LAW513 Corporate Law Case Study: Director's Duties and Bank Loan

This case study examines a scenario involving Mr. and Mrs. Jones, who operate a hardware store through a company called 'Jones Hardware Pty Ltd.' Mrs. Jones, a director, secured a loan from BNZ Bank under the company's name, but intended the funds for a separate business venture. The case analyzes two primary issues: whether BNZ Bank can enforce its mortgage over the building, and whether Mrs. Jones breached her director's duties. The analysis involves relevant sections of the Corporations Act 2001, including sections 127, 128, 129, 180, 181, 182, and 183, alongside case law such as Knight Frank Australia Pty Ltd vs. Paley Properties Pty ltd, CCI Holdings Ltd, Australia and New Zealand Banking Group Limited vs. Adventure Quest paintball Skirmish Pty Ltd, and ASIC vs. Cassimatis. The case study concludes that BNZ Bank can enforce its mortgage, and Mrs. Jones breached her director's duties by misusing the company's resources and reputation for personal gain. The assignment demonstrates an understanding of corporate law principles and their application to real-world scenarios.

Running Head: CASE STUDY
CASE STUDY
Name of the Student
Name of the University
Author’s Note

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Issue:
The first issue in the case is whether BNZ Bank can enforce its mortgage over the
building.
Rules:
Section 129 of the Corporation act deals with the Assumptions that can be made under
section 128 of the Act. This states that the assumption should be relied upon the situation that
states that the company’s constitution or any other provision of this Act are replaceable if such
replacement has been complied with the Director or the Company Secretary. Such director
should have been duly appointed and has the authority to exercise the powers and the duties that
has been bestowed upon to the director of the company. The same should be assumed by the
person at the time of assuming about the replacement. The Act states that it should be assumed
that the directors of the company are assumed to have discharged their duties with proper care
and skill. Such person with the authority shall warrant that the document is true and fair to its
copy by the means of the authority bestowed upon such person to certify that such document is
true and fair.
Section 127 of the Corporation Act deals with the execution of the documents by the
company itself. This means that the document can be executed by the company without the
establishment of a common seal upon certain grounds (D’Angelo 2015). Such grounds include
the signature of a minimum of the two directors of the company or the signatory of a director and
a company secretary of the company. However, if the company is that of a sole proprietorship,
such execution can be done by the sole signatory of the director of the company. These rules

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establish the reliance of people upon section 128 (5) of the Act. However if a company with a
common seal executes a document, such company is entitled to undergo the similar requirements
for execution as that explained earlier. However, here the difference lies in the establishment of
the reliance of the people upon then assumptions explained in section 129 (6) of the Act.
Nevertheless, the section or the provision of law does not restrict the ways by which a company
can execute the documents and the assumptions relied upon for such dealings. In Knight Frank
Australia Pty Ltd vs. Paley Properties Pty ltd [2014] SASCFC 103, it has been held by the
court that while signing the section 127 clause, it was held that the dire tor did not qualify as the
agent for the company. This was so because such director signed the document as an incomplete
due to absence of the signatory of the second director or the Company Secretary. As explained in
CCI Holdings Ltd [2007] FCA 1283, it can be explained that the debate is ongoing about the
coverage of the split execution.
Section 128 of the Corporations Act deals with the entitlements to make assumptions. It
has been explained in the provision that a person can make assumptions with respect to the
dealings with a company. Further the provision also lays down that the person can make dealings
with another person who has established the impression of directly or indirectly acquire the title
to the property from any company. Furthermore, such assumptions can also be made if a member
or the agent of the company acts fraudulently with respect to any matter of the company
including forging a document with respect to such dealings. However, dealings and further
proceedings with respect to such contractual dealings cannot be made based upon the incorrect
assumptions. Therefore, it is important for the assumptions to be correct and accurate. Lastly, it
has been explained that the person cannot make an assumption if at the time of the deal or
contractual formality, the person knew that such assumption is incorrect. This means that the

