1CORPORATIONS AND BUSNIESS STRUCTURES Question 1 Issue In this paper, the issue to be discussed is whether the parties have any legal duties under the Corporations Act, 2001 (Cth) or not. Rule The present issue must be discussed in the light of the Corporations Act, 2001 (Cth). It cannot be ignored that the directors plays the significant role in case of every business organization. Not only are the directors, the shareholders also important to run a business organization in an effective manner. Section 9 of the said Act1defines the term director in the following way, such as director is such a person who is selected: Legitimately either as a director or as an additional director; Not legitimately as a director, but perform his duties as a director by holding the similar place as a ‘de facto’ director; Not legitimately as a director, but performs his duties as a director by keeping the instructions receiving from the appropriate authority as ‘shadow director’2. The said Act3also states that the directors have certain responsibilities towards the organization and its members. The responsibilities are discussed below: Section 180 of the said Act4describes that, it is the responsibility of every director to take the vital decisions of the business organization diligently and carefully like a sensible person. 1Corporations Act, 2001 (Cth) 2Goddard, Robert. (2008) "Directors' Duties."Edinburgh L. Rev.12: 468. 3Corporations Act, 2001 (Cth) 4Corporations Act, 2001 (Cth)
2CORPORATIONS AND BUSNIESS STRUCTURES Many authors are of the view that this duty must be utilized at the time of preparing accounting reports of the organization. Section 181 of this Act5elaborates that, it is the obligation of a director to act in good faith for the welfare of the business organization along with a proper purpose. This obligation includes the duty to resolve the disputes. According to many authors it is a duty of faithfulness and belief, which is also recognized as a mandatory responsibility under the Corporations Act, 2001 (Cth). Section 182 of the said Act describes that the directors of any business organization must not utilize the position of him/her inappropriately for attaining any unfair advantage for himself/herselforfortheadvantageofcertaindissimilarpersonswhichmayaffectthe organization6. In the same way, section 183 discusses that it is the responsibility of the director to not to utilize any material information for an unlawful purpose gained by him/her by taking the unlawful advantage of the position of a director in the business organization for attaining any unfair advantage for himself/herself or for the help of some dissimilar individualswhich may affect the organization. Section 588G of the said Act7deals with the problem of insider trading which states that a director will be held liable for insolvent trading only when any deal has been finalized by the director after taking debt when the business organization is insolvent or may turn insolvent or there subsists justifiable grounds which specifies that the organization may turn insolvent. 5Corporations Act, 2001 (Cth) 6Noakes, David. "Corporate groups and the duties of directors: Protecting the employee or the insolvent employer?."(2001)Australian Business Law Review29.2: 124-124 7Corporations Act, 2001 (Cth)
3CORPORATIONS AND BUSNIESS STRUCTURES As per section 198 of the Corporations Act, 2001 (Cth), a director can exercise all the powers of a director except those powers which are decided to exercise after an annual general meeting. According to the fiduciary obligations associated with the partners of a partnership firm it can be stated that the partners have a lawful obligation to execute the functions for the best interests of the firm8. All the partners shall be held lawfully and personally responsible relating to the duties in the said business. It is also important to mention that the partners are also held responsible for the agreements entered into by the other partners. It is vital for all the partners of a firm that they should perform honestly and needs to display good faith and justice towards the other partners of the firm. In relation to the duty of care, it is the responsibility of all the partners to perform their functions in a sensible manner like a cautious person at the time of leading and handling the business organization. It is an essential requirement for all the partners that they must reveal all the material information regarding the transaction of the organization along with the possible risks to the other partners so that they can take effective business decisions based on those information9. Analysis In this provided situation, Sam and Rosa are considered to be the solitary directors and shareholdersof thebusinessorganization,namely,SRT Pty Ltd.both of themarealso consideredto be the recipients of the trust, namely, Tipping Trust. The Trust deals with the business of locksmith. 8Lafferty, William M., Lisa A. Schmidt, and Donald J. Wolfe Jr. "A brief introduction to the fiduciary duties of directors under Delaware law."(2011)Penn St. L. Rev.116: 837. 9McConvill,James."Directors'dutiestostakeholders:areformproposalbasedonthreefalse assumptions."(2005)Australian journal of corporate law18.1: 88-102.
