Corporate Law Report: Breaches, Consequences and Legal Steps

This report analyzes a corporate law case involving SRT Pty Ltd and a partnership. It explores the legal obligations of directors and partners, focusing on sections of the Corporations Act 2001 regarding insolvent trading, director's duties, and fiduciary obligations. The report examines breaches of these obligations by Sam, Rosa, Phillipa, Charlotte, and Mia, including insolvent trading, failure to exercise due care, and breach of fiduciary duties. It then discusses the potential legal consequences for these breaches, including civil and criminal penalties. Finally, the report outlines the steps the parties could have taken to avoid these breaches, emphasizing the importance of proper diligence, good faith, and disclosure of information to fulfill their legal responsibilities.

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

1CORPORATE LAW
Question 1
The Issue
The issue in relation to the given scenario is that what shall be the legal obligations in
connection to the parties.
Discussion of Rules
Section 588G as mentioned in Corporations Act enforced in the year of 2001, relates to
‘Insolvent Trading’1. The application of this particular section is done if an individual is the
director of an organization during the time period when a debt is incurred by the organization. It
is mandatory that the organization is going through an insolvency during that the incurrence of
the debt, or the organization becomes insolvent upon the incurrence of such debt. It is also
mandatory that when the debt has been incurred by the organization, rational grounds must exist
for suspecting that the organization is going through an insolvency or may become insolvent. It
may be said that when the individual is unsuccessful in preventing the organization from the
incurrence of the debt, the individual causes a contradiction of this section, if that particular
individual has knowledge in relation to the circumstances of the organization. Therefore, offence
is committed by an individual, if the organization suffers insolvency due to the incurrence of the
debt and the individual is the director during the incurrence of such debt.
As per section 180 of Corporations Act established in 2001, an officer or a director
should fulfill their responsibilities regarding the organization with proper diligence and adequate
care just like a practical and sensible person2.
1 Corporations Act, 2001 (Cth)
2 Ibid.

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As per section 181 of Corporations Act of 2001, an officer or a director should perform
their responsibilities regarding the organization in good faith. It must be mentioned that the
responsibilities of such officer or director may also include the performance of their obligations
for a proper purpose3.
As per section 182 of Corporations Act of 2001, an officer or a director should not
improperly or inadequately utilize their position in the organization so that they may gain private
welfares and benefits or welfares and benefits for any other individual. An officer or a director
should also not utilize their position in an improper manner, which may become the reason for
damage in relation to the organization4.
As per section 183 of Corporations Act of 2001, an officer or a director should not utilize
any kind of information in relation to the organization that is received by them for private gains
and benefits or for the advantage of any other individual. An officer or a director should not
utilize such information in an inadequate manner, which may become the reason for damage to
the company5.
In relation to fiduciary obligations and duties of the partners regarding partnership
businesses, it might be stated that it shall be the legal responsibility of the partners to give effect
to actions, which shall be for the advantage of the partnership business. A particular feature
regarding the partnership business is that a partner is considered as privately and legally
accountable in relation to the contracts that are established by the other existing partners in the
business. Another feature in relation to a partnership business is that a partner in a business
should always be honest and act accordingly and a partner should maintain a conduct and
3 Corporations Act, 2001 (Cth)
4 Ibid.
5 Ibid.

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comportment of fairness and good faith in relation to the other existing partners. A partner has a
responsibility to care just like a sensible and prudent individual in relation to the management
and course of the business. Another mandatory feature regarding a partnership business is that
any possible peril, jeopardy or advantage must be disclosed by a particular partner to the other
existing partners. Such disclosure of information shall help and support the partners to make
informed resolutions and assessments regarding the business6.
Analysis of Rules
In the provided scenario, the shareholders as well as the directors of the company named
‘SRT Pty Ltd’ are Sam and Rosa. They are beneficiaries regarding Tipping Trust. Charlotte and
Mia are considered as partners regarding their business of wholesale nature. In order to explore
the country of Australia Sam and Rosa sold the shares and extracted a tiny portion in relation to
the revenue. Charlotte changed and modified invoices of tax by adding ten percent further
charge. This information was not shared by Charlotte to Mia. Charlotte received the amount
relating to further charge. When Phillipa was hired by Sam and Rosa, she gave effect to certain
decisions regarding the financial structure of the company in order to cause development to the
company. However, such decisions were unable to save the company from its liquidation, instead
it became the cause for the liquidation of the organization. Debts that are outstanding must be
paid to creditors.
Applying the rule as stated in section 588G of Corporations Act, it may be said that Sam
and Rosa caused a violation of this section7.
6 Langford, Rosemary Teele. "High Court of Australia on Fiduciary Theory." (2016) Fiduciary Duty and the
Atmospheric Trust. Routledge,. 197-218.
7 Corporations Act, 2001 (Cth)

