Corporation Law: Analysis of Legal Responsibilities and Consequences

This report analyzes a corporation law case study involving SRT Pty Ltd, the Tippin Family Trust, and the business 'Charlotte and Mia'. The analysis focuses on the legal duties of directors (Sam and Rosa Tippin, Phillipa) and partners (Charlotte and Mia) under the Corporations Act 2001 and Partnership Act 1963. It examines potential breaches of fiduciary duties, including those related to care, diligence, good faith, and avoiding conflicts of interest. The report applies relevant case law (e.g., ASIC v Cassimatis, Bell Group Ltd v Westpac Banking Corp) to determine breaches such as failing to act diligently, using company assets for personal gain, and insolvent trading. The report concludes by outlining the legal consequences of these breaches, including potential criminal and civil penalties, and discusses steps the parties could have taken to avoid these breaches.

Running head: CORPORATION LAW
CORPORATION LAW
Name of Student
Name of University
Author Note

1CORPORATION LAW
Issue
The issues that can be raised in context of the given scenario includes-
1. Whether there is an existence of legal duties of the parties in the given case study.
2. Whether the legal duties have been breached by the parties in the given case study.
3. Whether there would be any consequences for the breach of such duties by the parties
in the given case study.
Rule
Legal duties
Under the provisions of the Corporations Act (CA) 2001 every director or officer is
required follow certain set of duties. These fiduciary duties of the directors and the officers of
the company are mentioned under the provisions mentioned between sections 180 to 183 of
the CA 20011. A director or any other officer of a corporation, under the provisions of section
180 (1)2, is needed to conduct the business operations of the company with certain amount of
care and due diligence as is expected from a reasonable person in their position. The common
law can also be seen as imposing a similar duty to the directors and officers in the judgment
of Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016]3
which discusses the duty of a director to act with diligence and care. A director or any other
officer of a corporation, under the provisions of section 1814, is needed to conduct the
business operations of the company keeping the best interest of the company with a good
faith. This section provides the duty of a director is the avoidance of any conflict that might
1 Corporations Act 2001 (Cth), ss180-183
2 Corporations Act 2001 (Cth), s180 (1)
3 Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA 1023
4 Corporations Act 2001 (Cth), s181

2CORPORATION LAW
arise between the interest of the directors and the interest of business in the course of
business. In the common law the duty to avoid any kind of confliction arising in the interests
has been discussed in the judgment of Bell Group Ltd (in liq) v Westpac Banking Corp (No 9)
(2008)5. A director or any other officer of a corporation, under the provisions of section 1826,
is refrained from conducting the business by gaining any favourable advantage for
themselves or for someone they know by abusing the position they hold in the company. In
the common law the duty to refrain from using their position for personal gain has been
discussed in the judgment of Forty Two International Pty Limited v Barnes [2014]7. A
director or any other officer of a corporation, under the provisions of section 1838, is
refrained from conducting the business by gaining any favourable advantage for themselves
or for someone they know by misusing the information on the company affairs received by
them in lieu of the position they hold in the company. This duty was mentioned in the
common law by the judges in the case SAI Global Property Division Pty Limited v Johnstone
[2016]9. A director or any other officer of a corporation, under the provisions of section 19710,
is seen to be held responsible for any debt that the corporation might incur as a trustee. This
section was discussed in the judgment of Hanel v O'Neill (2004)11. A director or any other
officer of a corporation, under the provisions of section 588G12, has the duty to stop any kind
of trading in the company that might result in it to become insolvent. This duty was
mentioned in the common law by the judges in the case Inner West Demolition (NSW) Pty
Ltd v Silk [2018]13.
5 Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1; 70 ACSR 1; [2008] WASC 239
6 Corporations Act 2001 (Cth), s182
7 Forty Two International Pty Limited v Barnes [2014] FCA 85
8 Corporations Act 2001 (Cth), s183
9 SAI Global Property Division Pty Limited v Johnstone [2016] FCA 1333
10 Corporations Act 2001 (Cth), s197
11 Hanel v O'Neill (2004) 22 C &SLJ 313
12 Corporations Act 2001 (Cth), s588G
13 Inner West Demolition (NSW) Pty Ltd v Silk [2018] NSWDC 136

