CORPORATIONS AND BUSINESS STRUCTURES

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

1CORPORATIONS AND BUSINESS STRUCTURES
Answer 1
Issues
In this paper the issue to be discussed is whether Sam, Rosa, Mia and Charlotte have any
lawful responsibilities under the Corporations Act, 2001 (Cth).
Rule
The given scenario is discussed on the basis of the provisions of the Corporations Act,
2001 (Cth). Many authors are of the view that directors are the key assets of the company. In
order to run a company effectively the directors determine and implement policies, make
decisions, prepare and file official documents, call meetings such as annual general meeting,
meeting with shareholders and maintain and keep financial reports. Section 9 of this Act1 defines
the term director which include persons lawfully selected as an additional director, or ‘de facto’
director, or ‘shadow’ director2. The said Act3 describes that the directors have certain duties that
must be performed adequately to maintain the organization appropriately and its member as well.
The duties can be divided into two categories, such as Fiduciary duties under the Australian
General law and Statutory duties under the Corporations Act, 2001 (Cth). The fiduciary duties
include:
 Duties to act in good faith and not against the interest of the company;
 Duty of not using power improperly;
 Duty to dodge encounters; and
1 Corporations Act, 2001 (Cth)
2 Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia. (Federation
Press, 2002).
3 Corporations Act, 2001 (Cth)

2CORPORATIONS AND BUSINESS STRUCTURES
 Duty to preserve discretion4.
On the other hand, duties under the Corporations Act, 2001 (Cth) include the following duties,
such as:
Section 180 of the Corporations Act, 2001 states that it is the duty of a director to act
diligently and with proper care like a prudent person while taking significant decisions for the
business.
According to Section 181 of this Act5 it is the duties of the director to act in good faith
and for the benefit of the organization. It also describes that the duties must be done for a proper
purpose. A director also have the duty to resolve the disputes of the organization. This duty is
considered to be a mandatory duty of trust and belief under this Act6.
Section 182 of the said Act7 states that it is the duty of the director to not to use the
position improperly to take undue advantage for personal benefit or for the benefit of the others
because it may cause harm to the business.
In addition, section 183 elaborates that a director must not disclose any material
information for illegitimate purpose and for taking undue advantage either for personal benefit or
for the benefit of the others8. This type of illegitimate activity may cause harm to the business.
4 Clarke, Thomas. "The evolution of directors duties: bridging the divide between corporate governance and
corporate social responsibility." (2007) Journal of General Management 32.3: 79-105.
5 Corporations Act, 2001 (Cth)
6 Corporations Act, 2001 (Cth)
7 Corporations Act, 2001 (Cth)
8 Ramsay, Ian. "Directors' Duties in Australia: Recent Developments and Enforcement Issues." (1999)
Company Financial and Insolvency Law Review 3.2.

3CORPORATIONS AND BUSINESS STRUCTURES
Section 191 of the said Act9 elaborates that it is the duty of the director to reveal all the
important matters connected to the affairs of the organization. The matters include those
important matters where the personal benefit of the director is connected10.
Section 588G of the said Act11 deals with the issue of insider trading. This issue states
that a director will be held responsible for insolvent trading only when any arrangement has been
confirmed by the director after taking debt, when the organization is bankrupt or may turn
bankrupt or there exists admissible grounds which requires that the organization may turn
bankrupt12.
Analysis
In this given problem, Rosa and Sam, both of them are the directors and shareholders of
the organization, the name of which is SRT Pty Ltd. They are also the receivers of the trust, the
name of which is Tipping Trust. The Trust mainly involved with the trade of locksmith.
On the other hand, Mia and Charlotte are recognized as partners of a wholesale trade.
After a specific period, all the shares of the organization are sold by Rosa and Sam. Not only
that, both of them have utilized a small part of the revenue to make a trip to Australia. The
wholesale business governed and directed by Charlotte and Mia amalgamated with the locksmith
trade of Rosa and Sam. A decision relating to the alteration of tax statement for which additional
ten percent has been charged not informed to Mia by Charlotte. The additional amount of
expense is charged from a bank account and the Charlotte the main role in operating it.
9 Corporations Act, 2001 (Cth)
10 McConvill, James. "Directors' duties to stakeholders: a reform proposal based on three false
assumptions." (2005) Australian journal of corporate law 18.1: 88-102.
11 Corporations Act, 2001 (Cth)
12 McConvill, James, and Martin Joy. "The Interaction of Directors' Duties and Sustainable Development in
Australia: Setting off on the Uncharted Road." (2003) Melb. UL Rev. 27: 116.

