TLAW 402 Company Law: Director Duties, Liquidator Actions, & ASIC Role

This case study examines the potential actions a liquidator can take against directors Bruce and Lee of Ninja Computers Pty Ltd, focusing on breaches of director duties and insolvent trading. It analyzes Lee's potential liability for violating sections of the Corporations Act 2001 (Cth), including insolvent trading and failure to act with due diligence, potentially leading to personal liability for company losses and ASIC intervention. Bruce may have defenses available to him. The analysis also discusses the ASIC's powers to impose pecuniary penalties and disqualification orders on Lee for violating civil penalty provisions, as well as seeking compensation for Ninja's losses. Desklib offers a wide range of solved assignments and study resources for students.

Running Head: BUSINESS LAW
Business Law
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Author Note

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PART 1
Issue
The issue which has been identified in relation to the case study of Bruce and Less is that where
the court has ordered liquidation of the company what actions can the liquidator take against
them and the prospects of her being successful
Rule
In relation to a winding up situation which has been ordered by the court there are specific rights
which have been provided trough the Corporation Act 2001(Cth) to the liquidator of the
company (Ciro & Symes 2013).
Powers of a liquidator has been provided through section 477 of the Act. it has been provided
through the provisions of section 477(2) of the Act that a liquidator has the power of brining a
legal claim on behalf of the company.
It has been provided through the provisions of section 533 of the Act that in case the liquidator of
an organization identify during the winding up of a company that a present or past director or
officer of the company may have been guilty of an offence under a commonwealth law or the
law of any state and territory, or any person which had indulged in the management,
administration, formation and winding up of the company may have misused or retained the
property of a company or may have been negligent or would have committed a breach of duty or
trust towards the company and the company has become unable to pay off its debts, it is the duty

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of the liquidator make an application under section 597or provide such information to the ASIC
(Fitzpatrick et al., 2017).
In addition where the liquidator thinks fit he or she may further a report with the ASIC which
would specify any matter which he thinks is to be notified to the ASIC. Where the court
identifies in the relation to winding up of a company that a present or past director or officer of
the company may have been guilty of an offence under a commonwealth law or the law of any
state and territory as stated by the liquidator and any person which had indulged in the
management have misused or retained the property of a company or may have been negligent or
would have committed a breach of duty or trust towards the company the court may direct the
liquidator to file the report (Graw et al. 2015).
It has been provided through section 588G that when a the directors of a company indulge in the
process of insolvent trading and the defense provided under the provision of section 588H are
not applicable than the director may be personally liable for the losses which have been incurred
by the organization due to his actions.
Further according to the case of Australian Securities and Investments Commission v Healey and
Others [2011] FCA 717 the directors can be personally liable for the losses which have been
incurred by the company which result out of the breach of directors duties provided through the
legislation. These duties include the duty of due diligence and care, acting in good faith and
proper purpose and not misusing information and position held in the company (Latimer, 2017).
In the case of Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 the directors
had been held personally liable for indulging in insolvent trading.
Application

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In the givens situation it can be analyzed that there have been various breaches of directors
duties by Bruce and Lee and specifically Lee as per the facts of the case study. However Bruce
have various defenses available in his favor which would protect him against the penalties for
breach of duties. Being the directors of the company both Bruce and Lee are accountable for the
affairs of the company. In the given situation it is clear that Bruce have violated the insolvent
trading provision of the CA. This is because he continued to use the credit card of the company
where the company was in financial difficulties and incurred further debt by not paying the
creditors. However Bruce can claim the defense under section 588G of the CA as he has acted in
good faith and reasonable relied on the advice provided by lee. In the given situation it can be
further stated that Bruce and Lee have violated section 180 of the Act as they have not acted in a
diligence and careful way. Thus they have to compensate the losses which have been faced by
the company. However Bruce can rely on the defense under section 189 of the CA whereby he
acted based on information which he reasonably believed to be true. Where such breaches have
been made it is the duty of the liquidator to inform the ASIC under the provisions of 533. It is
provided through the section that that in case the liquidator of an organization identify during the
winding up of a company that a present or past director or officer of the company may have
been guilty of an offence under a commonwealth law or the law of any state and territory, or any
person which had indulged in the management, administration, formation and winding up of the
company may have misused or retained the property of a company or may have been negligent
or would have committed a breach of duty or trust towards the company and the company has
become unable to pay off its debts, it is the duty of the liquidator make an application under
section 597or provide such information to the ASIC. Here Lee who is the director of the
company has have been guilty of an offence under the CA section 184 and 588G (3) and have

