HI6027 Business and Corporate Law Case Study 2: Legal Analysis

This document presents a case study analysis concerning business and corporate law, specifically focusing on a scenario involving the pre-registration of a company. The case involves Kellie and her friends who contracted to form a company. The analysis addresses the liabilities of parties involved in pre-registration contracts, particularly Kellie's responsibilities regarding contracts entered into on behalf of the company before its registration. The document examines the application of the Corporations Act 2001 (Cth), including sections 131, 132, and 133, and relevant case law such as Commonwealth Bank of Australia vs. Australian Solar Information Pty Ltd. The analysis explores issues of agent liability, contract ratification, and the potential release of liability upon company registration. It concludes that Kellie may be released from liability upon company registration, provided the contracts were for the company's benefit. The solution highlights the importance of understanding legal obligations in business contexts, particularly regarding pre-incorporation contracts and the rights and remedies available to involved parties.

Running Head: CASE STUDY 2
CASE STUDY 2
Name of the Student
Name of the University
Author’s Note

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CASE STUDY 2:
Facts:
Kellie and her friends had contracted for the formation and incorporation and
registration of a company with the capital of 10000$ each. Kellie enters into contract with the
supplier for the supply of 1000 wicker baskets. Further, she entered into the contract with a
local designer for the creation of a logo for the company’s products. After about two weeks,
her friends backed out from the agreement with certain excuses. Kellie is contacted by the
solicitor that the company is ready for registration and presents her the bill for the work and
service. The baskets are also due to arrive and the local designer also wants to be paid for the
design created. The company has not been registered and neither does it seems to be
registered in future events.
Issue:
The first issue in the case is whether anyone is liable for the amounts that Kellie has
contracted for on behalf of the company that is (or was) to be formed.
The second issue in the case is whether in case Kellie does register a company, would
that means she is no longer liable for the various contracts she entered into on behalf of the
company.
Rules:
The Corporations Act 2001 (Cth) imposes huge liability onto the agent who is
engaged in contracting services of a pre-registration contract (Hill 2018). The law permits the
agent to be released from his or her liability if other parties sign a waiver for the release of
the agent from the liability regarding the pre-registered contract (Pereira 2017).

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Sections 131 to 133 of the Corporations Act 2001 (Cth) explains that the company
before the incorporation does not imply its legal status as a separate legal entity which allows
the company the right to enter into the contract. Section 131 of the Act states that if a person
enters into a contract on behalf of or the benefit of the company before its registration,
becomes bound by the contracts. However the same can be ratified within the time as agreed
by the parties to the contract or if there is no time limit as set by the parties, reasonable time
after the contract has been entered into by the parties (Commonwealth Bank of Australia vs.
Australian Solar Information Pty Ltd. [1987] 5 ACLC 124). Section 132 of the Act states that
the parties entering into the contract for the purpose of the benefit of the company or for the
purpose of the company may be released from their liabilities by written agreement from all
the parties. Further, the section explains that in spite the rule of equity is implied to all
persons, it can be explained that the person to the contract before the registration of the
company do not have any right to be indemnified against the company with respect to the
liability of the company on account of the fact that the person was not acting independently
but as a trustee or the agent of the company. Section 133 of the Act explains that the
provision of law would replace any liability or duty that may have arisen due to the contract
entered into by the parties before the registration of the company.
Application:
The Corporations Act 2001 (Cth) imposes huge liability onto the agent who is
engaged in contracting services of a pre-registration contract. The law permits the agent to be
released from his or her liability if other parties sign a waiver for the release of the agent from
the liability regarding the pre-registered contract. In the given scenario, it can be explained
that Kellie and her friends were engaged in the agreement to incorporate a registered
company. Applying the provisions of section 131 of the Act and Commonwealth Bank of
Australia vs. Australian Solar Information Pty Ltd., it can be explained that the Kellie had

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entered into the contract for the benefit of the company before the registration of the
company. Further, her friends wanted to ratify the contract which should have been done
wither within the time as agreed by the parties to the contract or if such time has not been
decided, should have been done within the reasonable time from the date the contract was
entered into by the parties. The friends of Kellie did not inform Kellie anything for two
weeks from the date of entering into the contract and hence, at the last moment, they were
informing Kellie of their decision which can be explained in terms of section 131 as that the
reasonable time for ratification of contract had passed and hence, the parties were bound to
the contract and its contractual terms and conditions as agreed by the parties.
Applying the provisions of section 132 of the Act, it can be explained that the Kellie
may be released from her liability towards the contracts being entered into by her on behalf of
the company but she does not have the right to be indemnified against such contracts being
entered into by her for the benefits or the purpose of being on behalf of the company. Further
section 133 of the Act explains that any party having any rights or liabilities as a part of pre-
registration contract, shall be replaced once the company gets incorporated and registered.
Thus, in the given scenario, it can be explained that if Kellie registers the company, she
would no longer be liable for the contracts being entered by her before the registration of the
company. However, such contracts should be for the benefit of the company or on behalf of
the company.
Conclusion:
It can be concluded in the first issue that Kellie may be released from her liability
arising from the contracts being entered into by her on behalf of the company.
It can be concluded in the second issue that if the company has been registered, Kellie
would not be liable for the various contracts entered by her on behalf of the company.

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REFERENCES:
Commonwealth Bank of Australia vs. Australian Solar Information Pty Ltd. [1987] 5 ACLC
124
Hill, J.G., 2018. Legal Personhood and Liability for Flawed Corporate Cultures. European
Corporate Governance Institute (ECGI)-Law Working Paper, (431).
Pereira, D., 2017. Corporate group structures: The good, the bad and implementing the
optimal structure. Governance Directions, 69(10), p.588.