Commercial and Corporation Law Assignment: Analysis of 3 Questions

This document presents a comprehensive solution to a Commercial and Corporations Law assignment. The assignment addresses three key questions. The first question examines the circumstances under which a director can resign from a company and the implications of forming a new company, considering the Corporations Act 2001 and fiduciary duties. The second question analyzes the optimal company structure for a gourmet shop, comparing sole trader, company, partnership, and trust models, and discussing the advantages and disadvantages of incorporating a company. The third question evaluates whether a director can rely on the statutory 'safe harbour' provision under Section 588GA of the Corporations Act 2001, considering director liability and insolvency. The solution incorporates relevant sections of the Corporations Act 2001, case law, and legal principles to provide detailed and well-reasoned answers to each question.

Running head: COMMERCIAL AND CORPORATION LAW
Commercial and Corporation Law
Name of the Student
Name of the University
Author Note

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Answer to Question No 1
Issue
There are two issues involved in this case. The primary issue is to determine whether
Marlow can resign from Clear Vision Limited and incorporate a new company to conduct the
block chain business. The secondary issue is to determine the changes in the advice if their
constitution contained a clause identical to Section 194 of the Corporations Act 2001.
Rules
As a general rule, a director can resign from a company by giving a notice of
resignation. Director can resign by giving the notice to the registered office of the company
under the Corporations Act 2001. Otherwise, they may give a written notice of the
resignation to the Australian Securities and Investments Commission, accompanying with a
notice of resignation given to the company. Under Section 5.1 of the Corporations Act 2001,
the company should notify ASIC about the resignation of the director, if the same has not
already been done by the director of the company. In this case, the director will not breach
any of his fiduciary duties and he can resign at any time. However, it is provided under
Section 201A of the Corporation Act 2001 that it is mandatory for a company to have at least
one director. If the company has only a governing director to conduct their business, the
director may acquire obligation while resigning. As a consequence, if the sole governing
director of the company is willing to resign, he may lead the company to breach the provision
of the Section 201A of the Corporations Act 2001. The director may cause the company to
knowingly have less than one minimum director. The director and the company both may
liable for this under the Act.
Section 194 of the Corporations Act 2001 provides that if the director has any
material interest in affairs related to the company, and discloses the interests to the directors,

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then the company cannot avoid the transaction merely because it has the existence of the
interest and the director may proceed any transactions relating to the interest, unless the
interest is of a nature that which is not required to be disclosed under Section 191. A
company can include the clause 194 or any clause identical with this clause in their
constitution.
Application
Marlow was the majority shareholder and effectively involved in delivering expert
advice to IT investment businesses. He was the governing director of the firm. He was aware
that he is responsible for providing the services of the company under its constitution. Sean
and Becky trusted Marlow to run the business for the collective interests. In this present
situation Marlow cannot resign the company under the Corporations Act 2001, to cause a
pain to Sean and Becky as they did not agree to contribute capital for developing the block
chain product. It was provided under the constitution of Clear Vision Ltd, that Marlow should
be engaged in the business of the company. If he resigns from his position, then the company
would be left with no one to effectively govern the business. Therefore, it would be suggested
to Marlow to find an appropriate replacement for his position before he gives the notice of
design. Under Section 201F (1) of the Corporations Act 2001 Marlow can appoint another
director with a help of a resolution from Sean and Becky. He can resign the company after
doing so and conduct the block chain business with Polly and himself keeping himself as a
sole shareholder and directors.
If Clear Vision Ltd had a clause in their constitution identical with Section 194 of the
Corporations Act 2001, Marlow would not have been able to resign the company. Under this
Section Sean and Becky could not have been able to avoid the transaction as Marlow had
made necessary disclosure about his interest to develop the block chain product. The Clear
Vision Ltd cannot avoid the transaction in this case. Therefore, Marlow can proceed with the

