Business Law Assignment: Analysis of Heritage Pty Ltd and Legal Issues

This assignment analyzes a business law case concerning Heritage Pty Ltd, a jewelry manufacturer, and its directors, Peter, Paul, and Mary. The assignment addresses two key questions using the ILAC method. The first question examines Mary's actions, assessing whether Heritage Pty Ltd is liable for her decisions, focusing on breaches of director duties under the Corporations Act 2001. It considers the company's constitution and relevant case laws like ASIC v Adler and Fodera Pty Ltd v Shearn. The second question explores Peter's required actions, emphasizing the duties of directors, including honesty, care, competence, solvency, and diligence, as per the Corporations Act. The analysis incorporates case laws such as Cassegrain v Gerard Cassegrain & Co Pty Ltd to illustrate legal principles, providing conclusions on the liabilities of the directors and the actions required to ensure compliance with the law. The solution highlights issues such as the misuse of power, the importance of good faith, and the protection of the company's interests.

Running Head: Business Laws
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Business Laws
Student’s Name
1/17/2019

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Question 1
Issue
Whether Heritage Pty Limited is liable for the actions of Mary? What actions can be taken by
the company by the Heritage Pty Limited?
Rule
As per the (s 180) of the Corporations Act 2001, the following are the duties of the directors
mentioned in the act:
1. It is the duty of the director of a corporation to exercise his/her powers for the best interest
of the company (Sartori, 2016).
2. The director of the organisation should give an independent judgement for the benefit and
the interest of the organisation.
3. The judgement of the director must be in good faith which does not involve any personal
interest of the directors of the organisation (Harris, 2016).
4. The judgement taken by the director of the corporation should be within the best interest of
the company.
According to section (s 181) of the Corporations Act 2001, the decision of the director of the
corporation must be in good faith and for the best interest of the organisation. The director of
the corporation has the duty and responsibility to take such decisions in the best interest of
the corporation.

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According to the section (s 182) of the Corporations Act 2001, the director of the corporation
should not misuse his/her powers in order to gain personal advantage or advantage to such
persons related to the directors of the corporations (Austin and Vrisakis, 2017).
As per the section (s 183) of the Corporations Act 2001, the director’s duty is to protect the
sensitive information of the business. The director of the corporation should not misuse such
sensitive information in order to gain personal benefits and personal advantages. Such duty is
still applicable to the director of the organisation he/she decides to leave the organisation
(Klettner, 2016).
As per the section (s 184) of the Corporations Act 2001, the section defines the criminal
liability of the directors of the corporations, if they commit the offence with dishonest and
reckless intentions which are not for the best interest of the organisation. The director of the
organisation is also liable if they fail to exercise their power and perform their duties for the
best interest of the organisation (Hanna, 2017).
As per the section (s 187) of the Corporations Act 2001, the section is applicable to the
directors of wholly owned subsidiaries where the director of the corporation who commits
such offence with dishonest intentions which are against the interest of the corporation or the
director of the organisation is misusing his/her power to gain personal advantage from any
transaction of the organisation or to gain advantage from the assets of the organisation. The
section also states that it is the duty of the director of the corporation to protect the sensitive
information regarding the business of the corporations. It is the duty of the director of the
corporation to protect such information and not to gain personal advantage from the usage of
such sensitive information (Chia and Ramsay, 2015).

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As per the section (s 191) of the Corporations Act 2001, the director’s duty is to to provide
full disclosure of the information and the basis of a judgement given by them for the benefit
of the organisation to the shareholders of the organisation.
The above such provisions may give rise to civil obligations to the directors of the
corporations, the court of law may order the director of the corporation to pay penalty to the
Commonwealth of $ 2,00,000 or may order the directors to reimburse for the losses of the
company and the court of law may also order a prohibition to the director to function or to act
in the managing position of the corporation. The following are the liabilities of the directors:
1. To repay for the debts of the company if the company becomes insolvent.
2. Any loss incurred by the company upon the breach of duties as the directors of the
company (Schultz, 2016).
3. The director of a corporation would be personally liable if any personal guarantee
given by the director on behalf of the company.

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Case Laws
ASIC v Adler and 4 Ors [2002] NSWSC 171
It was held by the court of law that the corporation named HIHC has illegally provided $ 10
million to PEE. Such financial assistance was given with an intention to obtain shares in HIH.
Hence the court has given the judgement that Rodney Adler is responsible under a section of
180,181,182 and 183 of the Corporations Act 2001.
Fodera Pty Ltd v Shearn [2011] NSWSC 479
According to the case law, the court has ordered the sole director of the company to pay the
compensation and all the cost which has resulted in the loss of property to the corporation.
The court of law in its judgement also stated that the director of the corporastion did not act
in the best interest of the company. The court also stated that the director of the corporation
should prepare proper and effective financial statements for the benefit of the company.