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nature of the assumption is the most important aspect. However, the knowledge of the
assumption and the time of the knowledge of then assumption also plays a major role. In
Australia and New Zealand Banking Group Limited vs. Adventure Quest paintball
Skirmish Pty Ltd [2016] NSWSC 188, it was held by the Court that in certain circumstances
can make assumptions while dealing with assumptions.
Application:
In the given scenario, Mr. and Mrs. Jones operate a Hardware Store. Mrs Jones is the
Director and Mr. Jones is the director and the company Secretary. She goes to bank to borrow
money and the Bank officer assumes it is for their company because the manager has met the
couple several times with respect to the business matters. However, Mrs. Jones applies for loan
for another company that she wishes to establish with her best friend. Mrs. Jones had produced
the documents with the common seal of the company and hence with the application of the
provision of law, the BNZ have the right to assume that the documents provided are by that of
the Director of the Company. Even if the director has committed fraud within the company with
respect to the forging of the documents, that is the internal affairs of the company and the bank
shall not be bothered by the same and hence, the assumption made by the bank can be justified.
However, in the exceptions laid down in section 128 it has been explained that if a person knew
at the time of the dealing that the assumption is incorrect, then such dealings can be cancelled.
However, in the given scenario, the scope for such exceptions does not arise on the ground that
BNZ bank knew that she was the director and the presence of the common seal did not provide
any reasonable doubt within the officer of the bank and hence, the Bank can enforce its mortgage
over the building.

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Conclusion:
It can be concluded that BNZ Bank can enforce its mortgage over the building.
Issue:
The issue in the case is whether Mrs. Jones has breached any director’s duties in
establishing the new company and approaching clients.
Rules:
Section 180 of the Corporation Act 2001 states that the director should ensure care and
diligence for the discharge of his or her duty as a director of the company. According to ASIC
vs. Cassimatis [2016] FCA 1023, it has been stated that the directors owe a duty of care and due
diligence as a reasonable director of the company and shall be aware of the outcome of his or her
breach of duty.
Section 181 of the Act states that the director owes the duty to the company to act in
good faith of the company. It means that the director owes a fiduciary duty towards the directors
of the company to ensure fidelity and trust to avoid conflict of interests of that of the company
and the director.
Section 182 of the Act states that the director owes the duty to not use the power in an
improper way towards the company. This means that director should not act in the favor of
someone else or other company’s advantage or gain which shall amount to the detriment of the
company.

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Section 183 of the Corporation Act states that the director should not use the
information related to the company in an improper way so that the secrets or the intricate
details of the company is used to the advantage of the other company or person like insider
trading. In Howard Smith Ltd v Ampol Petroleum Ltd (1974) AC 821 & Imperial
Hydropathic Hotel Company Blackpool v Hampson (1882) 23 Ch D 1 it has been explained
that the directors are the mind and soul of the company and hence, it is their duty to act in
complete interest of the company without conflicting the same with the personal interest of the
director.
Application:
In the given scenario, it can be explained that Mr. Jones and Mrs. Jones were both the
directors to the Hardware Store which they were operating. However, the duties they owed
towards the company was effectively breached by the act of Mrs. Jones when she borrowed the
loan from the bank under the impression of the Hardware Store. Her intentions were to borrow
the money for her new company establishment, which she wanted to establish with her best
friend. But she took the loan under the impression of her first company which she was operating
with her husband. Hence, it can be said that she willfully breached her duties as a director and
tried to use the name and impression of the Hardware Store to gain the loan money for her other
establishment with her best friend.
Conclusion:
It can be concluded that Mrs. Jones had breached the duties of a director in establishing
the new company and approaching clients.

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REFERENCES:
ASIC vs. Cassimatis [2016] FCA 1023
Australia and New Zealand Banking Group Limited vs. Adventure Quest paintball Skirmish Pty
Ltd [2016] NSWSC 188
CCI Holdings Ltd [2007] FCA 1283
Howard Smith Ltd v Ampol Petroleum Ltd (1974) AC 821
Imperial Hydropathic Hotel Company Blackpool v Hampson (1882) 23 Ch D 1
Knight Frank Australia Pty Ltd vs. Paley Properties Pty ltd [2014] SASCFC 103
N D’Angelo, “Split executions” and s 127 of the Corporations Act 2001, Banking and Finance
Law Bulletin, 2015 Vol 31 No 4-5, page 89