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
4CORPORATIONS AND BUSNIESS STRUCTURES Whereas, Mia and Charlotte are considered to be the partners of a wholesale business. Sam and Rosa sold all their shares after a certain period and used a small part of the profit to tour Australia. Mia and Charlotte merged their wholesale business with the locksmith business of Sam and Rosa. Charlotte took a decision regarding the alteration of tax invoices and charged extra ten percent without intimating Mia. The excess amount of payment is made through a bank account which is operated by Charlotte. Phillipa, who is the niece of Sam and Rosa, is appointed by them to manage and run the SRT Pty Ltd. Several major monetary decisions was taken by Phillipa in order to better the situation of the business even though she has every material information regarding the actual monetary position of the business. Hence, the decisions taken by Phillipa ultimately failed to boost the financial position of the organization and resulted into the liquidation of it. All loans remained unpaid to the creditors. According to the provisions of section 180 of the said Act10, Rosa and Sam have certain responsibilities towards their business and they must perform their duties with proper care and diligence like a prudent person would perform. Similarly, according to section 181, both the directors of the business organization must perform their duties in good faith and for a particular purpose. As per the provisions of sections 182, Sam and Rosa must not use their positions to attain any unlawful advantage as which may cause any harm to their business. Both the directors also must not use any material information to attain any illegitimate personal advantage which may cause any harm to their business. There exists a possibility regarding the violation of section 588G, because both of the directors have sufficient knowledge relating to the monetary condition of SRT Pty Ltd. 10Corporations Act, 2001 (Cth)
5CORPORATIONS AND BUSNIESS STRUCTURES As a trust ship creates a fiduciary relationships between the trustees, therefore being the trustees of the Tipping Trust, Sam and Rosa need to perform the duties of a trustee which includes: ï‚·The duty to act in good faith; ï‚·The duty of fair dealing; ï‚·The duty to perform for the welfare of the beneficiaries; ï‚·The duty to reveal important matters of the trust ship; and ï‚·The duty of trust and faithfulness. In this given scenario, Phillipa was appointed by Sam and Rosa, who is not competent to manage the activities of Tipping Trust and SRT Pty Ltd. because she has no previous experience in this regard. Therefore, Sam and Rosa are held liable for the financial decisions taken by Phillipa and rely on her decisions under the provisions of section 189 of the aforesaid Act11. As a director Phillipa exercises the power of a director and took some financial decisions for the SRT Pty Ltd which is not contrary to the constitution of the organization. Therefore, she is exempted from the provisions of section 198 of the aforesaid Act12. Similarly, Mia and Charlotte have the lawful obligation to perform their duties in the benefit and best interest of the partnership firm. Both of them shall be held responsible both lawfully and personally regarding their responsibilities towards the partnership business. They shall also be held responsible regarding all contractual agreements entered upon the other partners as well. It is vital that both of them must perform their functions honestly by showing good faith and they needs to be impartial towards the members of the partnership business. 11Corporations Act, 2001 (Cth) 12Corporations Act, 2001 (Cth)
6CORPORATIONS AND BUSNIESS STRUCTURES According to the provisions of duty of care, Mia and Charlotte needs to perform their duties just like a rational person do in any situation at the time of administering and handling the partnership business. It is also important that they must reveal all the possible risks or benefits available to each other for taking vital decisions for the business. Conclusion Therefore, from the above discussion it can be concluded that all the lawful obligations mentioned above shall be considered to be the lawful duties of the parties. Question 2 Issue In this paper, the issue to be discussed is whether any lawful duties of the parties are violated under the Corporations Act, 2001 (Cth) or not. Rule The case ofDaniels vs. Anderson[1995] 37 NSWLR 438 is an appropriate case in this regard. In this specific case the primary issue was related to the conduct of a director at the time when any dispute occurs within the organization. However, in this case the court was of the view that it is the responsibility of the director to behave like a sensible person in any situation13. InASIC vs. Healy[2011] FCA 717 case the same observation was made, such as Section 180(1) of the Director’s breach of incorrect and unreliable economic and monetary records has been accepted and decided14. 13Daniels vs. Anderson[1995] 37 NSWLR 438 14ASIC vs. Healy[2011] FCA 717
