Business Law Assignment: Directors, Partners, and Liabilities

This assignment solution addresses two key scenarios in business law. The first scenario examines the liabilities of company directors and shareholders when a company becomes insolvent, specifically focusing on the director's investment in a consultancy firm and the consequences for the company's creditors. It references the Company Law and emphasizes the directors' responsibilities. The second scenario explores a partnership dispute between two business partners, focusing on issues of breach of trust, secret profits, and the limitations of time in partnership law. It analyzes the partners' rights, obligations, and the impact of the partnership deed, and the legal implications of one partner's actions. The solution references relevant legislation and case law to support the legal arguments presented.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author note

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Question 1:
As observed in the given scenario, Jim and Steve were regarded to be the directors
and shareholders of XYZ Pty Ltd. They have their own shares in this corporate trustee. Jim
had engaged $3000 in a consulting firm named ABC Pty Ltd since it will help the business to
grow. The issue that arose was that the moment Jim engaged himself into the business XYZ
Pyt Ltd became insolvent.
The individual who will be liable to ABC Pty Ltd for the $3000 consultancy fees is all
the shareholders and directors of the company. However, there was no contract formed
between Jim and Leon from the ABC Pty Ltd. Jim realized that if he invests that amount in
this consultancy firm then, his trustee firm would be able to stand or make a position in the
market. Therefore, Jim without consulting the members of the company invested the amount.
It can be stated that Jim along with other shareholders and directors will be liable to ABC Pyt
Ltd. According to the Company Law, the directors and shareholders of the company will be
liable if one of the directors is at fault. A company is an artificial person and therefore it
cannot be sued or be liable for the activities of the company1. A shareholder of a company is
said to be limited by shares that has limited liability. However, the shareholders are said to be
limited to the nominal value of its shares. The company has a separate legal personality as
compared to the shareholders and a separate liability to the individuals associated with the
company. It can be analyzed that if a company becomes insolvent based on the director’s
fault then, that particular director and other existing shareholders will be liable for it. A
shareholder is said to be not that interested in the company but since Jim was one of the
directors of the company he will be liable for such an occurrence2. Such a situation has been
observed in the case of . Shlensky v Wrigley. However, the beneficiaries of the fixed family
1 Méndez, Carlos Fernández, Shams Pathan, and Rubén Arrondo García. "Monitoring capabilities of busy and
overlap directors: Evidence from Australia." Pacific-Basin Finance Journal 35 (2015): 444-469.
2 Du Plessis, Jean Jacques, and Andreas Rühmkorf. ‘New trends regarding sustainability and integrated
reporting for companies: what protection do directors have?.’ (2015).

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trust were their two adult children Mathew and Jenna. Anyhow, the XYZ Pyt Ltd was
struggling to find a foothold in the market that Jim engaged $3000 to the consultancy firm of
ABC Pyt Ltd. Jim was confident about his investment in the ABC Pyt Ltd. As per the
Companies Act, the directors of a company are exposed to the liabilities as a consequence of
a breach of their duties. Liabilities generally arise under various statutes but in this scenario,
it arose under the Company Law.
Lastly, it can be concluded stating that Jim and Steve will be held liable to ABC Pyt
Ltd for the consultancy fees of $3000.
Question 2
In this given case, Cheryl and Beryl were business partners and had started a business
called CB Investments. Both of them made a partnership deed with the help of a lawyer. Both
of them buys a commercial plot of land from Arnold. Beryl also bought a residential block
from Arnold that Cheryl was unaware about3. The commercial land bought by them was later
sold and they earned a huge amount of profits. After twelve months or after a year, Cheryl
found out that Beryl had purchased the residential block to make a lucrative investment.
Cheryl and Beryl were partners and started a business of investment together.
Therefore, they can exercise the rights of partners on each other and as well as on their
purchases. In Australia, as per the Limitations and Partnership Act, a partner cannot sue the
other partner based on an incident that happened a year ago4. The limitation of the time-
period for suing the partner is less than twelve months. Being partners, they have equal rights
and must have equal knowledge of the activities taking place in the business. If Cheryl had
3 De Silva Lokuwaduge, Chitra, and Anona Armstrong. ‘The impact of governance on the performance of the
higher education sector in Australia.’ Educational Management Administration & Leadership 43.5 (2015): 811-
827.
4 Chen, Vivien, Ian Ramsay, and Michelle Welsh. "Corporate law reform in Australia: An analysis of the
influence of ownership structures and corporate failure." (2016).