3CORPORATION LAW
Partnership Act 196314 can be seen as providing the duties which are obligatory to the
partners in a business. Like the directors and shareholders in a company, the partners in a
partnership business are also needed to follow some specific duties. In the judgment of Wang
v Rong [2015]15 the fiduciary duties of the directors were discussed as to be acting with care
and diligence; disclosing material facts of the business to the partner; acting in loyal manner
towards the other partners and the business; conducting the business with good faith and to
make presumptions towards any fraudulency or undue influence in the course of business.
Breach of Duties
The judges in their decision in the ASIC v Flugge (No2) [2017]16 case were seen as deciding
that any director or officer not following section 180 (1)17 to act with proper care and
diligence would be held as breaching their duties under this section. The judges in their
decision in the RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited
[2017]18 case were seen as deciding that any director or officer not following section 18119 to
act in the corporation’s best interest would be held guilty as breaching their duties under this
section. In their judgment in Parke v Daily News Ltd [1962]20 case the judges were seen as
holding that any director conducting the business by gaining any favourable advantage for
themselves or for someone they know by abusing the position they hold in the company
would be liable for breach of their duty mentioned in section 18221. In their judgment in MG
Corrosion Consultants Pty Ltd v Gilmour (2014)22 case the judges were seen as holding that
any director conducting the business by gaining any favourable advantage for themselves or
for someone they know by misusing the information on the company affairs received by them
14 Partnership Act 1963 (ACT)
15 Wang v Rong [2015]NSWSC 1419
16 ASIC v Flugge (No2) [2017] VSC 117
17 Corporations Act 2001 (Cth), s180 (1)
18 RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756
19 Corporations Act 2001 (Cth), s181
20 Parke v Daily News Ltd [1962] Ch 927
21 Corporations Act 2001 (Cth), s182
22 MG Corrosion Consultants Pty Ltd v Gilmour (2014) FCA 990

4CORPORATION LAW
in lieu of the position they hold in the company would be liable for breach of section 18323 of
the Act. In their judgment in Tourprint v Bott [1999]24 case the judges were seen as holding
that any director would be liable for breach of their duty under s 588G25 if they failed to stop
the company from insolvent trading. Following the Walker v European Electronics PtyLtd (in
liq) (1990)26 case a partner in business would be held liable for breach of their duty if they
fail to be acting with care and diligence; disclosing material facts of the business to the
partner; acting in loyal manner towards the other partners and the business; conducting the
business with good faith and to make presumptions towards any fraudulency or undue
influence in the course of business.
Legal Consequences
The criminal penalties for the breach of directors' duties are mentioned under section 18427 of
the CA 2001. For any breach in the duties the directors would be held criminally liable.
The civil penalties for such breaches are mentioned under the provisions of section 1317G28
of the CA 2001. For any breach in the duties of the directors the court might order for
pecuniary penalties by holding them liable under civil provision.
Under section 14 of the Partnership Act 29, for any breach in their duties the partners are
awarded with a minimum of 10 penalty units mentioned under section 133 Legislation Act
200130.
23 Corporations Act 2001 (Cth), s183
24 Tourprint v Bott [1999] NSWSC 581
25 Corporations Act 2001 (Cth), s 588G
26 Walker v European Electronics PtyLtd (in liq) (1990) 23 NSWLR 1
27 Corporations Act 2001 (Cth), s184
28 Corporations Act 2001 (Cth), s1317G
29 Partnership Act 1963 (ACT), s. 14
30 Legislation Act 2001, s. 133

5CORPORATION LAW
Application
In the current scenario it has been provided that Mr Sam Tippin and Mr Rosa Tippin
are the only shareholders and directors in the company owned by them named SRT Pty Ltd
(SRT). It can further be observed that Mr and Mrs Tippin head purchase of building for
commercial purpose and in furtherance leased it to the trust owned by them named the Tippin
Family Trust (Tippin Trust). The given scenario provides that they are both trustee and
beneficiary in the trust. The Tippin Trust also operates a locksmith business (LB). The case
study also provides about two business partners, Charlotte and Mia, operating a wholesale
business named as 'Charlotte and Mia' (C&M). This business is seen to provide locks,
hardware for doors, and any other parts or tools that are required for locksmiths. The case
study also provides that Sam and Rosa had appointed Phillipa, who is also their niece, as a
manager for their businesses and trust as they were planning to go on a tour of Australia.
Legal duties
Applying the judgement in ASIC v Cassimatis case it can be observed that under
section 180 (1) of the Act as Sam, Rosa and Phillipa are directors and manager respectively
therefore they have a duty of acting in diligent and careful manner towards the business of
the company. Applying the judgement in Bell Group Ltd (in liq) v WestPac Banking Corp
(No 9) case it can be observed that under section 181 of the Act as Sam, Rosa and Phillipa are
directors and manager respectively therefore they have a duty to conduct business operations
of the company keeping the best interest of the company with good faith and further to avoid
any kind of confusion arising in such interests. Applying the judgement in Forty Two
International Pty Ltd v Barnes case it can be observed that under section 182 of the Act as
Sam, Rosa and Phillipa are directors and manager respectively therefore they have a duty to
refrain from conducting the business by gaining any favourable advantage for themselves or
someone they know by abusing their position in the company. Applying the judgement in SAI

