Legal Regulation of Business Structures and Duties of Directors in Australia

This article discusses legal regulations of business structures and duties of directors in Australia. It covers cases related to breach of contract, violation of Corporation Act, and regular disclosure commitments. The article also provides expert advice on how to handle situations where directors or partners breach their responsibilities.

ACC520 Legal Regulation of Business
Structures

Question 1
As in the given case study, it can be seen that Kody and Ryder have started the organization
named Astounding Gifts Pty Ltd. Both partners are agreed with the contract that they hold
45% of an organization’s share and remaining 10% will be given to Salman who work in the
organization as an accountant.
The main issues associated with the organization is that, salman as an accountant, has
accepted an accounting position to its rival organization name Incredible Gifts Pvt ltd and
also trying to encourage Melanie to provide her handmade gifts services to Incredible Gift pvt
ltd instead of Astounding Gifts Pty Ltd.
As case study, it is observed that salman is working as an accountant in the organization
Astounding Gifts Pty Ltd is breaching the corporate Act 2001(Cth). Formation of the
important elements for effectively binding’s contract information is illustrated below;
 Agreements between partners: this contract cannot be unilateral contract.
In this contract, both parties are agreed with the statement and terms and
conditions. After successfully satisfying the contract by both parties
agreement is done. 1
 Consideration: in this process a bargaining needed mainly services,
property, supply of money and promises.
 Capacity: in this elements both parties of the organization is entered into
the legal relations
 Intention: in this elements by the parties of the organization can enter into
the legal relations or enter the legally binding contract therefore that they
perform better work at workplace2
 Certainty: in this elements contract between the employees have been
completed, clear etc.
1 Richard Mitchell, Law, Corporate Governance And Partnerships At Work (Ashgate Pub., 2011).
2 Angela Schneeman, The Law Of Corporations, Partnerships, And Sole Proprietorships (Delmar Publishers,
1997).

Advise: Salman case study
The study shows that Kody and Ryder held 90% of share and remaining 10% of share held by
Salman that judiciously permit them to change the constitutions of the organization as
mentioned in section 136(2) of corporate Act 2001(Cth). In addition to this, it can be found
that samlam who is an accountant of an organization held 10%, which prove to be beneficial
for them to the majority of shareholders to amend the regulations to insert the clause to
purchasing back share as mentioned in section 136(3) and 136(4). Thus the observation
indicates that to change in the regulations of the business cannot be questioned by the other
members as it is mentioned in Corporate Act 2001. This can successfully proved that their
action was bona fide and for advantage of the business, as mentioned in the case study of
Shuttleworth v Cox Bros and Co (Maidenhead)3.
The provision of act permit the majority of shareholders has an authority to pass a special
resolution excluding other shareholders (minority shareholders) who held less than eleven
percentages. However, the court also focused on the matter that whether minority
shareholders are being demoralized with the decision of the minority shareholders. Therefore
it is most important for the directors or majority shareholders to prove them the change in
constitutions are beneficial for organization perspective. From the case study, it can be
observed that both salman and Melanie doing unethical practices, because without any
information they work to the competitor organization, which negatively hampered the
organization performance and brand image. Moreover, in this situation, Winpar Holdings Ltd
v Goldfields Kalgoorlie Limited4 case study is not adhered to this case study. As per the
given case study, it can be seen that Salman who is an accountant of an organization is
accepted an accounting position of organization’s rival company such as Incredible Gift pvt
ltd. Moreover it can be also observed that Salman not only accepted the job offer but also
influence their partner to provide products and goods to that organization. Therefore this
practice seems that Salman is doing unethical practices at workplace. Thus it can be said that
organization directors has an authority change the regulations without involving minority
shareholder. In this situation it can be said that salman has not an authority to sue a case
against the organization.
Advise: Melanie case study
3 [1927] 1 Ch 154.
4 ((2000) 18 ACLC 665)