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knowledge about this incident before the period of twelve months, she could have sued Beryl
for keeping secrets from the other partner5. The profit earned on the residential property of
$300,000 was also not informed to Cheryl. It was the duty of Beryl to inform Cheryl about
the extra profit earned on the residential block. However, as per the Law, the partners will be
entitled to receive the same amount of profits and should know about what the other partner
is upto. Instead of suing Beryl, Cheryl can ask for her share from the $300.000 that was
earned from the residential block6. Beryl will be liable for keeping secrets from Cheryl.
According to law, an incorporated limited partnership where a limited partner is involved
will be liable only for a liability that has been acquired by the partnership. However, in
certain circumstances, the limited partner will be held liable if the manner of the acts occur
within the same State. A voluntary partnership can wind up if the agreement formed does not
exist. As seen in the case of Griffiths CJ in Land v James Morrison & Co Ltd, one of the
partners failed to sue the other partner because the duration was not less than twelve months.
The CB Investments was a business set up by both Cheryl and Beryl in Queensland. The
partnership deed should be a well documented one so that Cheryl can claim for her shares but
since the limited period was twelve months and she found out about it a year later it will not
make any difference7. However, Cheryl will be advised to sue Beryl for keeping secrets from
her during the course of their partnership but will fail to do so because of the limited period.
Lastly, it can be concluded stating that according to law, a partner can sue the other
partner during their course of partnership based on the limitation period time. It can be
5 Warner, Michael, and Rory Sullivan. "Introduction." Putting Partnerships to Work. Routledge, 2017. 12-23.
6 Murray, Philomena. "EU–Australia relations: a strategic partnership in all but name?." Cambridge Review of
International Affairs 29.1 (2016): 171-191.
7 Voon, Tania SL, and Andrew D. Mitchell. "The Trans-Pacific Partnership as a Development of the Australia-
United States Free Trade Agreement: Services Liberalization and Investment Protection." (2016).

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observed it is important to discuss and disclose the activities of the partners during the course
of partnership. Suing each other depends on the period of limitation8.
8 Lyons, Malcolm, and Amanda Stark. "Enhanced scope for extension of patent term for pharmaceuticals under
Australian law." Pharmaceutical patent analyst 4.5 (2015): 351-355.

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References:
Chen, Vivien, Ian Ramsay, and Michelle Welsh. "Corporate law reform in Australia: An
analysis of the influence of ownership structures and corporate failure." (2016).
De Silva Lokuwaduge, Chitra, and Anona Armstrong. ‘The impact of governance on the
performance of the higher education sector in Australia.’ Educational Management
Administration & Leadership 43.5 (2015): 811-827.
Du Plessis, Jean Jacques, and Andreas Rühmkorf. ‘New trends regarding sustainability and
integrated reporting for companies: what protection do directors have?.’ (2015).
Lyons, Malcolm, and Amanda Stark. "Enhanced scope for extension of patent term for
pharmaceuticals under Australian law." Pharmaceutical patent analyst 4.5 (2015): 351-355.
Méndez, Carlos Fernández, Shams Pathan, and Rubén Arrondo García. ‘Monitoring
capabilities of busy and overlap directors: Evidence from Australia.’ Pacific-Basin Finance
Journal 35 (2015): 444-469.
Murray, Philomena. "EU–Australia relations: a strategic partnership in all but
name?." Cambridge Review of International Affairs 29.1 (2016): 171-191.
Voon, Tania SL, and Andrew D. Mitchell. "The Trans-Pacific Partnership as a Development
of the Australia-United States Free Trade Agreement: Services Liberalization and Investment
Protection." (2016).
Warner, Michael, and Rory Sullivan. "Introduction." Putting Partnerships to Work.
Routledge, 2017. 12-23.