Corporations and Business Structures | Issues Discussion

Running head: CORPORATIONS AND BUSINESS STRUCTURE
Corporations and Business Structures
Name of the Student
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Authors Note

1CORPORATIONS AND BUSINESS STRUCTURE
1.
Issue
The issue which is involved in this paper is that whether the parties have any legitimate
duties under the Corporations Act, 2001 (Cth).
Rule
Here, the Corporations Act, 2001 (Cth) is taken into consideration to discuss the issues. It
has been observed that, in case of any business organizations the key functions are performed by
the directors and shareholders. However, the main part is played by the directors and without the
participation of the directors, it is not possible for an organization to run smoothly1. Section 9 of
the aforesaid Act2 elaborates the term director. According to the role played by the directors, the
position of a director can be divided into three categories, such as additional directors, ‘de facto’
directors and ‘shadow’ directors3. The main functions performed by the directors are:
 Making important decisions;
 Determining and implementing policies;
 Preparing vital documents;
 Calling meetings;
 Maintain financial records.
1 Kluver, John. "Entity vs. Enterprise Liability: Issues for Australia." (2004) Conn. L. Rev. 37: 765.
2 Corporations Act, 2001 (Cth)
3 Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia. (Federation
Press, 2002).

2CORPORATIONS AND BUSINESS STRUCTURE
Section 191 of the said Act4 states that a director must disclose every material
information and vital matters of the organization related with the personal interest of the
director to the other members.
Section 588G of this Act5 elaborates the concept of insider trading according to which a
director has responsibility to avoid insolvent trading. A director will become liable for insider
trading only after the confirmation of an arrangement by the director after taking loan, when the
business organization becomes insolvent or may go into liquidation or possible grounds present
which requires that the business may goes into liquidation6.
According to section 180 of this Act7, at the time of taking vital decisions for the benefit
of an organization, a director must act like a sensible person with diligence and adequate care.
Section 181 of the said Act8 enumerates that a director must act in bona fide way in the
interest of the organization. These duties need to be done for a suitable purpose and in order to
resolute conflicts.
Section 182 of the above-mentioned Act9 describes that a director must not use the
position inappropriately for taking unjustifiable gain for his/her own interest or for the benefit of
the some other people as it may result in harm to the business.
Apart from that, section 183 explains that it is the responsibility of a director to not to
reveal any substantial data for such a purpose which is not legitimate and for taking such an
4 Corporations Act, 2001 (Cth)
5 Corporations Act, 2001 (Cth)
6 Waring, Peter. "Rethinking directors' duties in changing global markets." (2008) Corporate Governance:
The international journal of business in society 8.2: 153-164.
7 Corporations Act, 2001 (Cth)
8 Corporations Act, 2001 (Cth)
9 Corporations Act, 2001 (Cth

3CORPORATIONS AND BUSINESS STRUCTURE
advantage either for his/her own interest or for the benefit of the other people which is not
justified as it may damage the organization.
On the other hand, according to the Australian general law, the fiduciary responsibilities
include:
 Responsibility of not utilizing power inappropriately;
 Responsibility to act bona fide and not contrary to the interest of the business;
 Responsibility to excuse encounter; and
 Responsibility to protect discretion10.
Analysis
In this provided scenario, SRT Pty Ltd is a business organization in which Sam and Rosa
are the joint directors and shareholders. Not only that, they are also the receivers of the Tipping
Trust which mainly deals with the business of locksmith. Therefore, Sam and Rosa are also the
trustees and beneficiaries of Tipping Trust. After a certain period, Sam and Rosa have decided to
sell all the shares of that business. They have also used a minimal part of the profit of their
business in order to visit Australia.
In another business of wholesale, Charlotte and Mia perform their functions as partners.
However, the business of wholesale, which is controlled and administered by them combined
with the locksmith business of Sam and Rosa. Without notifying Mia, Charlotte decided to alter
the statement of tax and by doing this extra 10% has been added to his bank account.
Phillipa is appointed by Sam and Rosa in order to govern and direct the business of SRT
Pty Ltd. Some financial decisions also have taken by Phillpa in order to make the condition
10 Redmond, Paul. "Directors' duties and corporate social responsiveness." (2012) UNSWLJ 35: 317.

