Corporate Law Case Study: Analysis of Jones Hardware Pty Ltd Scenario

This assignment analyzes a case study involving Jones Hardware Pty Ltd, where Mrs. Jones, a director, secures a loan from BNZ Bank. The case explores whether the bank can enforce the mortgage on the company's building, considering the application of the Corporations Act, particularly sections 128, 129, and the doctrine of indoor management. It examines the authority of individuals acting on behalf of the company and the assumptions third parties can make. The assignment also assesses whether Mrs. Jones breached her director's duties by establishing a new company with the loan funds, focusing on sections 180, 181, and 183 of the Corporations Act, considering her intentions and actions. The analysis includes relevant case law such as Bank of New Zealand v Fiberi Pty Ltd, Royal British Bank v Turquand, and ASIC v Cassimatis, providing a comprehensive understanding of corporate law principles related to directors' responsibilities and company dealings.

Running head: CORPORATE LAW
CORPORATE LAW
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Author Note

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Answer 1
Issue
The issue that is to be discussed in this part is considered to be whether the bank has the
authority to enforce the mortgage over the building.
Rule
The sec 129 of the Corporations Act, 2001 (Cth) discusses the presumptions that can be
made under sec 128 of the afore-mentioned Act. It is in agreement with the Constitution and the
replaceable rules that are laid down in the Constitution. The directors or the secretaries of that
company agree upon it. An individual makes an assumption that anyone who appears to be on
the part of a company by the knowledge of that individual where the information is provided to
the individual through ASIC that the person is considered to be acting as the director of the
company or the secretary of the organization who has been properly appointed by the company
and carries out the operations or functions of the company by exercising their powers and
authorities as a director or the secretary of the company. In case of an officer or the agent of the
company is considered to be a part of the company and an individual can assume such a person
to be the officer or agent of the company if the officer or agent is duly appointed as an officer or
agent of that organization or exercises the functions or duties of the company. There needs to be
a proper performance of the duties in the company. An individual also have the right to assume
that there has been a document which has been properly executed by the company if the
document of the common seal has been properly executed under section 127(2) and the fixing of
the common seal has been observed with accordance to the section. It can be seen in the
scenario of Bank of New Zealand v Fiberi Pty Ltd(1994) 12 ACLC 48. It can be seen in the case

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of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103 if the section
127 of the above-mentioned act is executed then can the documentation be considered to be
valid.
Under the section 128 of the Corporation Act discusses that any person has the right to
assume in terms of the dealings which are considered to be a part of the corporation and the
person involved in the dealings of the corporation are having the authority to do so because of
the position the person holds in the corporation. Under section 128(4) of the above-mentioned
Act a person or an individual does not have the right to assume under the section 129 of the Act
if during the time of the dealings of the organization the individual has any kind of suspicion
related to the position of the person who is considered to be dealing on the part of the
organization. This is similar to the doctrine of indoor management where it can be understood
that the outsider is not supposed to know the internal management of the company that can be
understood in the case of Royal British Bank v Turquand (1856) 6 E&B 327. Therefore, the bank
if there is any kind of suspicion on the person who is exercising the powers of the dealings of the
company then the individual is not supposed to assume.
Application
In the present scenario it can be understood that Mr. Jones and Mrs. Jones are the owners
of a hardware store where the owner of the company is considered to be Mrs. Jones and the
secretary and the director of the company is considered to be Mr. Jones. Mrs. Jones visits the
BNZ bank which is considered to be the bank of the company for a long period and applies for a
loan of 300,000 dollars where the purpose stated by Mrs. Jones is considered to expand the

