Australian Corporate Law History and Accounting Profession Analysis

This assignment explores the historical development of Australian corporate law, tracing its origins in UK company law and its evolution through various legislative changes and court decisions, culminating in the Corporations Act 2001. The essay discusses the roles of key regulatory bodies like ASI...Read More

Running head: CORPORATIONS LAW
CORPORATIONS LAW
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1CORPORATIONS LAW
Part A:
The Australian Corporate law has its origin in the UK company law. It has its legal form
under one national statute called the Corporations Act 2001 (Cth) which is controlled and
regulated by a national regulating body called the Australian Securities and Investments
Commission hereinafter referred to as ASIC. As the provisions enumerated in this statute can be
very often traced back to few pioneer United Kingdom legislation, reference can be easily made
to the judgments made by the UK courts. Although other types are permissible, the private as
well as the public companies form the main corporate structures in Australia, where both have
limited liability predominantly.
Limited powers were granted on Federation in 1901 by the Constitution of Australia to
the Parliament of Australia in respect of the corporations. A residual power is possessed by each
of the States in relation everything which is not within the Commonwealth authority and power.
Though in Australia the Corporations law had historically adopted and followed the
developments of English law very closely, the main responsibility was entrusted to each of the
separate legislature of State and thus significant differences were observed in corporation related
legislation among various states.
After Second World War, it was observed very clearly that the legislative differences that
existed among the States were incurring unnecessary expenses for those companies that had their
operations in more than one state. The Commonwealth and the states cooperated each other for
the creation of a uniform national code of the companies that was legislated in every jurisdiction
by the year 1962. However there lies a difficulty in it. It had not provided consistency in the new
amended legislation. Further with changes of policy and government legislation of every state

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was developed on different lines once again. This attempt of a complex arrangement of vesting
by the territories, states as well as commonwealth was declared not valid by concerned High
Court. In the famous Concrete Pipes Case, formally known as the Strickland v Rocla Concrete
Pipes Ltd [1971] HCA 40, (1971) 124 CLR 468 (3 September 1971), High Court, it was decided
that laws having proper connection with the constitutional corporations’ trading activities were
valid.
In 1978 a second type of cooperative scheme was agreed and it was implemented by the
year 1982 for overcoming the defects that were present in the 1st scheme. All the laws as well as
their amendments would have to be consented by the Ministerial Council and have to be applied
automatically in each of the jurisdictions. This 2nd scheme created the National Companies and
Securities Commission hereinafter referred to as NCSC which is the forerunner of the Australian
Securities and Investment Commission.
Although a development was made on the initial scheme, the second scheme of 1982 still
showed various difficulties because of the delegating administrative function of the NCSC to the
state commissions. In the case of New South Wales v Commonwealth [1990] HCA 2, (1990)
169 CLR 482 (8 February 1990), High Court, popularly known as the Incorporations case, 1990
it was decided that the power of the Commonwealth companies is limited to the making of laws
only in relation to companies that had begun trading, not to companies' formation .
Then the Commonwealth tried to assume the main responsibility of the corporations law.
In the year 2001, present arrangement was formed when the states refer to their power to the
Commonwealth in relation to the corporations.

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A corporation can be regarded as a separate legal entity formed by the legislation, charter
or prescription. Like the UK law, the Australian law also recognizes Corporation known as the
cooperation sole but there are some instances of those corporations and the sole corporation is
not included in the of Corporation’s statuary definition as per section 57 of the Corporations Act
2001(Cth). The Australian companies mainly are incorporated by registration method with the
Australian Securities and Investments Commission, hereinafter referred to as ASIC. A
registration application of such company would state whether it is a proprietary company or a
public one and also the type of liability of the company’s shareholders. The most general type of
business model is the companies that are limited by shares in Australia. Companies that are
incorporated outside Australia trying to conduct business in Australia should either incorporate
partly owned subsidiary company or a wholly owned company in Australia or may register one
branch office in Australia. The Australian companies may be totally foreign owned in special
situations but at least one of the directors must be the resident of Australia and it must have an
office address here. If it is desired by a foreign company to form a branch office in Australia it
has to be registered as a foreign company under the Corporations Act 2001. However, such
registration will not create a separate legal entity but it will create a public record and the
presence of a registered foreign company in Australia. On registration, ASIC will be issuing a
Certificate of Incorporation and an Australian Company Number (ACN).
In this regard it may be considered that the accounting profession is also considered to be
affected by the corporate law that governs the companies in Australia. The Corporate Law
Economic Reform Program (Audit Reform And Corporate Disclosure) Bill 2003 was passed to
amend the Corporations Act 2001 to provide new arrangements in order to enhance the
accountability structure as well as corporate governance for the Australian companies. In