4CORPORATIONS AND BUSINESS STRUCTURES
In order to operate the organization, such as SRT Pty Ltd, some decisions have been
taken by Rosa and Sam. They appointed their niece Phillipa to run and direct SRT Pty Ltd.
While managing the organization Phillipa took various major economic decisions to make the
situation of the business better. However, the main thing is that she took all those steps even after
knowing all important material information and financial condition about the business.
Henceforth, the economic position of the organization has not been improved after taking several
steps by Phillipa. Therefore, the organization goes into liquidation and all debts taken for the
creditors stayed unpaid.
As per the conditions of section 180 of the said Act13, there are several duties that must be
performed by Rosa and Sam for the betterment of the business and those duties must be
performed just like a prudent person with accurate care and diligence. Similarly, as per the
directions made under section 181, both the directors of the business Rosa and Sam need to
perform their duties in good faith for a valid reason. According to section 182, it is the duty of
Sam and Rosa to not to take any undue advantage by using their positions which may results into
damage to their trade. It is also their duty to not utilize material information of the organization
for taking any undue advantage which may damage their business u/s 183 of this Act14. Not only
that, they have a duty to reveal all the important matters connected to the affairs of the
organization. There is also a chance of breaching the provisions of section 588G as Rosa and
Sam have adequate knowledge regarding the poor economic condition of SRT Pty Ltd.
Similarly, it is the legal responsibility of Charlotte and Mia to carry out their obligations
for the interest and betterment of the partnership business. Charlotte and Mia legally and solely
13 Corporations Act, 2001 (Cth)
14 Corporations Act, 2001 (Cth)

5CORPORATIONS AND BUSINESS STRUCTURES
accountable for their obligations towards the partnership business. All contractual arrangements
made by the other partners held them responsible. The main thing is that it is the duty of them to
perform their activities with honesty and in good faith. They must take impartial decisions for the
members related to the business. It is the duty of Mia and Charlotte to perform their obligations
like a prudent person as per the duty of care provisions to handle and administer the business.
Almost in cases of all the partnership business it has been observed that the partners need to
disclose every probable chances of risks or welfares accessible to each other to take important
decisions for the partnership business.
Conclusion
Therefore, to conclude the discussion it can be said that all the legal duties previously
discussed above shall be regarded as the legal duties of all the parties.
Answer 2
Issue
In this paper, the issue to be discussed whether any legal responsibilities of the parties
have been breached under the provisions of the Corporations Act, 2001 (Cth).
Rule
In Daniels vs. Anderson [1995] 37 NSWLR 438 case the court stated that it is the duty of
a director to act diligently and carefully like a sensible person while taking significant decisions
for the business15. The same observation has been made in ASIC vs. Healy [2011] FCA 717 case
regarding the violation of a duty of a director related to accept and agree wrong and false
financial records under section 180(1) of the said Act16.
15 Daniels vs. Anderson [1995] 37 NSWLR 438
16 Corporations Act, 2001 (Cth)