4CORPORATIONS AND BUSINESS STRUCTURE
better of the business but she took all the decisions after knowing the exact financial position and
relevant information of the business organization. Therefore, the financial decisions failed to
improve the condition of the business and as a result, the business becomes insolvent along with
the unpaid debts. Here, Phillipa plays the role of ‘de facto’ director, who does not appointed
lawfully, but performs his duties and equal responsibilities as ‘de facto’ director.
Therefore, applying the rule of above-mentioned sections of the Corporations Act, 2001
(Cth) it can be said that:
 Sam and Rosa has a duty to disclose every material information and vital matters of the
organization to all members u/s 191.
 There is a probability of the violation of section 588G because the actual financial
position of the organization is known to Sam and Rosa.
 Sam and Rosa have the duty to act like a sensible person for the welfare of the business
with diligence and proper care u/s 180.
 Both of them also have the duty to act bona fide for a justified purpose u/s 181.
 Sam and Rosa should not use their position inappropriately for taking undue advantage
form the business either for own advantage or for the advantage of other people which
may damage the business u/s 182.
 Sam and Rosa should not use relevant information of the business inappropriately for
taking undue advantage either for own advantage or for the advantage of other people
which may damage the business u/s 183.
In addition, Charlotte and Mia should carry out their duties for the welfare of the
partnership business. Both of them are legitimately and exclusively answerable for their
responsibilities towards the partnership business. They should perform their duties with honesty

5CORPORATIONS AND BUSINESS STRUCTURE
and bona fide. It is their responsibility to take impartial decisions for the welfare of the business
and its members. Mia and Charlotte must act like a sensible while handling and administering the
organization. They should disclose all relevant information of the business to each other to take
vital decisions for the partnership business.
Conclusion
Therefore, in conclusion it can be said that all the lawful obligations discussed above
shall be considered as the legal duties of all the parties.
2.
Issue
The issue which is involved in this paper is that whether any legitimate duties have been
violated by the parties under the rules stated by the Corporations Act, 2001 (Cth).
Rule
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 182 case is a
landmark case related with the partnership business. This case involved the key issues related to
the responsibility of a director and partner and the rights available to them from a partnership
trade. It has been enquired by the court that after the apartment transferred to the respondent,
whether any ongoing answerability conferred to the respondent in dealing with that apartment for
the advantage and interest of the relationship arising out of partnership business. However, the
court claim of the complainant has been rejected by the court11.
11 Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 182

6CORPORATIONS AND BUSINESS STRUCTURE
In the case of Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 it has
been explained by the court that if a partner became unsuccessful in disclosing a fact about the
business which must be known to other partners and members, then that partner may be blamed
by the others for breaching the fiduciary responsibilities12.
In Pilmer vs. Duke Group Ltd [2001] HCA 31 case it was mentioned by the court that it
is the obligation of a director to disclose every vital matters relating to the businesses of the
organization in which the director has a private interest13 u/s 191 of the Corporations Act, 2001
(Cth).
In ASIC vs. Rich [2009] NSWSC 1229 case the court held that a director must be aware
of the fact that the company would go for liquidation u/s 588G of the aforesaid Act14 due to a
loan which has been secretly taken deliberately even after knowing the actual economic position
of the business15.
In the case of Daniels vs. Anderson [1995] 37 NSWLR 438 it was mentioned by the court
that every director has an obligation to act with diligence and appropriate care just like a
practical individual do at the time of taking important decisions for the organization16.
In Re Smith & Fawcett Ltd [1942] Ch 304 case, it was mentioned by the court that it is
the obligation of every director to perform their duties in a bona fide way for a suitable purpose
and with a view to resolute clashes17.
12 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309
13 Pilmer vs. Duke Group Ltd [2001] HCA 31
14 Corporations Act, 2001 (Cth)
15 ASIC vs. Rich [2009] NSWSC 1229
16 Daniels vs. Anderson [1995] 37 NSWLR 438
17 Re Smith & Fawcett Ltd [1942] Ch 304

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In the vital case of Queensland Mines Ltd vs. Hudson [1978] UKPC 2 it was mentioned
by the court that every director must not utilize the position of him/her wrongly in order to take
unjustifiable gain for his/her own benefit or for the benefit of the others as it may cause harm to
the business18.
In the landmark case of Adler vs. ASIC [2003] NSWCA 131 it was mentioned by the
court that it is the responsibility of every director to not to utilize relevant information of the
business wrongly in order to take unjustifiable gain for his/her own advantage or for the
advantage of the other individuals because it may results in damage to the business.
Analysis
By applying the verdicts of Pilmer vs. Duke Group Ltd [2001] HCA 31 case, it has been
observed that Phillipa, Sam and Rosa did not disclose the vital information of the business to the
other members of the organization and violated the provisions of section 191.
By applying the judgment of ASIC vs. Rich [2009] NSWSC 1229 case in this present
scenario it has been seen that section 588G have been violated by Phillipa, Sam and Rosa as all
of them have the information about the actual economic position of the business of SRT Pty Ltd.
in spite of that additional cost are charged against the organization.
By applying the decisions of Daniels vs. Anderson [1995] 37 NSWLR 438 case, it has
been seen that Rosa and Sam have breached section 180 of the Corporations Act, 2001 (Cth)
because they cannot perform their responsibilities properly with appropriate care and diligence.
By applying the decisions arising out of Re Smith & Fawcett Ltd [1942] Ch 304 case, it
has been observed that Phllipa, Rosa and Sam have violated the provisions of section 181 of the
18 Queensland Mines Ltd vs. Hudson [1978] UKPC 2

