2106AFE Business Law: Corporate Governance Issues & Legal Analysis

This assignment presents a case study analyzing several corporate governance issues under the Corporations Act 2001 (Cth). The first issue examines whether ABC Ltd can claim a mortgage on Sailaway Pty Ltd's land, focusing on sections 127, 129, and 128 of the Act, alongside relevant case law like Royal British Bank v Turquand. It concludes that ABC Ltd likely cannot claim the land due to Tom's prior knowledge of suspicious transactions. The second part addresses who can be appointed as a director of No-Tax Agents Pty Ltd, considering disqualifications under section 201B and 206B, ultimately determining only Roger is eligible. Finally, it discusses whether ASIC can take action against Conrad for his companies' liquidations, referencing section 206F and the requirements for disqualification. Desklib offers various resources, including solved assignments and past papers, to aid students in understanding such complex legal scenarios.

Running Head: BUSINESS LAW
Business Law
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Author Note

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Answer 1
Issue
The issue that has been identified in the given scenario is whether mortgage can be
claimed by ABC Ltd for the land that is owned by Sailaway Pty Ltd which had been mortgaged
for the purpose of getting a loan.
Law
The Corporations Act 2001 (Cth) can be referred to in this given scenario for addressing
the relevant issues that have been identified in the given case study. Thus, the relevant sections
of the Corporations Act 2001(Cth) which are applicable in this given scenario are enumerated
below:
Section 127- This section of the aforementioned act states that an original document of a
company will only be legally binding upon the company and its stakeholders and will be
considered to be valid, if the same is signed by atleast two of the company directors. Such
document may or may not contain the common sea of the company.
Section 129- Subsection 5 of the aforementioned ct states that any document of the
company which has been duly signed as per the provision as provided in section 127 of the act
will be held to be legally valid. In accordance with section 129(6) of the aforementioned act it
can be stated that any document which contains the common seal of the company will be held to
be legally valid and binding.
Section 128- It can be said in accordance with this section that a person who deals with
the company has the right to rely on the assumption of the provisions as provided in section 129

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of the aforementioned act. However, according to subsection 128(4) of the Corporations act it
can be stated that an assumption cannot be made by any person according to the provisions of
section 129 if such person is suspected to know at the assumption is false at the time of dealing.
The judgements given in the case Australia and New Zealand Banking Group Limited v
Adventure Quest Paintball-Skirmish Pty Limited; Woollard v Hodgson; Hodgson v Wollard
[2016] NSWSC 188 is the authority related to circumstances in which third parties can rely on
the assumptions under section 129.
Subsection 3b of 129 of the Corporations Act 2001 states that a person can assume that
any person who is acting as an officer or agent of the company has the authority to discharge
their duties just as any other agent of another company.
In the notable case Royal British Bank v Turquand (1856) it had been held by the court
that any person transacting business with a company will be entitled to believe that the company
in consideration complies with the internal rules even if such company in reality does not do so.
This provision has been termed as the internal management and the same is applicable in
company case laws.
However an exception to this indoor management rule has been illustrated in the case
USSC v Hospital Products International Pty Ltd. it was held by the court that dishonesty or
failure on the part of a person who deals with a company to enquire about the discrepancy in the
management with the fear to discover any fraud or breach likely to have been committed, will be
held to have knowledge of such fraud or breach and therefore the indoor management rule will
not be applicable in such cases. In another landmark case Bank of New Zealand Pty Ltd v Fiberi
Pty Ltd, the directors failed to comply with the requirements of the constitution of the company.

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Such directors had produced a document by a fake company secretary for the purpose of
obtaining a loan. However, it was held by the court that susc transaction was valid.
Application
In the given case study it has been provided that Allan and Bill are the directors of the
company Sailaway Ltd. However, Allan is also the chairman of Broadacres and also holds the
majority of the shares of Broad acres. Allan on behalf of Broad acres had been able to obtain a
loan by putting the company Sailaway land on mortgage. It can be said with reference to the
facts of the Allan had been able to procure a loan of 1.5 million dollars from the company ABC
Finance Ltd. At the time of repaying the loan the company Broadacres went bankrupt and could
not repay the loan. The company ABC Ltd wanted to exercise their right on the land that was
initially mortgaged by Allan to obtain the loan.
It can be stated in accordance with the provision of section 129(5) of the Corporations
Act 2001 that any document which is duly signed by at least two of the directors of the company
as provided in section 127(1) of the aforementioned act will be held to be legally valid and
executed. Further in accordance with the decision of the case Royal British Bank v Turquand,
that a third party is not required to make investigations about the internal management of the
company. A third party is entitled to assume that the that the company in consideration complies
with the internal rules of the company even if the company in consideration does not comply
with rules of internal management in reality.
Further in relation to the decision of the case Bank of New Zealand Pty Ltd v Fiberi Pty
Ltd. it can be stated that a document which is signed by a fake secretary will be considered to be
executed and valid. Thus by analysing the sections of the Corporation Act 2001 (CTH) and the

