Commercial Law Assignment: Corporations Act Analysis

This commercial law assignment addresses several key areas of corporate and commercial law. The assignment analyzes a scenario involving debt recovery under the Corporations Act 2001, specifically examining the potential for Fixit Pty to recover $5000 from Breakit Ltd, and the implications of defective products. It also covers the fundraising regulations applicable to Spanner Ltd, emphasizing compliance with Chapter 6D of the Corporations Act, including restrictions on advertising and the requirement for disclosure documents. Furthermore, the assignment examines the duties of directors of Sports Ltd, referencing relevant sections of the Corporations Act and common law principles, such as the duty of care, diligence, good faith, and the prohibition against using company information for personal gain. The assignment then provides an overview of different business structures, including sole trading, partnerships, and companies, outlining their respective advantages and disadvantages. Lastly, it touches upon the indoor management rule, citing the Royal British Bank v Turquand case, and addresses the recovery of compensation for loss resulting from insolvent trading under section 588W of the Corporations Act, determining the liability of a party in a given scenario.

Running head: COMMERCIAL LAW
Commercial Law
Name of the student:
Name of the university:
Author note:

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COMMERCIAL LAW
Fixit Pty Ltd
Issue
The issue in this case is to identify whether Fixit Pty have any option to recover the $5000 from
Breakit Ltd under the Corporations Act 2001 (Cth).
What would be the situation if the products was defective?
Rule
A creditor of a company that is being wound up may, with the written consent of the company's
liquidator, begin proceedings under section 588M in relation to the incurring by the company of
a debt that is owed to the creditor.
Debt recovery through the courts is largely regulated by state and territory law and the
procedural rules of the courts. The recovery process may include the repossession of assets,
securities or other legal enforcement of security interests.
However if products are defective, there is no need of payment
Application
In the situation also Fixit Pty have any option to recover the $5000 from Breakit Ltd under the
Corporations Act 2001 under section 588v. In addition the situation if the products was defective
the situation would be different. This is because the company would not be required to give the
payment for the defective goods provided

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Conclusion
Therefore Fixit Pty have option to recover the $5000 from Breakit Ltd under the Corporations
Act 2001. However, they cannot if the products are defective.
Spanner Ltd
ASIC has general administration of the Corporations Act 2001 (Corporations Act), including
Chapter 6D, which relates to fundraising through the issue or sale of securities. This section of
the website sets out general information on the various aspects of fundraising, including any
regulatory guidance we have issued. Public companies (ie those with more than 50 non-
employee shareholders) can raise funds from the general public by issuing securities.
Under s 734 of the CA No advertising or publicity for offers covered by the exception for 20
issues in 12 months
(1) A person must not:
(a) advertise; or
(b) publish a statement that directly or indirectly refers to;

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an offer, or intended offer, of securities that would need a disclosure document but for subsection
708(1) (exception for 20 issues in 12 months).
Therefore in relation to the fundraising of Spanner Ltd, it must be noted that the company needs
to abide by the guidance under chapter 6D. These include the restriction on advertisement
highlighted above as well as providing the disclosure documents such as the prospects. The
document must have information which may materially impact the price of the shares. If these
documents are not provided the fundraising would be invalid.
Sports Ltd
Overall the duties are related to the corporation in all as mentioned in the case Mills v Mills
(1938). In case the duty of the director is breached then the company or ASIC can sue the
director. Under section 180(1) of Corporations Act and as stated in common law also one such
duty is duty of care and diligence. As mentioned in the case AWA Ltd v Daniels (1992), the
director’s duty of care and diligence is evaluated by the company’s position, responsibility,
experience and circumstances of director in unbiased manner. Another duty is in the terms of
best interest and good faith. This duty exists under section 181 of Corporation Act and common
law. It is expected from the directors to ensure the company's best interest over their own interest
and their acts should be for good faith and proper purpose. As per the s182 and s183 of
Corporations Act, the directors have the duty that they should not use the company’s position or
information to make any gain for the third party or for themselves. This is same as the duty to
avoid problems of interest. According to the above duties it can be stated that the directors of
Sports Ltd have violated their duties.
Business structure

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Advantages and detriments of sole trading
A
• Cost effective and requires less cost to form
• Provides high level of control to the owner
• Less legal obligations
D
• No limited liability the personal assets can be targeted
• No scope of additional expertise of capital
• Cannot be carried out by more than a person
Advantages and detriments of a partnership
A
• Cost effective requires less cost to form
• Brings in additional expertise and capital
• Low legal compliance
D
• Level of control is low and may lead to conflict because of differences in opinion
between the partners
• There is no limited liability and thus personal assets may be attached

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• The partners are jointly and severally liable to each other
Advantages and detriments of company
A
• Limited Liability is present to the members of the company which signifies that they
can be liable to the degree of investment which they have done in the company only and not
get affected in terms of their personally assets unless the directors have breached their
duties
• The members of the company can easily transfer the ownership of the business
through the transfer of shares to other party
• The form of business allows for capital rising from public (public company)
• The profits of the business is charged at a fixed rate
D
• The structure involves high amount of money in relation to its incorporation and
setting up
• The level of control which the members have is not as much as in the other
structures

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• The company form of business is subjected to a high degree of legal compliance as
compared to any other structure
• All members cannot participate in decision making if it has many members
Techno Pty Ltd
1. The Royal British Bank v Turquand gave the indoor management rule where it was ruled that
a person can make an assumption that all internal rules have been complied with even if it is not.
he House of Lords further endeavored to explicate the Turquand Rule in the case of Mahony v.
East Holyford Mining Co[2]. The case is an excellent example of Court drawing out
qualifications to the rule.In this case the company's bank made payments based on a formal copy
of a resolution of the board authorizing payments of cheques signed by any two of three named
"directors" and countersigned by the named "secretary". The copy was itself signed by the
secretary. It came out subsequently that neither the directors nor the secretary had ever been
formally appointed. According to the articles, the directors were to be nominated by the
subscribers to the memorandum and the cheques were to be signed in such manner as the board
might determine. In relation to the rule Doger cannot be held liable.
2. CORPORATIONS ACT 2001 - SECT 588W
Recovery of compensation for loss resulting from insolvent trading
(1) Where:

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(a) a corporation has contravened section 588V in relation to the incurring of a debt
by a company; and
(b) the person to whom the debt is owed has suffered loss or damage in relation to
the debt because of the company's insolvency; and
(c) the debt was wholly or partly unsecured when the loss or damage was suffered;
and
(d) the company is being wound up;
the company's liquidator may recover from the corporation, as a debt due to the company, an
amount equal to the amount of the loss or damage.
(2) Proceedings under this section may only be begun within 6 years after the beginning
of the winding up.
Under this section dodger is liable