As per regulations of the partnership mode of an organization, all business decision taken by
this form of an organization requires to be taken with their partners jointly. Any decision
made by the organization without the concern of their partners can known as the breaching of
rules and regulations. This rules and regulations are mandated and necessary for all
organization in Australia as per the Law of Australia. According to the Australia breaching
rules and regulations, breach can be categorized by 4 fundamental elements including minor
breaches, material breaches, fundamental breach as well as anticipatory breach. Minor
breaching is applicable where non preaching partners cannot sue for particular performance
and also can be damaged performance. A business contract makes certain commitments that
are to be satisfied by the gatherings that entered into the agreements. Lawfully, one partner's
inability to satisfy any of its legally binding commitments is known as a "breach" of the
agreement5. Contingent upon the specifics, a breach can happen when a partner neglects to
perform on time, does not perform as per the terms of the assertion, or does not perform by
any stretch of the imagination. Likewise, a breach of agreement will as a rule be sorted as
either "material" or "unimportant" for reasons for deciding the fitting legitimate arrangement
or "cure" for the breach. Most importantly it is said that if a party goes against the
deliverables of the contract signed in between the parties and themselves then they would be
considered as breaching the organization contract laws.
In other scenario it is seen that Malanie, who has exclusive contract with the organization
Astounding Gifts Pty Ltd for 12 months with monthly payment $5000. It is seen that she also
treated and practices breached of contract law as she is contract with the company for 12
months therefore they do not an authority to work for any organization. According to the
Anticipatory breach of Australia contract law6, if any unethically practice, then party has an
authority to sue for damages in court. In this situation, it is prime responsibities of an
Astounding Gifts Pty Ltd to liable with their contract with partner. Melanie. The management
cannot rectify the contracts as well after the organization got registered. Thereby, the
situation shows that Astounding Gifts Pty Ltd is practicing violated the provision laid down
under section 131 of CA 2001. Therefore in such situation it is recommended that Melanie
needs to take legal action against the organization Astounding Gifts Pty Ltd and claim
5 R. P Austin, Ian M Ramsay and H. A. J Ford, Ford's Principles Of Corporations Law (LexisNexis Butterworths,
2010).
6 Ted Wright, M P Ellinghaus and D StL Kelly, 'A Draft Australian Law Of Contract' [2012] SSRN Electronic
Journal.

remaining payment as seen in the case study Lau v Bob Jane T-mart pty ltd7. In addition to
this “Rankin v Marine Power International Pty Ltd8” case study suggested that an
organization cannot terminate the contract without giving proper reason or notice period.
7 [2004] VSC 69
8 [2001] VSC 150; 107 IR 117

Bibliography
R. P Austin, Ian M Ramsay and H. A. J Ford, Ford's Principles Of Corporations Law
(LexisNexis Butterworths, 2010).
Ted Wright, M P Ellinghaus and D StL Kelly, 'A Draft Australian Law Of Contract' [2012]
SSRN Electronic Journal.
[1927] 1 Ch 154. Shuttleworth v Cox Bros and Co (Maidenhead)
((2000) 18 ACLC 665) Winpar Holdings Ltd v Goldfields Kalgoorlie Limited
Richard Mitchell, Law, Corporate Governance And Partnerships At Work (Ashgate Pub.,
2011).
Angela Schneeman, The Law Of Corporations, Partnerships, And Sole Proprietorships
(Delmar Publishers, 1997).

Question 2
Chip Eze pty is a private limited organization involved in two businesses including
manufacturing snacks foods and potato crisp which are not generating much profits for the
organization. It is seen that manufacturing potato chips as well as other foods is making
reasonable profits for business. Profit earned by the organization is distributed 25% amongst
each members and remaining 25% of share is distributed to its investors named Donte, Saeed,
Ayub, Faizah and Neeve. The main issues associated with this case study are that directors of
chip Eze pty ltd have breached the rules and regulations of s181 of the Corporation Act 2001.
As in the given case study it is seen that Jordon sell his share of 5% to faizah without consent
of their partners.
Section 181 of the Corporation Act 2001 stated that directors of an organization have duties
to execute their responsibities in successful manner. Failure to execute their responsibities
would attract civil penalty under S1317E of CA.
In case study, ASIC v Rich, pointed out that directors have a responsibilities to executes its
roles in successful manner as mentioned in Section 181 of the Corporation Act 2001. The acts
stated that directors can make a decision based on the situation and circumstances and for that
they have judgment to disregard certain responsibities for interest of an organization. In case
study, ASCI vs Adler, it was observed that directors violated several roles and responsibilities
as stated under the section Corporation Act9. The court declared that director breached
Section 180 of the Corporation Act and section 181, which mentioned that director has no
authority to misuse his/her duties. Section 183 and 206A said that directors responsibities in
organization not to misuse their position and the financial information.
Under the section s676 of the act, regular disclosure commitments apply to 'revealing
elements (that is, publically listed organizations) where arrangements of the posting decides
that apply to the element require the substance to tell the market administrator of data about
indicated occasions or matters as they emerge with the end goal of the administrator making
that data accessible to members in the market10. Under the section 674(2) it is obtained that
9 [2002] NSWSC 171
10 Disclosing entities are defined in s111AC of the Act as any entity that has ‘enhanced disclosure securities.’
Enhanced disclosure securities are then defined in s111AD as securities of a listed company. See Corporations
Act 2001 (Cth) ss111AC-111AD.