8CORPORATIONS AND BUSINESS STRUCTURE
above-mentioned Act19 because they cannot perform their responsibilities in bona fide way and
proper purpose.
By applying the directions of Wright Prospecting Pty Ltd v Hancock Prospecting Pty
Ltd [2012] QSC 182 case, it has been seen that several responsibilities are breached by Charlotte
because certain relevant information about the affairs of the business could not be disclosed by
her to other partners.
By applying the directions of the Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005]
NSWCA 309 case, it has been observed that certain fiduciary duties have been violated by
Charlotte because she did not perform for the welfare of the partnership business.
Conclusion
Therefore, in conclusion it can be stated that relating to the lawful obligations of the
parties, those violations were made by the partners and directors declared above.
3.
Issue
The issue which is involved in this paper is that what legitimate penalties may be
confronted by the parties for the breach of the lawful obligations under Corporations Act, 2001
(Cth).
19 Corporations Act, 2001 (Cth)

9CORPORATIONS AND BUSINESS STRUCTURE
Rule
In the landmark case of Wang vs. Rong [2015] NSWSC 1419, it was stated by the court
that if the partners of a partnership business violated their fiduciary obligations, a proceeding
may be start against those partners who has violated their obligations.
The Corporations Act, 2001 (Cth) not only describes the responsibilities of the directors,
it also describes several penalties which may apply if the lawful obligations of a director is
violated.
If a director violates the requirements of sections 191, 588G, 180, 181, 182, and 183 of
the aforesaid Act20, that director shall be held responsible u/s1317E of the said21 Act in which the
civil penalties are described22.
If a director violates the requirements of sections 191, 588G, 180, 181, 182, and 183 of
the aforesaid Act23, that director shall be held responsible for wrongful behavior towards the
business u/s 184 of the said Act24 in which the sanctions are described25.
Analysis
By relating the verdict of Wang vs. Rong [2015] NSWSC 1419 case, it can be concluded
that Mia can lodge a claim against Charlotte as several fiduciary responsibilities has been
violated by her, such as she failed to act for the welfare of the business and also failed to reveal
important information to the other partners engaged with the partnership business. For violating
20 Corporations Act, 2001 (Cth)
21 Corporations Act, 2001 (Cth)
22 Welsh, Michelle. "Realising the public potential of corporate law: Twenty years of civil penalty
enforcement in Australia." (2014) Federal Law Review 42.1: 1-22.
23 Corporations Act, 2001 (Cth)
24 Corporations Act, 2001 (Cth)
25 Corporations Act, 2001 (Cth)

10CORPORATIONS AND BUSINESS STRUCTURE
the fiduciary duties of a partner, Charlotte may be terminated from his position of a partner. Mia
is eligible to get compensation from Charlotte.
By relating the rules of section 1317E of the above-mentioned Act26, it can be concluded
that civil penalties can be imposed against Phillipa, Rosa and Sam under this Act27. All of them
may be removed from their positions.
By relating the rules of section 184 of the Act28 previously discussed, it can be concluded
that sanctions can be imposed against Sam and Phillipa as both of them failed to carry out their
duties with insensitive behavior and deceitful purpose towards the organization and the members
connected with that organization. Both of them shall be penalized of a certain sum of money
which may extend to 200,000 $. Apart from that, under the provisions of common and statutory
law may need to pay damages and may also be removed from their positions.
Conclusion
Therefore, in conclusion it can be stated that all the legitimate penalties and sanctions as
discussed related to the breach of lawful obligations by the parties shall be applied in this
provided scenario.
26 Corporations Act, 2001 (Cth)
27 Corporations Act, 2001 (Cth)
28 Corporations Act, 2001 (Cth)

11CORPORATIONS AND BUSINESS STRUCTURE
BIBLIOGRAPHY
Books and Journals
Kluver, John. "Entity vs. Enterprise Liability: Issues for Australia." (2004) Conn. L. Rev. 37:
765.
Redmond, Paul. "Directors' duties and corporate social responsiveness." (2012) UNSWLJ 35:
317.
Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia.
(Federation Press, 2002)
Waring, Peter. "Rethinking directors' duties in changing global markets." (2008) Corporate
Governance: The international journal of business in society 8.2: 153-164.
Welsh, Michelle. "Realising the public potential of corporate law: Twenty years of civil penalty
enforcement in Australia." (2014) Federal Law Review 42.1: 1-22.
Cases
Adler vs. ASIC [2003] NSWCA 131
ASIC vs. Rich [2009] NSWSC 1229
Daniels vs. Anderson [1995] 37 NSWLR 438
Pilmer vs. Duke Group Ltd [2001] HCA 31
Queensland Mines Ltd vs. Hudson [1978] UKPC 2
Re Smith & Fawcett Ltd [1942] Ch 304
Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309

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Wang vs. Rong [2015] NSWSC 1419
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 182
Legislation
Corporations Act, 2001 (Cth)