Note
Assignment on Corporate Law (pdf)_1
1CORPORATION LAWAnswer for Issue 1IssueAn incorporated private limited company has two directors and shareholders namelyLiam and Peta. The company was unable to meet its debt obligations and thus became insolventin June 2017. Under the instructions of Liam and Peta the company continued to transact eventhough there were tax liabilities which were not paid and creditors who could not be paid by thecompany. The issue is the determination of whether ASIC can impose civil and/or criminalliabilities on Liam and Peta.RuleThe Corporations Act, 2001 regulates and governs companies functioning within thejurisdiction of Australia. It has been decided in Sutherland v Hanson Construction MaterialsPty Ltd[2009] NSWSC 232 that the solvency of a company is determined by its ability to meetits debt on a given day1. Section 95A (1) of the Corporations Act, 2001 states that when acompany is unable to meet its debt obligations it is considered insolvent. It has been furtherprovided for in Section 95A (2) that a company that is not solvent under the provisions ofSection 95A (1) is considered insolvent2.The Corporations Act, 2001 prohibits insolvent trading. This means that when a companyis not able to meet its debt obligations the directors of the company have a statutory duty toensure that the company refrains from incurring further debt by entering into transactions. Evenif no additional debt is incurred transaction during insolvency are prohibited. This liability of1 Hanrahan, Pamela F., Ian Ramsay, and Geofrey P. Stapledon. "Commercial applications of company law." (2013).2 Sealy, Len, and Sarah Worthington.Sealy & Worthington's Cases and Materials in Company Law. OxfordUniversity Press, 2013.
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2CORPORATION LAWdirectors is stated under Section 588G of the Corporations Act, 20013. In case the companycontinues to transact during insolvency and such transactions are carried on dishonestly thedirector would be guilty of a criminal offence. This has been stated in Section 588 (3) of theCorporations Act, 2001.If insolvent trading is established, under a civil action ASIC would be entitled to imposethe following liabilities4:Disqualification from managing companies;Imposing a fine that is substantially high;Demanding compensation on behalf of the company for any loss suffered by creditors asper the provisions of Section 588J of the Corporations Act, 2001.As provided for in Section 588K of the Corporations Act, 2001 ASIC imposes criminalliabilities for dishonest insolvent trading.ApplicationThe facts stated make it evident that the company could no longer meet its debtobligations and thus the company devised a mechanism to ensure priority creditors are paidwhile lower priority creditors were kept on hold. Thus it can be inferred that through its inabilityto meet its debts it would be considered insolvent as per the provisions of Section 95A (1) of theact. The directors of the organization were thus required to cease all business transactions onbehalf of the company as provided in Section 588G of the Corporations Act, 2001.3 Hannigan, Brenda.Company law. Oxford University Press, USA, 2015.4 McQueen, Rob.A Social History of Company Law: Great Britain and the Australian Colonies 1854–1920.Routledge, 2016.
Assignment on Corporate Law (pdf)_3

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