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In the famous case of Patterson v Humfrey [2014] WASC 446 case a landmark judgment
was made in this regard. In this case the court held that the directors must apply their incomes
and reserve fund of the business adequately and only for the benefit of the business. The
directors must ensure that the funds and revenues are not used for the benefit of them17.
In another famous case of Martin v Australian Squash Club Pty Ltd [1996] the court
described that violation of the fiduciary duties take place within the business only when the
revenues and reserve funds are not utilized by the organization properly18.
The Queensland Mines Ltd vs. Hudson [1978] UKPC 2 case has a great importance
regarding the position of a director. In this case the court was of the view that it is the duty of the
director to not to use his position inappropriately in order to attain undue advantage either for
personal interest or for the interests of the others. This type of activity may harm the business19.
In Adler vs. ASIC [2003] NSWCA 131 case the court elaborated that the directors must
not use any material information of the organization inappropriately to attain undue advantage
form the organization either for director’s personal benefit or for the benefit of the others. The
court also held that if the information of the organization used inappropriately that may harm the
interest of the business organization20.
In the case of Boardman vs. Phipps [1967] 2 AC 46 the court held that the stringency of
the duties elaborated u/s 191 of the Corporations Act, 2001 (Cth) became free from hassle over
time to require a ‘substantial useful chance of clash’21.
17 Patterson v Humfrey [2014] WASC 446
18 Martin v Australian Squash Club Pty Ltd [1996]
19 Queensland Mines Ltd vs. Hudson [1978] UKPC 2
20 Adler vs. ASIC [2003] NSWCA 131
21 Boardman vs. Phipps [1967] 2 AC 46

7CORPORATIONS AND BUSINESS STRUCTURES
The case of Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 dealt with
the provisions of sections 588G. In this definite case, regarding the provisions of section 588G
under the Corporations Act, 2001 (Cth) the court held that the director is liable secretly for the
continued credits within the organization because it was identified that the debts continued by the
organization because a loan was taken purposely after knowing the financial situation of the
organization. More to that, the director’s sign was missing in the yearly financial reports but the
assets were registered and verified22.
In the famous partnership case of Wright Prospecting Pty Ltd v Hancock Prospecting Pty
Ltd [2012] QSC 182 the court dealt with the main issues regarding the duty of a director case
related with the duty of a partner and the rights available to a partnership business. In this case
the matters enquired by the court that after the transfer of the apartment to the defendant,
whether any continuing accountability vested to the defendant in order to deal with the apartment
for the gain and benefit of the relationship. However, in this case the entitlement of the plaintiff
right was not allowed by the court23.
In Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 case the court
elaborated that if a partner failed to disclose an information which may become vital for the
business, then that partner may be held responsible for violating the fiduciary duties of the
partner24.
22 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
23 Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 182
24 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309

8CORPORATIONS AND BUSINESS STRUCTURES
Analysis
By putting the rules of Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012]
QSC 182 case, it has been observed that the duties are violated by Charlotte because she failed to
disclose the material information of the business to other partners.
Relating to the judgment of Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005]
NSWCA 309 case, it has been observed that the fiduciary duties have been breached by
Charlotte as she failed to perform for the benefit of the partnership business.
Put on the rules of Daniels vs. Anderson [1995] 37 NSWLR 438 case, it has been
observed that Sam and Rosa perform their duties unsuccessfully with inappropriate diligence and
care within the organization which violates section 180 of this Act25.
Put on the rules of Patterson v Humfrey [2014] WASC 446 case, it has been observed
that Rosa, Sam and Phillipa failed to perform their responsibilities for a proper purpose and in
good faith within their organization which violates section 181 of the aforesaid Act26.
Relating the judgment of Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR
115 case in the given scenario, it has been observed that the provisions of section 588G have
been breached by Rosa, Sam and Phillipa because even after having the knowledge of the
financial position of SRT Pty Ltd, further expenses are allowed for the business.
By putting the rules of Boardman vs. Phipps [1967] 2 AC 46 case, it has been seen that
Rosa, Sam and Phillipa failed to reveal all the important matters connected to the affairs of the
organization to the other members of the business.
25 Corporations Act, 2001 (Cth)
26 Patterson v Humfrey [2014] WASC 446