6CORPORATION LAW
Global Property Division Pty Ltd v Johnstone case it can be observed that under section 183
of the Act as Sam, Rosa and Phillipa are directors and manager respectively therefore they
have a duty to refrain from conducting the business by gaining any favourable advantage for
themselves or someone they know by misusing the information they got because of their
position in the company. Following the judgement of Hanel v O'Neill in this scenario it can
be stated that as the directors and manager of the company Sam, Rosa and Phillipa would be
liable for any loss incurred by the company by way of the trust. In furtherance to this
following the West Demolition (NSW) Pty Ltd v Silk they also have the duty to to stop any
kind of insolvent trading in which the company is either involved or getting involved.
Following the judgement in Wang v Rong in this given scenario as Mia and Charlotte
are business partners therefore they have certain fiduciary duties under the Partnership Act
1963 which requires them to be acting in a diligent and careful manner, disclosing any
material fact of the business to each other and to act loyally towards each other and towards
the business.
Breach Of Duty
In the given scenario it can be observed that Mr and Mrs Tippin had been breaching
their duties under section 180 (1) of the CA 2001 to act with proper care and diligence.
Following the judgement in ASIC V Flugge (No. 2) their behaviour to not account for the
amount received by selling their shares would be considered as a breach of section 180 (1).
Following the RBC Investor Services Australia Nominees Pty Ltd v Brickworks Ltd the action
of Sam and Rosa to buy a campervan for $40,000 and to reinvest $10,000 in LB shares from
the amount that was made from selling the shares of the company can be considered as a
breach of section 181 of the CA 2001. In furtherance to this following the Parke v Daily case
the action of buying Camper van for going to a tour to Australia can be considered as gaining

7CORPORATION LAW
favourable advantages for themselves by using the position they hold in the company and
hence is a breach to section 182 of the CA 2001. Following the judgement in ASIC V Flugge
(No. 2) case the conduct of Phillipa to buy more stocks than is actually necessary for the
company can be considered as a breach of section 180 (1) to not act in a diligent and careful
manner. Following the judgement in Tourprint v Botts buying of stocks than is necessary and
spending a huge amount to market the business for attracting new customers which resulted
in the company getting into financial difficulties can be considered as insolvent trading on the
part of Phillipa. Hence Phillipa is in breach of section 588G as she failed to refrain the
company from entering into insolvent trading.
Following the Hanel v O'Neill case in this situation the debts that have been incurred
by way of the Tippin Trust would be considered as liability towards Sam, Rosa and Phillipa
under section 197 of the CA 2001.
Following the Walker v European Electronics Pty Ltd (In liq) case in the given
scenario Charlotte will be in breach of her duties under the Partnership Act as she is different
herself from disclosing to Mia important information about the business.
Consequences
Applying section 184 of the CA 2001 Sam, Rosa and Phillipa as directors and the
manager of the company respectively would be held criminally liable for the breach in their
duties.
Applying section 1317G of the CA 2001 Sam, Rosa and Phillipa as directors and the
manager of the company respectively would be liable to pay pecuniary penalties under the
civil provisions for the breach in their duties.
Applying section 14 of Partnership Act Charlotte will be awarded with a minimum of
10 minimum points of penalty under section 133 of the Legislation Act.

8CORPORATION LAW
Conclusion
Thus from the above discussion the following conclusions can be made
1. There is an existence of legal duties of Sam, Rosa, Phillipa, Mia and Charlotte in the
given case study.
2. The legal duties have been breached by Sam, Rosa, Phillipa and Charlotte in the given
case study.
3. There would be legal consequences for the breach of such duties by Sam, Rosa,
Phillipa and Charlotte in the given case study.

9CORPORATION LAW
Reference and Bibliography
Australian Securities and Investment Commission (ASIC) v Flugge (No2) [2017] VSC 117
Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8) [2016] FCA
1023
Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1; 70 ACSR 1;
[2008] WASC 239
Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 at 408
Clarkson, K.W. and Miller, R.L., 2020. Business law: Text and cases. Cengage Learning.
Corporations Act 2001
Forty Two International Pty Limited v Barnes [2014] FCA 85
Hanel v O'Neill (2004) 22 C &SLJ 313
Harris, J., Hargovan, A. and Adams, M., 2018. Australian corporate law. LexisNexis
Buttwerworths.
Inner West Demolition (NSW) Pty Ltd v Silk [2018] NSWDC 136
Legislation Act 2001
Lipton, P., Herzberg, A. and Welsh, M., 2014. Understanding company law (Vol. 16).
Thomson Reuters.
Mann, R.A., Roberts, B. and Roberts, B.S., 2015. Business law and the regulation of
business. Nelson Education.
MG Corrosion Consultants Pty Ltd v Gilmour (2014) FCA 990

10CORPORATION LAW
Parke v Daily News Ltd [1962] Ch 927
Partnership Act 1963
R v DPP; Ex parte Kebilene [2000] 2 AC 326
RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA
756
SAI Global Property Division Pty Limited v Johnstone [2016] FCA 1333
Tourprint v Bott [1999] NSWSC 581
Walker v European Electronics PtyLtd (in liq) (1990) 23 NSWLR 1
Wang v Rong [2015]NSWSC 1419