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business and establish a new company where the shareholders of the new company was
considered to be Mrs. Jones and her friend. The bank manager was concerned about the loan
amount but did not make any kind of enquiries and decide to grant the loan only if there has been
a mortgage of the company’s securities which is considered to be a building from which the
company carries out the operations. The intention of Mrs. Jones was to establish the new
company and then leave her husband. However, she became the director of the new company
along with being the shareholder of the company. The loan amount is granted to Mrs. Jones for
establishing the new company. The common seal of that company gets affixed and the friend of
Mrs. Jones signs as the secretary of the company and carries out the operations of the company.
From the above instances it can be comprehend that Mrs. Jones had carried out the functions as a
director of the company and the bank according to the above rule assumed under the section laid
down in the above act that any person has the right to assume in terms of the dealings which are
considered to be a part of the company and the person involved in the dealings of the company
are having the authority to do so because of the position the person holds in the company. As it
can be understood in the Royal British Bank v Turquand. The Bank under the doctrine being an
outsider is not supposed to know about the operations that are happening or being carried in the
internal arena of the company and therefore, the bank has the power to enforce the mortgage
over the building as it was agreed before the granting of loan. An individual makes an
assumption that anyone who appears on behalf of a company by the knowledge of that individual
where the information is provided to the individual through ASIC that the person is considered to
be the director of the company or the secretary of the organization who has been duly appointed
by the company and carries out the operations or functions of the company by exercising their
powers and authorities as a director or the secretary of the company. As it can be seen in the case

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of Bank of New Zealand v Fiberi Pty Ltd. It can also be seen that while the documentation was
being executed there was no other director or secretary of the company present to execute the
documentation.
Conclusion
Therefore, it can be understood from the above discussion, that the bank since it was an
outsider of the company was not supposed to know the internal management and thus, it had the
authority to enforce the mortgage over the building.

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Answer 2
Issue
The issue to be discussed in this part is considered to be whether Mrs. Jones had breached
any director’s duties in establishing the company which was new.
Rule
The directors of a company or any corporation has certain duties towards the organization
and they have to perform those duties in good faith and proper purpose which would benefit the
company or the corporation and therefore, it would obtain best suitable interests for the
company. It has been laid down under the provisions of the Corporations Act, 2001 (Cth) under
section 181. The directors need to be able to perform the duties which are laid down for the
directors in good faith and also with proper purpose. If the act which is done by a director where
the duty performed by the director of the company in a dishonest way or any fraudulent activity
has been committed on behalf of the director even if it brings benefits in the company since the
method of doing so was fraudulent or dishonest then there has been a breach of the directors
duties as the director did not act in good faith or with proper purpose. It can be seen in the case
of Howard Smith Ltd v Ampol Petroleum Ltd [1974]AC 821. Under section 180 of the Act the
directors have certain duties to take due care and work diligently like a reasonable person would
do with a certain degree of care and diligence while exercising the powers. ASIC v Cassimatis
(No. 8) [2016] FCA 1023. In Section 183 of the Act it talks about the information which has
been used by the directors or other officers of the company which constitutes as a civil obligation
where the use of information acquired or obtained through the position in the company is
considered to be improper which would cause detriment to the company or the corporation.

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Application
From the present scenario it can be understood that Mrs. Jones had the intention to
establish the new company through the loan granted to the previous company and after
establishment of that company would leave the company along with her husband. She breached
the duties of the director as she did this in a dishonest manner and therefore, there was a
violation or breach of the duties on behalf of the director. As it can be seen in the case of ASIC v
Cassimatis. Furthermore, being the director of the company she tried to use the information of
the clients to gain undue advantage and cause detriment to the previous company which was a
breach according to the above rule.
Conclusion
Therefore, from the above discussion, it can be understood, that Mrs. Jones had caused a
breach to the directors duties and she had used the company’s information to cause detriment to
the company for which she was liable in order to establish the new company.

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References
ASIC v Cassimatis (No. 8) [2016] FCA 1023.
Bank of New Zealand v Fiberi Pty Ltd(1994) 12 ACLC 48.
Corporations Act, 2001 (Cth).
Howard Smith Ltd v Ampol Petroleum Ltd [1974]AC 821.
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103.
Royal British Bank v Turquand (1856) 6 E&B 327.