University Business Law: Corporations Act 2001 Case Study

This case study examines issues related to Section 129 of the Corporations Act 2001 (Cth) and its implications on a company's ability to secure mortgage loans and the validity of claims by a car finance company. The analysis involves the application of legal principles derived from various court cases, including Lion Nathan Australia Pty Ltd v Coopers Brewery Limited, Royal British v Bank v Turquand, and Northside Developments Pty Ltd v Registrar-General. The case revolves around a married couple, John and Mary, who are members of the directorial board of Kakadu Tourism Services Pty Ltd (KTS). After their separation, John secured car financing and a mortgage on the company's property without Mary's consent. The study explores the legal implications of John's actions, particularly concerning the presumptions that third parties can make about a company's internal processes, the roles of company officials, and the validity of transactions. The study concludes that the car lease deal with KTS by John is legal and binding, but the bank's assumptions regarding the mortgage may be invalid under Section 129 of the Corporations Act, due to a lack of proper due diligence.

Running head: BUSINESS LAW
Business law
Name of the Student
Name of the University
Author Note

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Issue
The following project discusses a couple of issues, they are:
1. Whether the Section 129 of the Corporations Act 2001 (Cth) provides the facility to
extract mortgage loans for a domicile possessed by the company Kakadu Tourism
Services Pty Ltd (KTS)
2. Whether a car finance company can make an argument over the office possessed by KTS
limited and whether it has a valid mortgage or not.
Rule
It was ruled by the court that in order to decipher and state the appropriate powers of a company,
it is necessary that the its constitution is understood and examined first, as presented in the Lion
Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 59 ACSR 444 case. The decision
of the court was based on the section 125 of the Company’s Act 2001 and to see whether there
are any foreign scopes that bind the company’s constitution.
The company’s legal capabilities that help the organization and guide it with its transactional
duties and dealings are mentioned in the Section 124 of Company’s Act 2001. As a separate
legal entity, the law empowers the company to get into transactions on its own.
It is mentioned in the Section 125 of Company’s Act 2001 that even if the company’s
constitution doesn’t mention any clause that supports transaction, the company can, by all rights
get itself to engage in any valid transactions whatsoever.

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It was stated by the judges that any outside entity who is willing to engage in any activity with
the company can hold the presumption that the company’s constitution supports transactions and
has the authority to it, as stated in the Royal British v Bank v Turquand(1856)119 ER 886 case.
The Section 126 of the act states that any entity who works in behalf of the organization has the
right to commit to and deal with any necessary transactions that may prevail, even if the
company’s insignia or its official seal are not used in the said event.
It was seen and judged In the Northside Developments Pty Ltd v Registrar-General (1990)
170 CLR 146 case, that of in any case the supposed presumptions held by a person are incorrect
and they are aware of that fact, then the assumption cannot be used while the transactions are
undergone by the authorities.
It is in the Section 128 that a third parson entity has the right to hold presumptions about the
company and its rules. Another section; that is the Section 129 makes it clear that when a third
person is to assume something about the organisation; the organisation in no way can claim that
the said assumption is invalid. A person can also provide assumptions while transacting with a
different entity who claims to have claimed the property or the name of the company either
directly from the organization, or indirectly. Even is such a case, the company or any other entity
cannot lodge a case claiming that the certain assumption is invalid, this goes to that the act stays
strong even if the certain entity has engaged itself to fraud or has accomplished a certain
transaction with fraudulent tendencies., the assumptions made in those cases will be valid as
well. But, as discussed above, if the entity was aware or had had suspicions that the assumptions
are wrong; they can never rely on both the sections stated.

