Case Study Analysis: Miss Stylz Pty Ltd and Director's Liabilities

This case study analyzes the insolvency of Miss Stylz Pty Ltd, a clothing manufacturer facing financial difficulties, including a statutory demand from the Australian Taxation Office. The case involves the original director's (Alice Smith) appointment of her daughter (Libby) as an alternate director due to illness. Libby's actions, including using company funds for personal expenses and breaching the tax demand deadline, are scrutinized under the Corporations Act 2001. The analysis delves into the director's duties, potential breaches of fiduciary duty, insolvent trading, and the consequences, including legal actions by the liquidator. The study references relevant sections of the Corporations Act and supporting case law, such as Re SCW Pty Ltd and Valeba Pty Ltd v Deputy Commissioner of Taxation, to determine the liabilities of both Alice and Libby. The conclusion highlights the liquidator's authority to pursue legal action against the directors, potentially including bans from directorial positions and compensatory charges, based on their actions and failures to prevent insolvency.

Issue- The given case involves insolvency conditions and liquidation of Miss Stylz Pty Ltd, a clothing
manufacturing company. The company is going through financial disruptions and the sole director of
the company is undergoing cancer treatment. Australian Taxation Office issued statutory demand
notice for unpaid taxes and winding up in case of non-compliance. It also involves issue appointment
of alternate director Libby to control the operations of the company in the meantime. It also
includes the role of a qualified accountant in recommending Libby about the financial condition of
the business. The issue regarding the conduct of Libby involves a conflict of interest as she issued the
fund from the overdraft facility of the company for the treatment of her mother and breached the
date for the demand for unpaid taxes. The company, due to adverse financial conditions and
pressure from the Australian Taxation Office is undergoing liquidation process in compliance with
regulatory provisions of Australia. The other issues in the case are irresponsible conduct against the
notice by taxation authority and diversion of funds for personal interests and placing further orders
despite poor financial conditions.
Law- Under section 588G of Corporations Act 2001 of Australia, the provisions will apply to director
only if the person is the director at the time of debt, insolvency or commencement of relevant act
("CORPORATIONS ACT 2001 - SECT 588GDirector's duty to prevent insolvent trading by the
company", 2019). It also mentions the duty of the director to prevent possible insolvency. Also under
section 180 of the corporations’ act 2001 describe the general fiduciary duties of the director which
suggests relevant act in the best interest of the company ("CORPORATIONS ACT 2001 - SECT 180Care
and diligence civil obligation only", 2019). Section 479(3) of the corporation’s act 2001 has
guidelines for legal action against conduct which further leads to insolvency and Section 588g of the
Act also mentions provisions for the criminal action against a director for not acting in the best
interest of the company to prevent insolvency. It also provisions for compensation order along with
adequate civil penalties. Apart from this, section 1801 of the corporation's act directs fine for a
dishonest act of the director ("Corporations Act 2001", 2019).
Arguments- The case of Re SCW Pty Ltd NSWSC 302 in 2013 is believed to be one of the significant
cases involving appointments of the liquidator and relevant action in case of insolvency. Another
case where the liquidator is required to advise to charge the director in case of insolvency is Valeba
Pty Ltd v Deputy Commissioner of Taxation [2012] QSC 200 ("[2012] QSC 200 - Valeba Pty Ltd v
Deputy Commissioner of Taxation", 2019). The liquidator has following grounds of action against the
director-
 Breach of adequate subsequent duties of the director.
 Inappropriate conduct leads to breach of statutory provisions.
 Overdrawing loan account as a primary debtor of the company and diversion of fund for
personal interests.
Libby, the director appointed by Alice has failed to act honestly and adequately to prevent the
liquidation of the company under section 588g of the act. She is also liable for illegal expenditure
that leads to a breach of the fiduciary duties of the director.
Under the provisions of section 588g, Alice will be prime responsible for all the debt incurred and
the illegal acts, as she was the director at the time of the incident. Also, the dishonest behavior of
Libby can cause criminal proceedings against her which attracts fine up to $2000 and imprisonment
for up to five years. The company can also receive s222AOE penalty notice for the unpaid. Further,
Libby used the name of the company for generating orders, being aware of the conditions of the
company; it leads to dishonest acts by the director. Libby is also accused of insolvent trading as she
incurred debt at the time of insolvency in hope of revival. The director of the company can also get
charges under section 184 which describes reckless behavior and intentional dishonesty, Section 191
which means a duty to disclose financial situations of the company. Libby also breached her duty to
use the transactions of the property of the company with the approval of company shareholders. As
per the situations mentioned, the director has failed to act following the provision to prevent the

insolvency of the company and such conduct also leads to dishonest acts under the provisions of the
section.
Conclusion- Under the situation of the above company and in-depth analysis of all the relevant legal
provisions of the corporations act 2001, the liquidator has the authority to charge legal actions
against the director of Miss Stylz Pty Ltd. Considering all the dishonest and criminal activities of the
present director, the liquidator can also proceed with actions to ban her for a certain period, usually
five years, for practicing directorial position along with adequate compensatory charges.

References
[2012] QSC 200 - Valeba Pty Ltd v Deputy Commissioner of Taxation. (2019). Retrieved 9
September 2019, from https://www.queenslandjudgments.com.au/case/id/77838
Corporations Act 2001. (2019). Retrieved 9 September 2019, from
https://www.legislation.gov.au/Details/C2018C00424
CORPORATIONS ACT 2001 - SECT 180Care and diligencecivil obligation only. (2019).—
Retrieved 9 September 2019, from
http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s180.html
CORPORATIONS ACT 2001 - SECT 588GDirector's duty to prevent insolvent trading by
company. (2019). Retrieved 9 September 2019, from
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s588g.html