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transaction and there is no need for Marlow to resign to conduct the block chain business
with Polly, being the sole shareholder and directors.
Conclusion
From the afore said discussion, it can be concluded that Marlow could resign from the
Clear Vision Ltd only after he select an appropriate director.
Answer to Question No 2
Issue
The issue is to determine the best suitable company and the advantages and
disadvantages of incorporating a company of gourmet shop.
Relevant rules
The most common types of company structures are: Sole trader, Company,
Partnership and Trust. In Sole Trader types an individual is responsible for every aspects of
the operation. Whereas, a Company is a legal entity separated from their shareholders.
Partnership is a form of business that is an association of two or more people that are legally
responsible for running the operation of the business together. Trust is an entity which holds
an income for others benefit (Asic.gov.au. 2018).
The Australian Securities and Investment Commission monitors and regulates the
incorporation process under the Corporations Act 2001 (Asic.gov.au. 2018). There are certain
advantages and disadvantages for incorporating a company. The advantages of incorporating
a company is that, the liability of the shareholders would be limited, the company would be
able to conduct its business in anywhere within Australia. However, there are certain
disadvantages of incorporating a company, such as, the process of incorporations can be

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expensive, and the directors may be liable for the debts of the company, if they fail to fulfil
their obligations (Business.gov.au. 2018).
Application
Sam and Ellis can consider to incorporate their business as a company. Company is a
legal entity which is separate from its member and is responsible for their own debts. The
liability of Sam and Ellis would be limited if they incorporate their business as a company.
Therefore, if the company faces any issue regarding the high-risk investment or the company
fails to gain a high end return, then the company would bear the liability. The liability shall
not be generally extended to the personal liability of Sam and Ellis. In Salomon v Salomon &
Co Ltd, it was observed that incorporating the business as a company was a better decision as
it was a separate legal entity. Therefore, Sam and Ellis should choose to incorporate the
gourmet donut shop as a company.
Conclusion
Hence, Sam and Ellis should consider to incorporate the business as a company to
limit their personal liability.
Answer to Question No 3
Issue
The issue in this scenario, is to determine whether Lola may rely on the statutory ‘safe
harbour’ under the Section 588GA of the Corporations Act 2001.
Relevant Rules
Section 588 G of the Corporation Act 2001 provides that a director shall be said to
have contravened this Section, if the person was a director of a company when the company
incurred debt while the company is insolvent, and the director had failed to prevent the

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company from incurring the debt. They can be liable if they had the knowledge that there are
reasonable grounds for suspecting the company to be insolvent or a treasonable person on
behalf of his position would have the belief that the company is or likely to be insolvent. A
director failing to comply with this section may incur personal liability. Section 588 GA of
the Corporations Act 2001 ensures a ‘safe harbour’ for the directors to safeguard them from
their personal liability. In order to apply the safe harbour, the debt incurred Company needs
to be directly or indirectly connected with the activities of the director
(Aicd.companydirectors.com.au. 2018).
Application
Lola cannot rely on the statutory ‘safe harbour’ under Section 588GA of the
Corporations Act 2001 as she had not incurred the debt under her course of action as a
director. She shall not be protected from personal liability as the company wounded up in
September 2018, and she did not have the reasonable belief to assume that the company is
insolvent or likely to become insolvent. To claim the protection of Section 588 GA of this
Act, it was required for Lola to incur the debt for the company from her own conduct. As the
conditions of safe harbour is not met by Lola in this case, she would not be eligible to claim
the statutory relief.
Conclusion
From the above discussion it can be concluded that Lola cannot rely on the statutory
‘Safe Harbour’ which has been provided under Section 588 GA of the Corporations Act
2001.

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References:
Aicd.companydirectors.com.au. (2018). Retrieved from
https://aicd.companydirectors.com.au/~/media/cd2/resources/director-resources/
director-tools/pdf/06547-1-director-tools-insolvency-safe-harbour-a4-9pp-web.ashx
Asic.gov.au. (2018). Retrieved from https://asic.gov.au/for-business/your-business/your-
business-structure/
Asic.gov.au. (2018). Retrieved from https://asic.gov.au/for-business/your-business/small-
business/starting-a-small-business/
Business.gov.au. (2018). Retrieved from https://www.business.gov.au/planning/business-
structures-and-types
Corporations Act 2001