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
7CORPORATIONS AND BUSNIESS STRUCTURES Many authors are of the view that, this responsibility is breached when the directors perform beyond their authority and violating the constitution of the business organization. The dissimilar view was observed inMills vs. Mills[1938] 60 CLR 150 case. In this case the court held that, if distinctive powers and private interest were exploited by the director, he/she will be held accountable for the violation of his/her fiduciary obligations with the organization15. The case ofAdvance Bank Australia Ltd v FAI Insurances Ltd[1987] 12 ACLR 118 is an appropriate case in this regard. In this specific case the court statedthat it is the obligation of the directors to apply the incomes and capital of the organization for a proper purpose and it must be utilized in the benefit of the organization. It is the duty of the directors must not use the incomes and capital of the company for any purposes related to their private use only16. The case ofMartin v Australian Squash Club Pty Ltd[1996] case is a landmark case in this regard, where it was defined by the court that destruction of the fiduciary responsibility occurred when any misapplication occurs related to the incomes and capitals of the would take place in case of misapplication of the resources and capitals of the workplace occurs17. The case ofMG Corrosion Consultants Pty Ltd v Gilmour[2014] FCA 990 is a famous case in this regard where the court enlarges that it is the responsibility of the directors associated with a business organization not to utilize his/her position incompetently for attaining any unfair gain for himself/herself or for the interest of some different personswhich may affect the interest of the business organization18. 15Mills vs. Mills[1938] 60 CLR 150 16Advance Bank Australia Ltd v FAI Insurances Ltd[1987] 12 ACLR 118 17Martin v Australian Squash Club Pty Ltd[1996] 18MG Corrosion Consultants Pty Ltd v Gilmour[2014] FCA 990
8CORPORATIONS AND BUSNIESS STRUCTURES The case ofASIC v Vizard[2005] 145 FCR 57 is one of the famous cases in this regard. In this case the court discussed that a director must not utilize any material information for an illegitimate purpose received by him/her by taking the benefit of his/her position in the business organization as the director of that organization for attaining any baseless advantage for himself or for the benefit of some different personswhich may affect the interest of the business organization19. In relation to the provisions of sections 588G,the case ofCommonwealth Bank of Australia v Friedrich(1991) 5 ACSR 115 may be regarded as a pertinent case in this regard. In this specific case, pursuant to section 588G as delivered for Corporations Act, 2001 (Cth) it was recognized that the director should be held secretly accountable for the debts continued by the organization because the loan conventional was sham and misleading and the annual reports should not have been signed by the director, where the assets were listed and recorded20. The case ofWright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd[2012] QSC 182 is famous case of partnership. The key issue in this case having a relation with the obligations of a partner and the rights of a partnership company. The inquiry was whether, after the apartment was transferred to the defendant, the defendant had a continuing responsibility for dealing with the apartment for the advantage and benefit of the relationship. The claim of the plaintiff claim was disallowed21. In the case ofSay-Dee Pty Ltd v Farah Constructions Pty Ltd[2005] NSWCA 309, which is also a famous partnership case the court stated that if a partner failed to reveal any 19ASIC v Vizard[2005] 145 FCR 57 20Commonwealth Bank of Australia v Friedrich(1991) 5 ACSR 115 21Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd[2012] QSC 182
9CORPORATIONS AND BUSNIESS STRUCTURES information which may be important to the business, then that partner will be held liable for the violation of the fiduciary duty of the partners22. InAchurch vs. The Queen[2013] S 276 case, the court held that it is the responsibility of a trustee to act for the welfare of the trust ship. The prosperity of the trust ship depends upon the conduct of the trustees23. Analysis Applying the case ofDaniels vs. Anderson[1995] 37 NSWLR 438, it can be said that Rosa and Sam failed to perform their actions with appropriate diligence and due care towards the organization by violating section 180 of Corporations Act of 2001 (Cth). Applying the case ofMills vs. Mills[1938] 60 CLR 150, it can be stated that Rosa, Sam and Phillipa failed to perform their duties for a suitable purpose and in good faith related to their organization by violating section 181 of the aforementioned Act24. Applying the case ofCommonwealth Bank of Australia v Friedrich(1991) 5 ACSR 115 in the given scenario, it can be said that Rosa, Sam and Phillipa violated the provisions of section 588G because after knowing the financial position of SRT Pty Ltd they allowed expenses in relation to the organization. Through the application ofWright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd[2012] QSC 182 case, it can be said that Charlotte has violated the responsibility of a partner to reveal major information to other partners. 