Detailed Legal Analysis of Corporation Act: Sparkling Pty Ltd Case

This report analyzes the Corporation Act case of Sparkling Pty Ltd, focusing on the actions of Sarah, the Managing Director. The core issue revolves around Sarah's actions in signing a loan contract exceeding her authority and whether she breached her duties as a director. The report examines the relevant laws, specifically sections 180 and 181 of the Corporation Act 2001, concerning director duties of diligence, care, and good faith. It applies these laws to Sarah's actions, concluding that she failed to meet her obligations. The analysis considers the potential consequences for Sarah, including penalties and restrictions on her future directorial roles. The report also explores alternative scenarios, such as the impact of the loan officer's due diligence and the implications if the loan had been directed to other company outlets. The conclusion emphasizes Sarah's lack of diligence and care and the potential for different outcomes depending on various factors.

RUNNING HEAD: CORPORATION ACT
Corporation Act
Name of the student
Name of the university
Author Note

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Issue:
The primary concern related to the case of Sparkling Pty Ltd is regarding the
significance of the act of Sarah and the outcome of the provided case.
The secondary concern that is required to be discussed is about the outcome of the
provided case if the officer of the loan department would be more careful regarding the
expiration of Sarah’s appointment.
The last concern that is required to be discussed would be about the possible outcome of
the provided case if the loan amount were provided to the other two outlets.
The rule of law:
Duty of the Directors:
The duty of the board or the panel is to reward and appoint the organisation’s CEO. They
help in the approval of the plan and also in formulating the strategies for running the business
that sets the goal of the organisation. The decides for the organisation’s annual budget and plans
for effective management that helps in running of the company successfully. They monitor the
outcome of the specific business and thinks about the performance of the management.
Liability of diligence and care:
The important behaviour required for performing a duty depends on the circumstantial
evidence associated with the responsibility and position of the director of the company or an
organisation. Any director, including the executive director, should carry a distinct experience
and skill for reaching to higher standard. Director must utilise their control and power, and
similarly they should carry out their roles and responsibilities with diligence and care that a

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decent person should be focusing if they hold the position of a director of an organisation under
different circumstances. Similarly if they carry out the task of a director of a specific company
that occupies the same company. The director’s behaviour should not be considered due to the
deficiency of experience and skill. Every director should arrange for meeting to gain the
minimum standard of objective or goal. The provision of the CA 2001, section 180 explains the
duty of a director as they should handle with diligence and care on the performance of the
director. U/s 181 of CA 2001 explains that there should be presence of proper purpose and good
faith which on breaching may hold an organisation’s director to be personally liable.
For example: a finance director who has a deficiency of enough liability and cares for the
matter relating in the field of finance or any matter related to the field of funding leads to the
breach of liability and duty, and therefore a decent behaviour from the director of an organization
of non-executive level may not be found in breach. The case study of Bell Group Ltd vs Westpac
can be considered similar as the court held that the directors of the organisation to be liable
personally for the establishment of debt in the company’s name as the loan sanctioned was found
to be fraud.
Liability of good faith:
Director should utilise their power and control, and at that particular moment should
carry out their duties and responsibilities with the best interest of the organisation associated with
good faith of the organisation as a whole. The actual aim for the duty of the directors is to carry
out their task in a noble manner for development of the company according to the good belief of
the directors. Additionally, along with these director’s behaviour, they can be judged objectively

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for reference purpose to be a good reference of a decent director considering the best interest of
the company or an organisation.
The enforced law of Australia gives numerous obligations and duties on a different
person among the employes one’s. They perform the task for any organisation or company
situated in Australia. The precise role or duty of an individual depends on the specific individual
of a company or an organisation.
Application:
(i)The outcome of the provided legal case suggests that Sarah’s performance as a director was
not good lawfully. She has never performed any duties and obligations associated with diligence
and care. She can be found guilty under the provisions of 180 and s 181 of the CA.
It is well understood that Sarah’s performance was not lawful in the eye of law. The following
consequences have to be faced by Sara for the above mentioned act. She can be held liable by
penalising up to $20000. There can be five years of imprisonment. She will not be allowed to act
as a director in any of the organisation's management. She has to pay all the debts.
(ii)The outcome of the given case can be sketched as Sara was not in the position for borrowing
such a huge amount as the limit of transaction of the trade was mentioned, and it was informed to
her that is $ 20000 according to the contractual terms that were developed by the organisation or
the company. As Sara was acting as the director of the company has done the breaching of her
roles and responsibilities, and also the duties buy transacting about the limit without giving any
information to the panel on the board or without referring to the board of directors.
(iv)

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(a)The outcome would be same as the company has set up a transaction limit of $ 30000 in
favour of the director of the company even if the loan amount would have been sanctioned to the
other two units of the Sparkling Pty Ltd.
(b)The outcome of the given case would not be similar loan department officer would have
carefully noted about Sarah's expired appointment as she had an accident the limit of transaction
specified by the company. The loan officer was not careful Sarah's intention to find the new job
because of the appointment expiration Hindi directors position. The bank of Costello would not
have been providing $30000 in the name of Sarah if they had noted limit of transaction in the
contract specified by the organisation to Sarah as the company’s director.
Conclusion:
Firstly, it can be con concluded from the above mentioned facts that Sarah did not carry out her
task with diligence and care; it can be said that Sarah was not a good and reasonable director of
the company.
Secondly, it can be concluded from the facts of the given case the outcome would be different if
the loan sanctioning officer would have noted about the expiration of Sarah’s appointment as a
director.
Thirdly, it can be concluded from the above facts that the outcome of the case would not be
different if the loan amount would have been served to the other two units of the shop because
the transaction limit has set by the company as a director who was greater than the provided
amount as according to the contractual terms.

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Reference:
Corporation Act of 2001 s180
Bell Group Ltd v Westpac

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