University Corporations Law Assignment: Loan Recovery from Bank

This assignment analyzes a Corporations Law scenario involving Sparkling Pty Ltd and Costello Bank. The central issue is whether the bank can recover a loan with interest from the company, given that Sarah, the Managing Director, entered into the loan agreement without board approval, exceeding her authority as per the company's constitution. The assignment applies legal principles including sections 125 and 126 of the Corporations Act 2001 (Cth) and the indoor management rule (Royal British Bank v Turquand). The solution argues that the bank is protected by the indoor management rule, as it was unaware of the internal restrictions on Sarah's authority and that the company cannot avoid repayment. The conclusion supports the bank's ability to recover the loan amount, citing the relevant legislation and legal precedent. The assignment also discusses the implications of Sarah's continued actions as Managing Director beyond her initial appointment period.

Running head: CORPORATIONS LAW
Corporations Law
Name of the Student
Name of the University
Author Note

1CORPORATION LAW
Issue
Whether any amount would be recoverable against the loan with interest by the bank from the
company. Whether any reasoning for the same can be provided under the legal principles available.
Rule
A company may require certain restriction to be imposed by way of the constitution they have
adopted that expressly present such restriction but the same will not render any action invalid only
because of the violation of such restriction as has been made clear in s 125, the Corporations Act 2001
(Cth).
The institution of a contract or its alteration, ratification and discharging under the name of the
company may be affected by any individual authorised by an express statement or an implied conduct by
company as can be conceived from the principle of s 126, the Corporations Act 2001 (Cth). This
particular authority can be exercised by a person even in the absence of the usage of common seal.
However, the principle inculcated within the section will not stop any legal operation arising from
contract law to operate.
The indoor management principle provides the outsiders with a power to make assumptions
regarding the abidance of the internal requirements belonging to a company and has no obligation to peep
through the internal affairs of the company before instituting any contract with the same (Seely 2019).
The legal principle enumerated in the judgement arrived at in Royal British Bank v Turquand (1856) 6
E&B 327, in case the company has never provided any express statement to an outsider regarding the
discrepancy in the abidance by the internal management with respect to its internal rules, the outsiders are
exempted from being investigating through the management carried out internally with respect to the
company while transacting with it (Maloka 2017).
Application

2CORPORATION LAW
The constitution of the Sparkling Pty Ltd required Sarah, the Managing Director of a company
who was supposed to be renewed as a Managing Director, to enter into a contract with third parties only
to the extent of $20,000. Any e transaction that has been exceeding such an amount would be required to
be taken approval of the board of directors for the purpose of proceeding with the same. However, Sarah
has entered into a loan contract for the purpose of borrowing $30,000 from Costello Bank for the setting
up of eucalyptus plantation. No prior approval from the board has been taken by her for assigning the
contract. Moreover the bank never has the awareness of the expiration of the contract between her and the
company.
The Bank can be protected by the rules of indoor management as inculcated in the case of Royal
British Bank v Turquand (1856) 6 E&B 327. The actions of Sarah has also been protected by s 125 & s
126, the Corporations Act 2001 (Cth). Hence the action cannot be treated as invalid and the bank was
protected by the rule of indoor management and will be able to recover the loan amount from the
company. The company does not have the authority to oppose such your loan repayment for their lack of
approval of the same.
Conclusion
The amount would be recoverable against the loan with interest by the bank from the company.
The reasoning for the same can be provided under the legal principles available under the rule of indoor
management and the provisions of the Corporations Act 2001 (Cth).

3CORPORATION LAW
Reference
Royal British Bank v Turquand (1856) 6 E&B 327
The Corporations Act 2001 (Cth)
Seely, T.M., 2019. The protection afforded to third parties when contracting with companies: An analysis
of the Turquand Rule and the Doctrine of Constructive Notice (Doctoral dissertation, University of
Pretoria).
Maloka, T.C., 2017. The Turquand rule, irregular appointments and bypassing the disciplinary process.
SA Mercantile Law Journal, 29(3), pp.527-542.