9CORPORATIONS AND BUSINESS STRUCTURES
Conclusion
Therefore, to conclude the discussion it can be said that in relation to the legitimate duties
of the parties, those breaches were caused by the directors and partners mentioned above.
Answer 3
Issue
In this paper, on the basis of the given scenario the issue to be discussed is what legal
values may be faced by the partners and directors for the breach of legal duties.
Rule
Apart from the duties of directors, the Corporations Act, 2001 (Cth) enumerates the penal
provisions for the violation of director’s legal duties.
If any provisions of section 180, 181, 182, 183, 191 and 588G of the Corporations Act,
2001 (Cth) has been violated by a director, that director shall be held criminally accountable
u/s184 of the said Act for dishonest conduct towards the organization27.
If any provisions of section 180, 181, 182, 183, 191 and 588G of the Corporations Act,
2001 (Cth) has been violated by a director, that director shall be held accountable with civil
penalties28 u/s1317E of the said Act29.
As stated in the Wang vs. Rong [2015] NSWSC 1419 case, when any violation has been
observed regarding the fiduciary of the partners of a partnership trade, a lawsuit may be brought
against those partners for whom the violation of duties take place.
27 Hill, Jennifer G. "Corporate criminal liability in Australia: an evolving corporate governance
technique?." (2003) Journal of Business Law : 1.
28 Gilligan, George, Helen Bird, and Ian Ramsay. "Civil penalties and the enforcement of directors'
duties." (1999 UNSWLJ 22): 417.
29 Corporations Act, 2001 (Cth)

10CORPORATIONS AND BUSINESS STRUCTURES
Analysis
By applying the provisions of section 184 of the said Act30, it can be said that Sam and
Phillipa are held criminally accountable for carrying out their responsibilities with careless
attitude and dishonest intention towards the business and its members.
By applying the provisions of section 1317E of the said Act31, it can be said that Rosa,
Sam and Phillipa are held responsible for civil penalties under this section.
Put on the judgment of Wang v Rong [2015] NSWSC 1419 case, it can be stated that a
claim can be lodged by Mia against Charlotte because the fiduciary responsibility to act for the
benefit of the organization and to disclose relevant information to the other partners involved
with the business was violated by Charlotte.
Conclusion
Therefore, to conclude the discussion it can be said that lawful consequences discussed
above related to the violation of duties by the directors and partners shall be applied in the given
scenario.
30 Corporations Act, 2001 (Cth)
31 Corporations Act, 2001 (Cth)

11CORPORATIONS AND BUSINESS STRUCTURES
BIBLIOGRAPHY
Books & Journals
Clarke, Thomas. "The evolution of directors duties: bridging the divide between corporate
governance and corporate social responsibility." (2007) Journal of General Management 32.3:
79-105.
Gilligan, George, Helen Bird, and Ian Ramsay. "Civil penalties and the enforcement of directors'
duties." (1999 UNSWLJ 22): 417.
Hill, Jennifer G. "Corporate criminal liability in Australia: an evolving corporate governance
technique?." (2003) Journal of Business Law : 1.
McConvill, James, and Martin Joy. "The Interaction of Directors' Duties and Sustainable
Development in Australia: Setting off on the Uncharted Road." (2003) Melb. UL Rev. 27: 116.
Ramsay, Ian. "Directors' Duties in Australia: Recent Developments and Enforcement
Issues." (1999) Company Financial and Insolvency Law Review 3.2.
Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia.
(Federation Press, 2002).
Cases
Adler vs. ASIC [2003] NSWCA 131
ASIC vs. Healy [2011] FCA 717
Boardman vs. Phipps [1967] 2 AC 46
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115

12CORPORATIONS AND BUSINESS STRUCTURES
Daniels vs. Anderson [1995] 37 NSWLR 438
Martin v Australian Squash Club Pty Ltd [1996]
Patterson v Humfrey [2014] WASC 446
Queensland Mines Ltd vs. Hudson [1978] UKPC 2
Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309
Wang vs. Rong [2015] NSWSC 1419
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 182
Legislation
Corporations Act, 2001 (Cth)