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Applying the rule as stated in section 180, it might be mentioned that Sam and Rosa
should fulfill their responsibilities regarding the organization with proper diligence and adequate
care just like a practical and sensible person8.
Applying the rule as stated in section 181, an officer or a Sam and Rosa should perform
their responsibilities regarding the organization for proper purpose and also in good faith9.
Applying the rule as stated in section 182, Sam and Rosa should not improperly or
inadequately utilize their position in the organization so that they may gain private welfares and
benefits or welfares and benefits for any other individual, or be the reason for damage in relation
to the organization10.
Applying the rule as stated in section 183, it might be said that Sam and Rosa should not
utilize any kind of information in relation to the organization that is received by them for private
gains and benefits or for the advantage of any other individual, and their actions should not be
the reason for damage to the company11.
It might be stated that it shall be the legal responsibility of Charlotte and Mia to give
effect to actions, which shall be for the advantage of the partnership business. They shall be
considered as privately and legally accountable in relation to the contracts that are established by
the business. They should always be honest and act accordingly and should maintain a conduct
and comportment of fairness and good faith. Charlotte and Mia have a responsibility to care just
like a sensible and prudent individual in relation to the management and course of the business.
8 Ibid.
9 Ibid.
10 Ibid.
11 Ibid.

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Charlotte and Mia should give effect to disclosure of information in order to provide help and
support to make informed resolutions and assessments regarding the business12.
Conclusion
To conclude it may be said that the obligations mentioned above must be regarded as the
legal responsibilities in relation to the parties.
12 Langford, Rosemary Teele. "High Court of Australia on Fiduciary Theory." (2016) Fiduciary Duty and the
Atmospheric Trust. Routledge,. 197-218.

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Question 2
The Issue
The issue is what violations have been triggered by the parties regarding the legal
responsibilities of the parties.
Discussion of Rules
In the case AWA Ltd v Daniels t/as Deloitte Haskins and Sells (1992) 7 ACSR 759, it was
forwarded that non-executive directors and executive directors, both have the equal obligation to
care13. Such obligation should be known to every officer in a company. As mentioned in section
180 of the Corporations Act of 2001, an officer or a director should fulfill their responsibilities
regarding the organization with proper diligence and adequate care just like a practical and
sensible person.
In the case ASIC v Rich (2003) 44 ACSR 341, it was stated that a violation had been
caused regarding section of Corporations Act of 200114. As per section 180, an officer or a
director should perform their responsibilities regarding the organization in good faith. It must be
mentioned that the responsibilities of such officer or director may also include the performance
of their obligations for a proper purpose.
In the case R v Byrnes and Hopwood (1995) 183 CLR 501, it was mentioned that when
an improper decision is given effect to, against the idea of proper purpose and good faith, even if
such decision was for the gain, advantage and benefit in relation to the organization, it shall be
13 AWA Ltd v Daniels t/as Deloitte Haskins and Sells (1992) 7 ACSR 759
14 ASIC v Rich (2003) 44 ACSR 341

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considered as a situation where violation of section 181 has been caused by the individuals who
gave effect to such improper decision15.
In the case Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, it was
stated that a violation of section 588G is obvious where a director of an organization wrongfully
took a false loan for the organization16. For such violation the director shall be considered as
personally accountable regarding the debts that must be paid by the organization due to the false
loan.
In ASIC v Plymin (2004) 21 ACLC 700, it was mentioned that as per section 588G of
Corporations Act creates the responsibility in connection to the directors to perform actions in a
manner that may help the organization to avoid any kind of situation where debts may be
sustained by it17.
In Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309, it was mentioned
that when a partner fails to make a disclosure of any kind of relevant information to other
partners, then that partner shall contradict the fiduciary obligation regarding partners that relates
to the best interests in connection to the partnership business18. Wright Prospecting Pty Ltd v
Hancock Prospecting Pty Ltd [2012] QSC 182 is another important case where the rights and the
fiduciary obligations regarding the partners have been discussed19.
15 R v Byrnes and Hopwood (1995) 183 CLR 501
16 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
17 ASIC v Plymin (2004) 21 ACLC 700
18 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309
19 Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 182

