Business And Company Law - Question 1

1. Issue:

The issue in the case involving Pierre and Elliot primarily deals with whether Elliott would be able to bring any claim against Pierre and if there were any possible remedies.

Rule:

Contract law is primarily covered through precedents under the common law system. The doctrine of misrepresentation would be applicable in this regard, as decided in the case of Bisset v Wilkinson [1927].1

Application:

Based on the facts of case scenario, Pierre has been depicted as inherently unsure of engaging with Pierre to finalize the deal. However, owing to the years of guidance and the fanfare surrounding the deal, Pierre hesitantly agrees to sign the contract anyway. It is later discovered that the premises which Pierre sold to Elliott was not suitable for baking purposes and Elliott would not get a permit. Upon asking Pierre, Elliott is told that this is business and he should have taken a closer look at the contract. The doctrine of misrepresentation as established in Bisset v Wilkinson [1927] refers to the deliberate falsification of information prior to making the contract, which eventually induces the other party to make the contract. Possible remedies for contracts that are made by reliance on misrepresentation include rescinding the contract and claiming for compensatory damage.

Conclusion:

Elliott would be able to claim for misrepresentation as the contract was made without a full disclosure of relevant information. The remedies available would include rescission of the contract along with the possibility of compensatory damages that Pierre would have to pay to Elliott.

2. Issue:

The issue relates to whether Pierre is in violation of the Australian Consumer Law.

Rule:

ACL or Australian Consumer Law is covered under Schedule 2 of the Competition and Consumer Act 2010.

Application:

Considering the scope and extent of the provisions governing consumer law in Australia, Elliott would be deemed as a valid consumer as per s 3(1).2 Furthermore, s20-22A prohibits any seller or agent of a seller to engage in unconscionable conduct when dealing with consumers in the course of trade or commerce.3 Based on the facts presented, section 18 and 29 of the ACL would be applicable, which relates to contractual misrepresentations.4 Pierre essentially engaged in misleading and deceptive conduct when making the sale to Elliott as he did not mention that the premises did not have a baking permit and could not be used for commercial purposes. ACL prohibits false claims and statements and includes a number of remedial measures for the affected parties, which in this case would be Elliot.

Conclusion:

Pierre was in violation of the Australian Consumer Law as he had engaged in contractual misrepresentation and unconscionable conduct when making the deal with Elliott.

3. Issue:

The issue relates to whether any possible remedies would be available to Elliott if it is assumed that Pierre has contravened the provisions of the Australian Consumer Law.

Rule:

The Australian Consumer Law includes a number of guarantees, failing which consumers are liable to reject the goods or the contract through notification and ask for a refund. S259-263 of the ACL includes different provisions where the consumers can reject, return or ask for compensation based on the gravity of the damage.

Application:

The failure to say or do something that would ensure disclosure to the consumer and prevent him or her from making the purchase is typically considered as misleading conduct in cases involving the ACL. It is covered under s29, where the key prohibition relates to preventing false and misleading statements and representations to the consumer.5

Considering the specifications of the case scenario, Chapter 5 of the ACL would be applicable for Elliott, which includes the host of remedies comprised of a repair, replacement or refund.6 The occurrence of consequential loss would also impose the liability to pay compensatory damage in the cases involving negligent and deliberate misrepresentations.

Conclusion:

In conclusion, Elliott would be liable to receive compensatory damages along with the principal amount as the contract would be held fraudulent.

Business And Company Law - Question 2

1. Issue:

The issue relates to the aspect of insolvent trading and its liability on the directors along with whether the directors of Cape have any defences to the allegations of insolvent trading.

Rule:

Companies in Australia are governed by the Corporations Act 2001. Section 588 of the statute contains the necessary provisions relating to insolvent trading.

Application:

Insolvent trading is prohibited within Australia as enforced within the provisions of the Corporations Act. Section 588G of the statute puts forward that if a company becomes insolvent and the directors allows the entity to incur new debts or in other words engage in insolvent trading, the director’s personal assets could be relied upon to meet the new debts.7 While not specific definition of insolvent is present within the statute, s95A states that any entity that is able to pay its debts as and when they become due and payable would be deemed as solvent.8 Considering Cape’s inability to pay its employees and one of its suppliers, the entity would be considered as insolvent. However, it would be important to discuss the various defences that would be available to Philip and Cathy. Section 588H of the statute contains four defences that directors can rely on while engaging in insolvent trading comprised of having reasonable grounds to expect solvency, reasonable reliance on information, non participation in management and taking of steps to prevent the debt. However, none of the defences would be applicable to Cape since the financial problems of the company were hidden from the other directors. The judgement passed in Hall v Poolman [2007] is relevant in this regards, where the liability for insolvent trading and how it was imposed onto the directors was expertly examined.9

The keu prerogative was that the directors entailed a duty to prevent insolvent trading and had to take all the steps as reasonably could be taken.