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misused or retained the property of a company such as purchasing two luxury cars at a price of
$55000 each and have further violated section 180-184 and 588G and the company is now
unable to pay its debts. It is the duty of the liquidator to inform the ASIC about the situation
through loading a notice. Further it has been provided through the provisions of section 477(2) of
the Act that a liquidator has the power brining a legal claim on behalf of the company. Here the
liquidator also will have the power of making a claim against the directors in their personal
capacity as they have mismanaged the company and which have subjected its creditors to
detriment in order to obtain compensation for the loss incurred by the creditors. This claim made
by the liquidator have significant potential of being successful as it is clear through the
application of the precedent provided by Commonwealth Bank of Australia v Friedrich case that
Lee is liable for the losses which have been incurred by the company. She can recover the losses
of the creditors from Lee personally and also seize all the assets of the company including the
cars purchased for personal use.
Conclusion
Thus in the given situation the liquidator can make Lee personally liable for the losses incurred
by Ninja and its creditor. All assets of the company would further be attached by her and she
would have to notify the situation to the ASIC.
PART 2
Issue
The issue in this case is to determine the actions which may be taken by the ASIC in relation to
the provided scenario of Ninja.

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Rule
There have been several cases where the ASIC have made a claim against the directors of the
company with respect to the breach of the provisions of the CA.
It has been provided through the provided through provisions of section 180-183 and 588G that
the breach of these section attract a Civil Penalty Provision under section 1317E of the CA
unless an offence have been identified by the courts (Fisher, Anderson & Dickfos, 2014).
The provision of section 1317E provides that the court has to make a declaration of convention
when it is satisfied that civil penalty provisions have been violated. After the court has made a
declaration a pecuniary penalty order may be claimed by the ASIC under the provisions of
section 1317G of the CA. In addition to pecuniary penalties the ASIC may also seek a
disqualification from management order for the directors under section 206C. Under section
1317G of the CA a pecuniary penalty of up to $200000 can be imposed in the directors. Further
under section 206C the court may suspend the right of a person to be a director for a period it
determines to be appropriate. Further section 1317H of the CA provides that where civil penalty
provision have been violated the court may make an order to make the person contravening the
provisions compensate the company for the damages suffered by it.
In the case of ASIC v Lindberg [2012] VSC 332 the ASIC had been able to secure a pecuniary
penalty of $100000 under section 1317G and a ban from management for two years under
section 206C for the director who have violated the civil penalty provision.
Application

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In the given situation where it has been discussed above that Lee has violated the provisions of
section 180-183 and 588G the civil penalty provisions have been contravened by him. In the
given situation the ASIC make bring a claim against the company in the court and seek
declaration under section 1317E. Once the declaration is provided Lee would have to pay a
penalty of up to $200000 to the commonwealth under section 1317G and would be suspended
form managing the affairs of the company under section 206 C in the same way as an order had
been secured by the ASIC in the case of ASIC v Lindberg.
In addition under the provisions of section 1317H of the CA the ASIC would ensure that Lee has
to compensate Ninja for all losses which have been incurred by it because of his actions. These
would include the losses while indulging insolvent training and the debt which the company has
incurred in relation to Supply Co and the Bank as they owe the company significant amounts in
because of the actions of Lee.
Conclusion
Thus from the above discussion it can be concluded that where an action would be taken by the
ASIC against Lee they would be able to make him liable for breach of civil penalty provisions
and be punished under section 1317G, 206C and 1317H of the Act.

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References
Corporation Act 2001(Cth)
Australian Securities and Investments Commission v Healey and Others [2011] FCA 717
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
ASIC v Lindberg [2012] VSC 332
Fitzpatrick, Symes, Veljanovski, Parker, Business and Corporations Law; LexisNexis 3rd edition
2017
Graw, Parker, Whitford, Sangkuhl and Do, Understanding Business Law 7th ed LexisNexis
Butterworths, 2015.
Latimer, P, Australian Business Law CC, 2017 Edition.
Fisher S, Anderson C, Dickfos, Corporations Law - Butterworths Tutorial Series, 4th Edition
Butterworths, Sydney 2014
Ciro T, Symes C, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition 2013