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It was ruled by the court that any person, after transacting or dealing with an organisation, is
empowered to hold more than a single assumption about the said company in the Brick and Pipe
Industries Ltd v Occidental Life Nominees (1992) 10 ACLC case. The same rules were applied
in the Advance Bank Australia v Fleetwood Star Pty Ltd (1992) 10 ACLC 703 case.
The Section 129 also implores upon the fact that the said person has the right to assume that
during a said transaction, the company has rightfully applied all the rules and regulations,
replaceable or not. Not only that, the person can assume via any information given to it by ASIC
that the entity transacting with the person and is shown in public has the position of a director or
an officer and can perform actions of authority and hold power. It can also be assumed by that
person that the company officials are doing their work properly and lawfully.
The said entity can also assume that all the documentations are properly treated with by the
company if a certain document is apprehended and not signed as in the Section 127(1). Same can
be said for the assumptions of a person when assuming the entity who signed the document is a
director of the Organisation.
Application
John and Mary, who are the stockowners and members of the directorial board of the
organisation named Kakadu Tourism Services Pty Ltd (KTS) are said to have been married.
They were mentioned to have been occupying a domicile possessed by the said tourism
company, until John was forced to move out and only Mary was left as the sole occupant of the
property, resulting from their marital split. It is clearly mentioned that Mary had played no
significant role in the working of the organization whatsoever.

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A car finance company had provided a loan for the purchase of a $80000 sports car by John and
set conditions that the mortgage will be extracted on the property of the office that is in-fact,
owned by the tourism company, KTS.
Respecting the conditions provided by the Section 125 of the Company’s Act, the act was said to
be legal, even though said company, KTS is supposed to be a tourism company and not a leas
provider. Hence, the following transactions are not being held illegal.
It was clearly stated in the Section 126 that any entity who is in a position of power or represents
a company in a way or the other is empowered to take control or start any new transactions in the
name of the Organization, no matter what they are. Since, John is supposed to be the directorial
board of KTS, he has the right to perform transactions in the name of the organization, and hence
the purchase of the car cannot be denied or called illegal by KTS limited.
Though the said care is claimed to have been the property of John, him being the director gives
him the ability to issue transactions for the company, hence the lease company has is empowered
to extract its mortgage from KTS’s office and assets.
It was further seen that $200000 were borrowed by John from the Easy Loan Bank in order to
mortgage the domicile which was occupied by them without letting his wife know about this
particular deal. It is clear that John is a director and stated that his biological son, Michael is
secretary of KTS ltd., hence, as stated in the section 127, of the company’s act, any transactions
signed and witnessed by any company official or its directorial board is finalized legally and can
formulate any documents that are needed.

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It was mentioned by him to the manager that his wife Mary had given her resignation from her
post as the secretary and was taken over by his son Michael. This was done without the consent
of the directorial board of the KTS Ltd. As given in the said Constitution.
It has been mentioned in the Section 129 of the act that a third person engaging themselves with
a transaction can think that the following transactions are done under the approval of the
company’s replaceable rules and regulations and are done in all legality. It was also clearly stated
in the Section 127(1) that it can be assumed by the third person that the said documents provided
to them are signed and approved by officials or the directorial board of the company. Hence, it
can be assumed by the Bank that all the actions taken by John were done in all legality and John
being a director had approved of all of them. It is also stated that if a said entity claims to be a
member an official board of the company, the other party can unknowingly assume it’s true.
It has been clearly stated in the Section 129 (6) that if a person is aware of the fact that their
assumptions may be wrong, then the section 129 is invalid. In this case, the Bank made no such
inquiries with the ASIC to confirm the fact of Mary’s resignation and Michael’s replacing her
and neither were any documents available, neither did the Bank make any enquiries with the
directorial board or other officials of the company about the legality of the said transactions.
Hence, it can be said that the financial institution has no right to assume and section 129 is
invalid in their case.
Conclusion
The car lease deal that was made with KTS by John is legal and is binding. The bank though,
cannot assume, as per the Section 129 of the CA.

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References
Advance Bank Australia v Fleetwood Star Pty Ltd (1992) 10 ACLC 703.
Brick and Pipe Industries Ltd v Occidental Life Nominees (1992) 10 ACLC
Corporation Act 2001 (Cth)
Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 59 ACSR 444
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146
Royal British v Bank v Turquand(1856)119 ER 886