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decisons of the aforementioned cases in light of the facts of the case study it can be said that the
deal of mortgage between ABC Ltd. and the company Sailway is valid
However, further scrutinizing the facts of the case has shed light on the fact that Tom, the
manager of ABC Ltd. had proper knowledge that the company Sailaway did not deal in
transactions related to the estates. Section 128(4) of the Corporations Act which states that a
person cannot assume any facts under the section of 129 if such person had been aware that such
assumption is likely to be incorrect is applicable in this given scenario. Further as held in the
case USSC v Hospital Products International Pty Ltd, a person who fails to enquire about any
discrepancy that is likely to exist in the internal management of an organization due to the fear of
disclosing and fraudulent activity cannot rely on the clause of internal management rule as
provided in the case Royal British Bank v Turquand,
In this case Tom had due knowledge of the suspicious nature of the transactions. He had
a duty to inform his friend, who was acting as the relieving manager about the aforementioned
fact and thus the internal management rule will to be applicable in this case study.
Conclusion
Thus to conclude, it can be said that the company ABC Ltd do not have the right over the
company Sailaway’s land.
Answer 2a
Issue
The issue that can be identified to be existing in the given case study is who should be
appointed as the directors of the company No-Tax Agents Pty Ltd

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Law
The Corporations Act 2001(Cth) governs the provisions related to the appointment of the
directors of a company and the duties of such directors. In accordance with the section 201 B of
the Corporations Act 2001, it can be stated that a director of a company has to be a natural
person who has attended the age of eighteen years of the age. Further e must not be disqualified
by any other provisions of the law which are related to the governance of companies.
Thus by interpreting section 206 B of CA, it can be stated that a person is automatically
disqualified from becoming a director, if such person has been convicted in a criminal offense.
Further sub-section 206B(1) (a) of the CA prohibits any person from becoming a director if such
person has been found guilty of an offense which is related to the decision making of the
company which has had negative impacts on the company.
Subsection 206B(2) (a) clearly states that a person shall remain disqualified from being
appointed as a director for 5 years from the date of conviction.
However, subsection 206B (2)(b) clearly states that in case of a person who has a served
a prison sentence of five years, such person shall remain not be appointed as the director for five
years from the day he is released.
Subsection 206B (1) (a) (2) of the CA states that a person who has been found to be
guilty of adversely affecting the financial status and standing of company cannot be appointed as
a director.
Section 206B(1) (b) (2) prohibits the appointment of any person as director, if such
person has received 3 months of imprisonment and exhibits dishonesty.

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Application
It has been provided through the facts of the case that Conrad wishes his home company
to be appointed as the director of the company No-Tax Agents Pty Ltd. However, the home
company of Conrad cannot be appointed as the director of No-Tax Agents Pty Ltd as it has been
clearly specified in the section 201 B of the CA that a director of a company must be a natural
person. And a company cannot be treated as a natural person, a company can be held to be an
artificial person.
As provided through the facts of the case study Martha has been serving a prison
sentence. She has to serve five more months of her remaining prison sentence. Thus she is
automatically disqualified from becoming a director of the company No-Tax Agents Pty Ltd
according to the provision of section 206 B (1) (b)(2) of the CA. This section states clearly that
any person who has been charged of an offense which involves dishonesty and has served an
imprisonment of a time period of minimum three months is disqualified from becoming a
director of a company. However, Maria can become the director five years after her conviction
period which is to be calculated from the date of conviction as provided in section 206B (2) (b).
Thus by assessing the facts of the case as per the provisions of the Corporations Act it can be
said that the only person who in this case can become the director is Roger as Conrad does not
wish to become the director, his own company cannot become a director and Marcia is barred
from becoming the director
Conclusion
Thus to conclude it can be said that only Roger can become the director of No-Tax
Agents Pty Ltd.

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Answer 2b
Issue
The issue that has been identified in the given scenario is whether ASIC can take action
against Conrad for making three companies go in liquidation due to insolvency
Law
Section 206 F(1) of the Corporation Act states that ASIC has the authority to disqualify a
person from managing the affairs of a company for a time period of five years. However as
provided in section 206 (F) (1)(a), it can be stated that ASIC must give a notice to the concerned
person according to the provision as provided in section 206F (b) within a time period of seven
years if it is established that such person has been the managing the operations of more than two
companies and such person is responsible for the winding up of the companies. It can be stated
that a liquidator’s report is essential to substantiate the claim of winding up of the company.
According to section 206F(b) it can be stated that ASIC must give a notice to the
concerned person in a prescribed form asking such person to justify why such person should not
be disqualified from managing the operations of the company. The ASIC must provide an
opportunity to the concerned person to be heard. In accordance with section 260F (1)(c) if the
ASIC is convinced that it is justifiable to disqualify the person as the director, it can disqualify
the concerned person.
Application
Thus as per the facts of the case it can be stated that the family company of Conrad had
gone into liquidation. Although the liquidator did not find any fault on his part to be held

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responsible for the company going into liquidation, the ASIC had records that two other
companies which were managed by Conrad had also gone into liquidation in a time period of
nine months. Thus in this given scenario section 206F of the Corporations Act 2001 is
applicable. As provided in section 206F (1)(a), it can be stated that the ASIC has the power to
disqualify a person from managing the affairs of a company by providing a notice in accordance
with section 206F (1)(b) within a time period of seven years if the ASIC finds that such person
had been acting as the director of two other companies and the companies had gone into
liquidation within a time period of 12 months after the person ceased to be the director. The
report of the liquidator must be filed in accordance with section 533(1) of Corporations Act
2001. In this case the liquidator had lodged the report of liquidation of the family company of
Conrad. The ASIC thus in accordance with section 260F(1) (B) can give notice to Conrad why
he should not be disqualified. According to section 260F 1(c) the ASIC can disqualify Conrad, If
it finds that it is justifiable to do so.
Conclusion
Thus to conclude it can be said that the ASIC can disqualify Conrad from acting as the
director a company

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