Corporations Law: Duties of Directors and Powers of Liquidator

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

CORPORATIONS LAW1
Issue
The issue which can be understood from this case is whether action can be taken by the
liquidator from Alice Smith and Libby who are the directors of the clothing company what
defences can be claimed by them.
Law
There are certain duties which are laid down for the directors and the if there is any kind
of breach on behalf of the directors towards fulfilling the duties and the directors cannot prevent
the company from being insolvent that is laid down in the CA Act, 2001 u/s 588G which clearly
states that the director has certain duties where the director has to prevent the company from
being insolvent. This precise section is applicable to any individual or a person who at the time
of the insolvency of the company has been a director of the company when the company has
incurred debts. The company after incurring the debt or including any other kind of debt
becomes insolvent or there have been other reasons which creates suspicions regarding the debt
of the company or the insolvency of the company after the commencement of the act or during
that time. This section discusses that if the directors fails to comply to this section and fails in
preventing the company from incurring debts and the company suffers insolvency then it can be
understood that the person has contravened or violated this section. It can be said that a person
has committed an offence when the person has failed to prevent the company from incurring
debts and did not have any kind of doubts regarding the solvency of the company and if the
person cannot prevent the company from insolvency in a dishonest way which would mean that
the person has committed an offence. The case of Commonwealth Bank v Friedrich, (1991) 5
ACSR 115 which is a leading case on suspicions regarding the company not being solvent.