ACC204 Corporations Law: Analyzing Corporate Law Case Studies

This assignment presents two case studies focusing on corporate law, specifically concerning director liabilities and corporate governance under the Australian Corporations Act 2001. The first case examines whether Liam and Peta, as directors, have liabilities due to the company's insolvency, analyzing their duties of care and diligence as outlined in sections 180 and 588G of the Act, and whether they failed to properly investigate the company's financial status. The second case explores the principle of separate legal entity established in Salomon v Salomon, determining if Cloud Tech can take action against Banger Ltd, a company incorporated by Alexandra, a former director of Cloud Tech. It further investigates whether Cloud Tech can take action against Alexandra for misusing confidential information and client lists, violating sections 182 and 183 of the Corporations Act. The analysis employs the IRAC method to provide structured answers, citing relevant legal principles and sections of the Corporations Act 2001.

Running head: BUSINESS LAW
Case Studies
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to question 1:......................................................................................................................2
Issue:............................................................................................................................................2
Rules:...........................................................................................................................................2
Application:.................................................................................................................................3
Conclusion:..................................................................................................................................3
Answer to question 2:......................................................................................................................3
Issue:............................................................................................................................................3
Rules:...........................................................................................................................................4
Application:.................................................................................................................................4
Conclusion:..................................................................................................................................5
Reference:........................................................................................................................................6

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Answer to question 1:
Issue:
In this case two issues have been cropped up:
 Whether Liam and Peta have any liabilities under the Corporation Act 2001 or not
 Whether any penalty provisions could be applied on the directors or not
Rules:
The present case deals with the function and role of the directors regarding the insolvency
of a company. Directors are possessed a higher position in an Australian company and it certain
duties have been imposed on them so that they can act on behalf of the company. According to
the general provision of Corporation Act 2001, a director is required to act for the best interest of
the company and for the interest of the shareholders. According to the provision of section 180
of the Act, a director should act with due care and diligence. Further, they have to take all the
decisions so that it may not cause any detriment to the company. All the important decisions of
the company are taking by them and they are required to make reasonable decisions for that. It
has been mentioned in section 95A of the Act that in case a company has no ability to meet the
debts of the company, the company will be regarded as insolvent company and the directors of
the company are required to make all the possible investigation regarding the financial statement
of the company. According to section 588G of the Act, the director of a company should not take
any decision that can make the company insolvent. Further, the director of the company is
restricted to make any misleading financial statement. In case of any failure regarding the
provisions of those sections, the alleged director should have to face civil penalties mentioned
under section 1317E of the Act 2001.

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Application:
According to the brief of the case, it is a clarified fact that the characters of the case are
active member of the company and therefore, they are required to take all the prudent decisions
for securing the interest of the company. In addition, they have to accustom with all the financial
statement and debts of the company. However, it has been observed in this case that certain
loopholes have been observed regarding the balance sheet of the company and the directors of
the company had failed to make proper investigation regarding the financial statements.
Therefore, the company had to incur huge losses due to the careless acts of the active members
of the company. Further, it has been observed that because of their wrong acts and decisions, the
company has become insolvent. Therefore, it has been established that Liam and Peta had failed
to act in accordance with the principles mentioned under section 588G of the company.
Conclusion:
To conclude, it can be stated that Liam and Peta has failed to act prudently and failed to
collect internal information of the company. Therefore, they held liable under the Corporation
Act 2001. According to the provisions of the Act, civil penalties will be imposed on them.
Answer to question 2:
Issue:
Considering the case, two issues have been come into the light:
 Whether Cloud Tech can take any action against the Banger Ltd for making contract with
Gnosis Records or not
 Whether the director of the Cloud Tech can take any action against Alexandra or not

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Rules:
The case has two phrases; first deals with the action taken against a company by other
company and the second deal with the action taken against the director of a company by other
directors. The first issue of the case is based on the case principle mentioned in Salomon v
Salomon. In this case, it has been proved that no company will be held liable for the personal
debts of the directors and the principle of corporate veil has been established in this case.
According to the general principle of Company law, a company is a separate legal entity and it
could not held liable for the any liabilities of the directors or the shareholders. No person has any
right to make any claim against any company for the wrongful acts of the directors.
According to the second issue, it can be stated that a director of a company has certain
liabilities and they are bound to act with all the provisions. A director is required to act in good
faith and with due care and diligence. Further, according to the provision of section 182 of the
Act, they are restricted to use their position in a wrong and unethical way. Further, according to
section 183 of the Act, the directors should not share the confidential information with any third
parties. They should always think about the best interest of the company.
Application:
In the first Para of the case, it has been observed that a company has been incorporated by
Alexandra named Banger. However, Alexandra was one of the directors of another company
named Cloud Tech. certain disputes had been cropped up between them and he has established
this new company. According to the principle of Salomon v Salomon, it can be stated that the
directors of the Cloud Tech against the newly incorporated company could take no action, as
Banger is a separate legal entity.

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However, in the second issue it has been observed that Alexandra, after incorporated the
new company used all the information of the previous company and used the client list of the
previous company. According to section 182, he is restricted to use his position in unethical way.
Further, it has been mentioned under section 183 of the Act, any director should transfer no
information to any third party. However, it has been observed that he had failed to meet any
requirements mentioned under the Act and therefore, the directors of the Cloud Tech could take
action against Alexandra.
Conclusion:
Therefore, the action provision will not apply against the newly corporate company.
However, action can be taken against Alexandra under the Corporation Act 2001.

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Reference:
Salomon v Salomon [1897] AC 22
Corporation Act 2001 (Cth)
ASIC v Adler [2002] NSWSC 171

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