22Say-Dee Pty Ltd v Farah Constructions Pty Ltd[2005] NSWCA 309 23Achurch vs. The Queen[2013] S 276 24Corporations Act, 2001 (Cth)
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
10CORPORATIONS AND BUSNIESS STRUCTURES Through the application ofSay-Dee Pty Ltd v Farah Constructions Pty Ltd[2005] NSWCA 309 case, it can be said that Charlotte has violated the fiduciary accountability of the partners regarding performing in the interests of the partnership business. Applying the judgments of theAchurch vs. The Queen[2013] S 276 case, it can be said that Sam and Rosa has violated the responsibilities of trustees as they failed to perform their duties for the welfare of the trust ship. Conclusion Therefore, from the above discussion it can be concluded that regarding the lawful obligations of the parties, the above-mentioned violations were caused by the parties. Question 3 Issue In this paper, the issue to be discussed is what may be the lawful consequences faced by the parties for the violation of lawful obligations based on the provided scenario. Rules A person, whether an officer or a director associated with a business organization, for violating any of the provisions provided in section 180, 181, 182, 183 and 588G of the Corporations Act, 2001 (Cth) , shall be held criminally liable under section 184 of the said Act25 for carrying out their conduct to the organization in a careless and dishonest manner. A director or other officer associated with a business organization, who violates any of the provisions provided in section 180, 181, 182, 183 and 588G of the Corporations Act, 2001 25Corporations Act, 2001 (Cth)
11CORPORATIONS AND BUSNIESS STRUCTURES (Cth) shall be held liable with civil penalties according to the provisions of section 1317E of the said Act. At any point of time when fiduciary duties are violated by the partners of a partnership business, a suit may be brought against those partners who instigated the breach of duties. In the landmark case ofWang v Rong[2015] NSWSC 1419, it was claimed that partners infringed their fiduciary duties in respect of which a lawsuit was lodged against the partners26. Analysis By implementing the provisions of section 184 of the Corporations Act, 2001 (Cth) it may be claimed that under this section Rosa, Sam and Phillipa are held criminally responsible for carrying out their duties carelessly and dishonestly towards the organization and the persons associated with it. Through the application of section 1317E as given in the Corporations Act, 2001 (Cth), it may be claimed that under this provision Rosa, Sam and Phillipa are held to be liable for civil penalties. By applying the rule as given by the decisions of a famous case ofWang v Rong[2015] NSWSC 1419, it may be claimed that Mia may lodge a claim against Charlotte because the fiduciary duty to act in the benefit of the company and to reveal pertinent material information to the other partners associated with the organization was infringed by Charlotte. 26Wang v Rong[2015] NSWSC 1419
12CORPORATIONS AND BUSNIESS STRUCTURES Conclusion Therefore, it can be concluded that legal consequences mentioned above in relation to the breach incurred by the parties in the given scenario shall be regarded as the consequences set out above. BIBLIOGRAPHY Books & Journals Goddard, Robert. (2008) "Directors' Duties."Edinburgh L. Rev.12: 468. Lafferty, William M., Lisa A. Schmidt, and Donald J. Wolfe Jr. "A brief introduction to the fiduciary duties of directors under Delaware law."(2011)Penn St. L. Rev.116: 837. McConvill, James. "Directors' duties to stakeholders: a reform proposal based on three false assumptions."(2005)Australian journal of corporate law18.1: 88-102. Noakes, David. "Corporate groups and the duties of directors: Protecting the employee or the insolvent employer?."(2001)Australian Business Law Review29.2: 124-124. Cases Achurch vs. The Queen[2013] S 276 Advance Bank Australia Ltd v FAI Insurances Ltd[1987] 12 ACLR 118 ASIC vs. Healy[2011] FCA 717 Commonwealth Bank of Australia v Friedrich(1991) 5 ACSR 115 Daniels vs. Anderson[1995] 37 NSWLR 438 Daniels vs. Anderson[1995] 37 NSWLR 438 Martin v Australian Squash Club Pty Ltd[1996] MG Corrosion Consultants Pty Ltd v Gilmour[2014] FCA 990
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.