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Analysis
As per from the above case study it can be noticed that Mary who was an equal shareholder
and director along with Peter and Paul of the Heritage Pty Ltd. It can be observed that the
company has its own common seal. It was mentioned in the constitution of the company
where any contract above the value of $ 50,000 must be done on the basis of prior approval
of the board of the corporation. It was observed that Mary has made a contract on behalf of
the company worth $ 1,00,000 with Canberra Van Rentals & Sales Pty Ltd where the
company has to deliver 3 armoured vans to Heritage Pty Ltd. However, it can be noted that
Mike the salesperson has warned his boss Roger regarding the current position of Heritage
Pty Ltd and his boss sided him up saying that they will earn incentives with such sale to the
company. Hence it can be noted that the Heritage Pty Ltd is not liable for the payment of
armoured vans and according to the case law of Fodare Pty Ltd v Shearn, it can be
understood that Mary misused the position and powers given to her. It can be observed as per
the case law of ASIC v Adler and 4 Ors that Mary did not perform in good faith and for the
best interest of the company. It can also be noted that Mary misused her position by
withdrawing gold and billions from the storage of No Worries Storage Ltd by writing fake
sign of her colleague. Hence the Heritage Pty Ltd has the right to file the case under section
180,181,182,183 and 184 of the Corporations Act 2001. It can also be noted that the
Canberra Van Rentals & Sales Pty Ltd has also the right to sue Roger and Mary to claim
compensation for pursuing such order irrespective of the prior information by Mike to Roger.
However, the court of law may cancel such contract as such contract was made between
Mary and the Canberra Van Rentals & Sales Pty Ltd, it can be noted Mary acted beyond her
powers hence such contract is not ratified by the Heritage Pty Ltd.

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Conclusion
According to the above analysis it can be observed that Mary acted beyond her powers given
by the company hence Mary is liable for her actions as she did not work for the best interest
of the company hence Mary is liable and can be punished under the section 180,181,182 and
183 of the Corporation Act 2001. Mary is also responsible for the misconduct done by her for
taking the gold and silver bullions with the permission of the board hence the court of law
may punish her with such misconduct. It can also be noted that Roger irrespective of getting a
warning from Mike, he pursued with such order hence the Canberra Van Rentals & Sales Pty
Ltd has the right to sue Roger and Mary regarding such contract.

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Question 2
Issue
What actions must be taken by Peter in citations with relevant laws?
Rule
The following are the duties of directors of the company which are mentioned below:
1. To have Honesty, care, and competence: According to the section (s 181) of the
Corporations Act 2001, one of the basic duties of the director of the coorporation is, to be
honest with the company. In other words, the directors must be honest with maintaining the
financial records of the company and the directors should ensure the solvency of the
coorporation. The directors of the company should work in the best interest of the
corporation, in case the directors against the interest of the corporation the Australian
Securities and Investment Commission has the right to prosecute such directors working
against the interest of the company (Bottomley, 2016). As per the ASIC, the following are
the basic roles and responsibilities of the director of the company:
a) The basic role of the director is to understand know what the company is doing.
b) The director of the company should know about the different courses of actions which
are going to affect the profitability and performance of the company.
c) The director of the company should have an active involvement in the meetings of the
company (Whincop, 2017).
d) The director of the company should always review and question the working of the staff
of the company

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e) The director of the company should seek help from professional individuals such as
lawyers, auditors, and management consultant which will provide valuable advice for
the consistent development of the company (Smith and Rönnegard, 2016).
f) To have proper planning regarding future operations and investments of the company.
g) To review the performance of the employees constantly (Patel, 2015).
2. To have a regular check on the solvency of the company: One of the prime duties
of the directors is to ensure the solvency of the company. The directors must ensure
that the performance of the company is good, if the company is not performing well
then it is the duty of the directors to take serious actions which help the company to
perform well in future (Andrew, 2016). The directors of the company should also
ensure that the company is using fair business tactics and provide tough competition
to its competitors (Besher and Furusten, 2019). The following liabilities can create a
serious implication for the directors of the company:
a) The prosecution did by ASIC.
b) Arousal of personal liability and debts of the company.
3. To work with skill, care and diligence: As per the section (s 180) of the
Corporations Act 2001, the director’s duty is to exercise his/her powers in the good
faith. Such exercise of powers should be made for the best interest of the corporation
(Barker, 2016). It should also be noted that the director of the corporation should not
have any personal interest in any transaction done by the corporation. Any judgement
taken by the director of the company should be duly communicated to the
shareholders; apart from such judgement, the director of the corporation should also
explain the intention behind such judgement. It should also be noted that such
judgement should be taken for the best interest of the company (Oehmichen et al,
2017)