requires a recorded organization to advise the market administrator of data it is required to
tell the market administrator of under the posting rules, where the data as well as information
of an organization has not be available and it is 'data which a sensible individual would
expect, on the off chance that it were by and large accessible, would materially affect the cost
or estimation of' the organization's recorded securities11. Under the section of ASX Listing
Rule 3.1 a recorded organization that 'is or ends up mindful of any data concerning it that a
sensible individual would hope to materially significantly impacted the entity prices must
disclosed the data and information to ASX.
As per the given scenario it can be said that the organization must have to follow all rules and
regulations in work practices and also implements both ASX LR3.1 and s674. Here in the
scenario it can be found that without the concern of the directors or partners Jordan agreed to
sell their share about 5% to investors i.e. Faizah. This would negatively impact on the
organization performance and therefore it is roles and responsibilities for members to disclose
the information under the section ASX LR3.1. Apart from that, it would likely to impact the
individuals or investors who positively invest in organization in deciding whether to dispose
or acquire of Chip –Eze Pty ltd. Finally it can be said that organization has not disclosed any
data and information and also considered it commercial in confidence.
Removing from a noteworthy advance, and is along these lines not a competitive innovation.
Apart from that there would be not lawful prohibition on disclosing the data, this is not an
incomplete proposal as well as data and information of an organization is not generated for
internal management procedures.
Advice Archibald case study
11 Corporations Act 2001 (Cth) s674(1).

From the case study of Bell Group Ltd V Westpac Banking Corporation, it was found that
director of an organization must act bona find for interest of a business as the shareholders or
investors take monetary risks in order to provide support to business12. Therefore in such
situation avoid credits and liabilities suffered from business loss and opening new
organization for matter would not unused the director of the organization from running their
roles and responsibities. The directors cannot justify in court that they doing betterment for
organization as making other problem cannot be taken as reasonable and ethical to save one’s
organization. CORPORATIONS ACT 2001 - SECT 1317E said that if directors doing
unethical practices at workplace and not exciting their responsibilities in ethical manner they
should be charged. Section 183(1) is civil provision, by virtue of corporations act 2001 - sect
1317E, if court was agreed that the person has break section 183, then under S1317G, that the
office, directors pay then commonwealth a financial penalty. “Storm Financial heads
breached law case study” it is found that directors of an organization carry out their
employment with diligence and care, by providing inappropriate advice to its clients. In this
study, court observed that storm was doing unethical practices and organization breached the
Corporation Act S1180 (1). Therefore analyzing the case study of Storm financial, it can be
said that Jordon who is the directors of the organization breach the Corporations Act
2001(cth) and also their roles and responsibilities. Therefore, it can be recommended that
Archibald to took all the above consideration and panelized then under the S1317G and
1317E, which involves the financial penalty up to $200000. Apart from that it is
recommended that Archibald needs to take steps by withdrawing their directorship under
corporations act 2001 – sect206C.
Advice 2 :faizah case study
Peskin v Anderson, case study stated that director failed to execute their responsibities in
organization13. In case study Coleman V Myer, court said that directors needs to holds certain
duties and responsibilities towards individuals shareholders. In this study, it was mentioned
that the organization’s directors has responsibities and duties to discuss foreseeable decision
and material facts regarding organization with shareholders. It is mainly dependent on the
factors that shareholders of the business can put trust on them or not. Corporations act 2001
– Section 588G mentioned that director of an organization should not execute insolvency
trading. Therefore, it can be said that Jordon has not an authority or liabilities to share any
12 (1997) 15 ACLC 8
13 [2000] EWCA Civ 326

material information regarding the organization to individual’s shareholders such as Faizah.
Thus in situation it can be said that individuals shareholders i.e. Faizah cannot sue against
Jordon for not releasing the information about organization liquidation before purchasing her
share.
Biography
The Bell Group Limited v Westpac Banking Corporation (1997) 15 ACLC 8
Peskin v Anderson [2000] EWCA Civ 326
Australian Securities Exchange, Listing Rules (at 14 April 2014) r 3.1
Corporations Act 2001 (Cth) s674(1).