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September 2002, a policy paper known as Corporate Law economic reform program proposals
for reform: Paper Number no. 9 for strengthening the financial reporting framework (CLERP
Paper no. 9) was released by the Government for public comment. This paper provided a
discussion regarding the response of the Government to the Report Independence of Australian
Company Auditors called the Ramsay report. It examines the impact of the present legislations
of Australia on the independence of the company auditors. The paper also analyses various
elements of the corporate governance of the companies. It provided various recommendations
which address issues that have impact on the accounting profession.
An important aspect of accounting profession is the accounting standard that provides the
accounting required for transactions made in any company under the Corporations Act. These
accounting standards in Australia were developed initially by professional accounting
organisations and where enforced under the code of ethics. The general purpose financial
statements which comply with the standards of accounting must provide the financial position
performance as well as cash flow of the organisation in a fair manner. Such information is highly
important to the investors, owners, creditors, employees, analysts, regulators and others for
making and evaluating decisions regarding allocating the economic resources. When the
corporations comply with the accounting standards, the general purpose financial statements of
those corporations must be more comparable than they will be otherwise. This provides the
investors as well as other users of the financial statements to compare the organisations in a
better manner. Thus it is observed that the Corporate law has a very strong impact on accounting
profession and it is very significant to know it.
Part 2:

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The essential feature of a company is its separate legal entity top when search company is
registered then it is said to be protected by a corporate veil. This is being provided under the
provisions enumerated in the Corporations Act 2001 (Cth). The extent up to which a director or
a manager of any registered company is liable is limited. This provides the most attractive
feature of the company which attracts the businessman to choose the corporate structure for
running a business instead of a sole trader, partnership and other business forms. The corporate
veil provides a shield to the owner or director of the company such that their personal properties
are never affected in case of loss incurred by the company. This corporate veil separates the act
of the organisation from the act of its members. Thus, it protects them from being liable
personally for the debts incurred by the company or its other liabilities. Further, they can be only
made liable according to the contributions made by the as investments in the company. The
House of the Lords in the landmark case of Salomon v A Salomon & Co Ltd [1896] UKHL 1
confirmed that when Incorporated accompany can be regarded as a distinct legal entity separate
from its shareholders.
However there are some instances where this corporate veil can be lifted or pierced by
the court. These are the exceptions to such principle of limited liability. Such exceptions are
generally observed when there is a misuse of power or any wrong action is taken by the directors
for the owners of any company for increasing personal advantages. In this kind of situations the
quote is empowered to Pierce the corporate veil for determining the main culprit liable for search
misuse of power or wrongful gain. This was observed in the case of Adams v Cape Industries
plc [1990] Ch 433.
In this regard the theory of agency must be referred to understand the concept of
Corporate veil. It is to be assumed that an agency relation exist between the company and its

6CORPORATIONS LAW
directors. Here, the directors are considered as the Agent of the company which is the principal.
This principal- agent relationship forms of fiduciary duty of the agents who are required to act in
order to ensure the best interest of the company. For this fiduciary relation, the directors are
given the duty to best possible result for the company. However, if it is seen that the directors or
the owners are incurring personal profits at the cost of the interest of the company, they can be
made liable for it personally. This was seen in the case of Green v Bestobell Industries Pty Ltd
(1982) 1 ACLC 1.
Similarly, thee corporate veil can be lifted if it is seen that a company is being formed in
order to escape from any previously existing liabilities as seen in the case of Gilford Motor Co
Ltd v Horne [1933] Ch 935. Similarly, in the case of Creasey v Breachwood Motors Ltd [1993]
BCLC 480, the corporate veil was pierced by the court to identify the malafide intention of the
directors of a company behind its creation.
Thus if a company is registered to avail the advantage of the veil only then the court has
the right to lift it. Moreover is company is a sham or a mere cloak, then this may leads to
improper or fraudulent conduct. This was seen in the Re Darby, ex parte Brougham [1911] 1
KB 95 case. The court may also lift the corporate veil when it is seen that the company is using it
to escape from its legal obligations. When the company uses money from creditors but transfers
the assets to another company for avoiding its payment, then the court can lift it. Again, as per
section 588G of the said Act, the directors can be made responsible personally if they are
involved in insolvent trading. Similarly if sections 558G, 197 and 206A are breached, directors
or owners can be made liable personally.

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So it can be concluded that when a company is registered in a proper manner then its
identity is separated from that of its owners. The court is not required to lift the corporate veil in
order to make the owners prepare the liabilities of the company however there are many
situations where this separate legal entity has caused many discrepancies inside the company. In
such situations the court has the power and authority police the corporate veil to identify the
actual offender in such case. In these situations the coach can make the owners liable for any
illegal or fraudulent act committed by them to personal gains.

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References:
Adams v Cape Industries plc [1990] Ch 433
Corporations Act 2001(Cth)
Gilford Motor Co Ltd v Horne [1933] Ch 935. Similarly, in the case of Creasey v Breachwood
Motors Ltd [1993] BCLC 480
Green v Bestobell Industries Pty Ltd (1982) 1 ACLC 1
New South Wales v Commonwealth [1990] HCA 2, (1990) 169 CLR 482 (8 February 1990),
High Court
Re Darby, ex parte Brougham [1911]
Salomon v A Salomon & Co Ltd [1896] UKHL 1
Strickland v Rocla Concrete Pipes Ltd [1971] HCA 40, (1971) 124 CLR 468 (3 September
1971), High Court