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Analysis of Rules
Applying AWA Ltd v Daniels t/as Deloitte Haskins and Sells (1992) 7 ACSR 75920 and
ASIC v Rich (2003) 44 ACSR 34121, it may be stated that Phillipa, Sam and Rosa did not fulfill
their responsibilities regarding ‘SRT Pty Ltd’ with proper diligence and adequate care just like a
practical and sensible person would.
Applying R v Byrnes and Hopwood (1995) 183 CLR 501, it is evident that Phillipa, Sam
and Rosa were unable to act in relation to the organization for a proper purpose and in good faith
and thus caused a violation of section 18122.
Applying Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, it can be
stated that Sam, Rosa and Phillipa breached section 588G certain regarding the organization
were permitted by them, even they were aware concerning the meagre financial situation
regarding SRT Pty Ltd23.
Applying ASIC v Plymin (2004) 21 ACLC 700, it is evident that Sam, Rosa and Phillipa
caused a breach of section 588G because they did not take any practical steps so that the
sustenance of debt may be avoided regarding organization24.
Applying Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 30925 and
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 18226, it can be stated
that Charlotte and Mia failed to make a disclosure of any kind of relevant information, and thus
20 AWA Ltd v Daniels t/as Deloitte Haskins and Sells (1992) 7 ACSR 759
21 ASIC v Rich (2003) 44 ACSR 341
22 R v Byrnes and Hopwood (1995) 183 CLR 501
23 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
24 ASIC v Plymin (2004) 21 ACLC 700
25 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309
26 Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 182

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contradicted the fiduciary obligation regarding partners that relates to the best interests in
connection to the partnership business.
Conclusion
To conclude it can be mentioned that the breaches mentioned above had been given effect
by the parties in connection to the legal responsibilities.

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Question 3
The Issue
The issue is what shall be the legal consequences for the parties in the light of the
breaches, which were given effect to by the parties.
Discussion of Rules
When an officer or a director causes a contradiction of the provisions of sections 588G,
180, 181, 182 and 183 as provided in the Corporations Act of 2001, that particular officer or
director can be held answerable and responsible in relation to the civil penalties as provided in
section 1317E regarding the aforementioned Act27.
When an officer or a director performs their deeds either in a dishonest manner or in a
reckless way, then that particular officer or director shall be criminally answerable or responsible
according to section 184 as provided in Corporations Act of the year 200128.
According to the case of Wang v Rong [2015] NSWSC 1419, partners may cause
violation in relation to their fiduciary obligations regarding which a suit may be filed in order to
make an assertion or a claim in contradiction to the partners29.
Analysis of Rules
By making an application of section 1317E of Corporations Act of the year 2001 it can be
stated that Sam, Rosa and Phillipa may be answerable and responsible in relation to the civil
penalties discussed above.
27 Corporations Act, 2001 (Cth)
28 Ibid.
29 Wang v Rong [2015] NSWSC 1419

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By making an application of section 184 as mentioned in Corporations Act, it can be
stated that Sam, Rosa and Phillipa might be criminally answerable or responsible as they
performed their obligations in a dishonest manner and in a reckless way in relation to the
organization30.
The case of Wang v Rong [2015] NSWSC 1419 should be applied in the provided
scenario31. It can be presumed that Mia may file a suit in order to claim against Charlotte. This
claim can be made on the basis of the breach that has been caused by Charlotte in relation to her
fiduciary obligation as a partner in connection to the welfare of the business and disclosure of
important information and data to existing partners.
Conclusion
In conclusion it can be mentioned that the aforementioned circumstances are the legal
consequences regarding the violation caused by actions of the parties.
30 Corporations Act, 2001 (Cth)
31 Wang v Rong [2015] NSWSC 1419

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BIBLIOGRAPHY
Books & Journals
Langford, Rosemary Teele. "High Court of Australia on Fiduciary Theory." (2016) Fiduciary
Duty and the Atmospheric Trust. Routledge,. 197-218.
Cases
ASIC v Plymin (2004) 21 ACLC 700.
ASIC v Rich (2003) 44 ACSR 341.
AWA Ltd v Daniels t/as Deloitte Haskins and Sells (1992) 7 ACSR 759.
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115.
R v Byrnes and Hopwood (1995) 183 CLR 501.
Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309.
Wang v Rong [2015] NSWSC 1419.
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2012] QSC 182.
Legislation
Corporations Act, 2001 (Cth)