University Company Law Assignment: Director's Duties and Defences

This assignment analyzes a scenario involving a clothing brand, Miss Stylz Pty Ltd, facing financial difficulties. The central issue revolves around the duties and potential liabilities of directors, Alice and Libby, under the Corporations Act 2001 (Cth), specifically concerning insolvent trading. The assignment examines the breach of director's duties when Alice, diagnosed with cancer, appointed her inexperienced daughter, Libby, to manage the company, who then took out a loan and later initiated liquidation. It explores the defenses available to Alice, considering her illness, and the powers of the liquidator to recover debts. The analysis references key legal concepts, including section 588G and 588H of the Corporations Act, and relevant case law such as ASIC v Plymin, Elliott & Harrison, and Expo International Pty Ltd (in liq) v Chant. The conclusion addresses the potential for legal action, Alice's defense, and the liquidator's authority to seek debt recovery, offering a comprehensive overview of the legal issues presented.

Running head: COMPANY LAW
COMPANY LAW
Name of the Student
Name of the University
Author Note

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Issue
Whether there can be any kind of action taken by the liquidator against Alice and Libby
and what defences are applicable for Alice and Libby.
Law
The duties of the directors which would help in preventing or prohibiting insolvent
trading has been laid down in the Corporations Act, 2001 (Cth) under the section 588G. This
specific section has been made and is applicable only to those individuals who are the directors
of a particular company during the time when there is a loss suffered by a company through
incurring debts or in another case if the company has become insolvent. It is applicable also
when there has been any kind of suspicions related to the insolvency of the company during the
commencement of it. If the individual who has become the director of a company has no idea
about the insolvent nature of the company then he or she has violated the duties of the directors
which can be held in the case of ASIC v Plymin, Elliott & Harrison [2003] VSC 123. This is
considered to be one of the leading cases which is related to insolvency and breach of directors’
duties under the above-mentioned section of the Act (Buscombe, 2019).
There are certain defences that can be taken into consideration if there has been any
violation or any contravention under section 588G of the Act. These defences have been
mentioned under section 588H of the Corporations Act, 2001 where it states that if there has
been any reasonable grounds or there has been any kind of illness which has rendered the
director weak and thus cannot perform the duties of that of the director in a company then they
can claim for defences under this specific section which would help them to carry out
proceedings in the court if they have been found contravening or violating the Section 588G of

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the Act. If there has been a reasonable ground to believe that the company was solvent then the
person or the individual can try to claim defence and prove such a point under this section. If the
person who is considered to be acting s a director is facing any kind of illness for which cannot
carry out the functions or the operations of the company but has appointed a reliable and a
competent person to look after the company and give the director information related to the
functioning of the company then the person can try to use this as a defence against the
contravention of the section 588G (Langford, 2016). This can be observed and seen as an
example in the case of Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820, at
837.
Under Section 477 of the Corporations Act it discusses the powers of the liquidators where by
the liquidators have the powers to take necessary steps which would help in the liquidation of the
company and the directors if they are liable for any debts caused to the company the liquidator
under this section has the power to claim for the debts which have been incurred by the directors
and personally claim for the recovery of those debts from the directors under this section.
Application
In this present scenario Alice was considered to be a director of the clothing brand which
was named Miss Stylz Pty Ltd. It was going through a rough financial year and it was not able to
pay any kind of tax including income tax. The Australian Taxation Office had sent a notice
regarding the payment of taxes and in case of not being able to pay the winding up of the
company was to take place. During that specific period Alice was diagnosed with cancer and she
needed to take rest as she was incapable of managing the company. Therefore, she had appointed
her daughter who was not experienced but took help from the accountant of the company. Due to
her mother’s illness she took an overdraft loan of 500,000 dollars as a loan to pay for her

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mother’s expenses. Later due to pressure from the Australian Taxation Office and on the advice
of the accountant Libby went for the liquidation of the company. There was a breach of duty as
Alice being the director knew about the condition of the company and still appointed Libby as
the director who was not competent as ASIC v Plymin, Elliott & Harrison. Defence against this
can be claimed by Alice and Libby because they had a valid ground where Alice was ill and
could not perform her duties as it can be seen in the case of Expo International Pty Ltd (in liq) v
Chant. The remedies that can be available are monetary penalties and the liquidator has the
power to claim for the debts that have been incurred by Libby in order to use it for her mother’s
expenses.
Conclusion
Therefore, due to breach of duties there can be an action taken but Alice can claim for a
defence as Alice was incapable of taking part in the functioning of the company and hence
appointed her daughter to manage the operations of the company and provide her with adequate
information about the condition of the company and on the other hand the liquidator has the
power to recover losses.

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References
ASIC v Plymin, Elliott & Harrison [2003] VSC 123.
Buscombe, I. (2019). Insolvent Trading and Fraudulent Trading in Australia: Regulation and
Context. The Journal of New Business Ideas & Trends, 17(1), 44-46.
Corporations Act, 2001 (Cth).
Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820, at 837.
Langford, R. T. (2016). Managed Investment Schemes: Liability of Directors of Responsible
Entities Where the Responsible Entity Breaches the Law.