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Case Laws:
Cassegrain v Gerard Cassegrain & Co Pty Ltd. [2015] HCA 2; 254 CLR 425
According to the above case law, it was held by the court that the director of the corporation
did not act on the best interest of the company as the directors misused their powers to sell
the shares to two other companies whose director is the wife and other company's director is
the daughter of the director. Such shares were being sold at a lower value than the market
hence the court cancelled such transaction and held the directors responsible for breach of
duties for the best interest of the company.
R v Byrnes and Hopwood - [1995] HCA 1
It was held by the court of law that the director has breached section (180), (s181) and (s 182)
of the Corporations Act 2001. The main purpose of the director was to gain personal benefits
from the transactions of the company.
Forkserve Pty Ltd v Jack (2001) 19 ACLC 399; [2000] NSWC 106
It was held by the court, that if any corporate opportunity is presented by the director of the
company, than it is the duty of the director of the company to not to gain personal advantage
until the company decides to pursue and such information must be duly informed by the
director the board as well as stakeholders of the company.

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Application
As per from the above case study it can be noted the company named Sparkles Ltd, who deals
in jewellery has given a contract to Peter Jones (who runs a stationery business) for the period
of three years. It came in attention of Peter that Roger who owns 65% of shares of the
company has entered into a contract and such contract has been ratified by the board to sell a
stone of $ 1,00,000 to the nephew of Roger at $ 5,000 and Roger is also about to sell rube to
his niece worth $ 40,000 at $ 8,000. Peter complained such matter to company secretary of
the company where he got a reply that it was the board's decision to source stationery from
Office Pax Limited and the board will be taking no actions against Roger for such dealings
with his niece and nephew. However, as per the case law of R v Byrnes and Hopwood Peter
as a shareholder of the company has the right to complain about the conduct of Sparkles Ltd
to ASIC as Roger has breached the section (s 181) and (s 182) of the Corporations Act 2001.
It can be observed that Roger has not worked for the best interest of the company where the
facts can be relatable in case law name Forkserve Pty Ltd v Jack which is duly discussed
above. Peter can also sue the company for such breach in contract done by the company.

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Conclusion
As per from the above case study, it can be concluded that Roger is liable for a breach of
section (s 181) and (s 182) of the Corporations Act 2001. It could be observed that Roger has
a personal interest with the transaction done by the company regarding the sale of stone and
future sale which is to be done to his niece. It can be noted that the stone worth $ 1,00,00 was
sold at $ 5,000 to his nephew which was also not in the best interest of the company. It can
also be noted that Peter was given a contract for three years regarding the supply of stationery
to the company. Hence Peter has the right to complain to ASIC regarding the conduct of the
business to ASIC and Peter has also the right to sue the company in the court of law.

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References
Andrew. K, (2016). Director’s Duties. United Kingdom: Jordan publishing Limited.
ASIC v Adler and 4 Ors [2002] NSWSC 171
Austin, R.P. and Vrisakis, M., (2017). Personal Financial Product Advice under the
Corporations Act. Company and Securities Law Journal, 35(8), pp.503-532.
Barker, R., (2016). The Duties and Liabilities of Directors—Getting the Balance Right. The
Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-
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Besher, A.R. and Furusten, S., (2019). New International Rules for Corporate Governance
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Bottomley, S., (2016). The constitutional corporation: Rethinking corporate governance.
New York: Routledge.
Cassegrain v Gerard Cassegrain & Co Pty Ltd. [2015] HCA 2; 254 CLR 425
Chia, H. and Ramsay, I., (2015). Section 1322 as a Response to the Complexity of the
Corporations Act 2001 (Cth).
Fodera Pty Ltd v Shearn [2011] NSWSC 479
Forkserve Pty Ltd v Jack (2001) 19 ACLC 399; [2000] NSWC 106
Hanna, M., (2017). Timing is Everything: When Should a Security Be Valued for the Purpose
of s 588FA (2) of the Corporations Act 2001 (Cth)?. Insolvency Law Journal, 25(2), pp.73-
89.

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