Conclusion:

In conclusion, it could be inferred that Philip and his Cathy would be liable for engaging in insolvent trading and the no defences would be applicable since none of them had taken reasonable steps to prevent insolvent trading.

2. Issue:

The issue relates to the directors duty of care and the liabilities for the directors and the officers of Cape for breaching the duty of care and any other duties.

Rule:

The duties of directors are contained in s180-183 of the Corporations Act 2001. Subsequently, a number of other provisions contain other duties and liabilities of the directors as well along with the different lines of thoughts put forward by different precedents.

Application:

The duty of the director to act with care and diligence is covered in s180 of the Corporations Act 2001. It essentially outlines how the decisions and the actions of the director must be reasonable.10 The recent judgement passed in the case of ASIC v Healey [2011] is relevant in this regard, where the duty of care for directors was clearly highlighted.11 Furthermore, s181 requires the directors to act in good faith, while s182 prevents the improper use of position.12 Another major liability for the director is that he or she must always use information gained through the position of the director in a proper manner as enforced in s183 of the statute. Furthermore, according to s344, directors must always ensure proper financial records.13 Section 191 also states that directors must disclose the matters involving personal interests to the other directors.14

Based on the provisions discussed, it could certainly be inferred that Philip and Kathy along with the officers had certainly breached their duty of care along with a number of other duties and liabilities. The personal interests of receiving the donation and not disclosing the information regarding the poor financial position of the company was a direct violation of the provisions of the Corporations Act 2001. Furthermore, Philip also engaged in insolvent trading through a falsely obtained report, which is another contravention to the statute. The consequences for breaching the contract could include criminal sanctions in severe cases, but typically include civil sanctions such as substantial fines, disqualifications and orders to pay compensatory damages.

Conclusion:

In conclusion, it could be stated that Philip and Kathy were in violation of the duty of care and could be liable to pay a fine along with disqualification for being in contravention to the provisions of the Corporations Act.

Business And Company Law - Question 3

Issue:

The issue in the final case scenario relates to the type of company structure that would be the most suitable for his business along with whether there was any problem that he was a citizen of Brazil.

Rule:

Section 112 of the Corporations Act 2001 contains the different types of companies. The role of foreign directors in Australian companies is governed by the provisions contained in Section 201 of the statute.

Application:

The Corporations Act 2001 includes a number of different structures for companies that could be set up in Australia. While broadly the structures can be classified as private proprietary companies or public companies, the statute breaks it down into six categories. Section 112 mentions that proprietary companies include companies that are limited by shares or those that are unlimited with share capital. Public companies are broken down into limited by share or guarantee, unlimited with share capital and no liability companies.15 ‘

Considering the nature of Jeff’s business, it would be best suited that he initiates his venture using the Pty Ltd company structure. The most prominent advantage would be that of limited liability since the company would be deemed as an artificial legal person. It would also entail a certain degree of secrecy, as small Pty Ltd. companies are not mandated to furnish their accounts and working operatives to the ASIC.16 Additionally, the tax rate would also be considerably reduced as compared to other company structures. A small Pty Ltd. company is taxed anywhere from 27.5% to 30% within Australia.

Moving on to Jeff’s position as a director of an Australian company as a Brazilian citizen, there would be certain guidelines that would have to be followed. While foreign directors are allows within companies registered in Australia, it is important to note that a foreign national cannot be a sole director of an Australian company. Section 201A of the Corporations Act 2001 mandates 1 ordinary resident of Australia as a director within proprietary companies. Similarly, a minimum of 2 ordinary residents of Australia must be present as directors within Australian companies.17

Conclusion:

In conclusion, it could be stated that the most suitable structure for Jeff’s business would be a Pty Ltd. company that operates as a small business. Considering his foreign nationality, he could not run the company as the sole director and would require an Australian national to taken on the responsibilities of directorship along with him.

References for Business And Company Law

Statues

ACL, Chapter 5

ACL, s18, s29

ACL, s20-22A

ACL, s29

ACL, s3 (1)

Corporations Act 2001, s112

Corporations Act 2001, s191

Corporations Act 2001, s201A

Corporations Act 2001, s344

Corporations Act 2001, s588G

Corporations Act 2001, s95A

Case Laws

215 FLR 243; 65 ACSR

AC 177

FCA 717

Journals

Balogh A, 'The Development And Application Of The Directorss Duty Of Care And Diligence Rule In Australia' [2012] SSRN Electronic Journal

Potter B and others, 'Keeping It Private: Financial Reporting By Large Proprietary Companies In Australia' (2019) 59 Accounting & Finance

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Business Law Assignment Help

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