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Corporation Law - Answer to Week 6

Situation 1

Issue: In this particular scenario, Polyester transferred an amount of $65000 to her own account from the company's account in order to settle her personal debts. She spends the entire transferred amount to settle her personal debts.

Rule: Now, in this situation as per the Corporation Act 2001, the company’s integration considers it as a different legal unit, which is completely different from its directors and shareholders. Thus, it can be stated that under no circumstances, a company is liable for clearing the personal debts of a director and the director is not liable for the company’s actions unless it is mistake form either of the sides.

Application: Following the Corporation Act 2001 rule, it can be declared that Polyester, who is the director of the company, has breached the Corporation Act. She transferred an amount of $65000 to her personal account from the company's account in order to settle hr personal debts. Therefore, she has breached the Corporation Act 2001, as it is illegal to use the company's funds to settle personal liabilities (Attenborough, 2020).

Conclusion: In the end, it can be concluded that the director or any stakeholder of the company cannot settle any personal debt by using the company’s funds (Bird and Gilligan, 2016).

Situation 2

Issue: This second situation shows the transfer of Style Pty Ltd’s assets to a new proprietary company because of the severe financial crisis that took place in Style Pty Ltd. Polyester’s intention was to minimize the company’s financial risk. This was the reason as to why Polyester transferred the Style Pty Ltd’s assets to a new proprietary company.

Rule: Now, in this situation as per section-496 of the Corporation Act 2001, if during the time of insolvency or financial crisis, the liquidator takes the decision of transferring the assets and liabilities of the company. Then, it is necessary for the liquidator to provide a statement of the liabilities and assets to all the creditors and the shareholders of the company in order to draw their attention (Chia and Ramsay, 2016).

Application: In this particular situation, Polyester who is the director of the company Style Pty Ltd did not provide any statement of the liabilities or assets to the creditors or shareholders before the actual transfer of the company’s assets to a new proprietary company. However, at the same time, it is to be kept in mind that the new company was set up in order to support the existing company’s financial position and the assets were transferred for the very same reason. It was important on Polyester's part to discuss such a major decision of transferring the assets to a new proprietary company with the creditors and shareholders. Since, in the given situation, no statement of the assets was provided to the creditors and shareholders' before the transfer of assets, so it was a breach of section-496 of the Corporation Act 2001 by Polyester.

Conclusion: In the end, it can be concluded that Polyester should have consulted with the creditors and the shareholders before taking such a major decision of transferring the assets to a new company for the sake of minimizing the financial risk (Choi et al., 2019).

Situation 3

Issue: In the third situation, Polyester the director of the company allowed credit to a trade debtor by exceeding the company's credit limit of $25000, and the trade debtor had a bad history of bad debts as well. Here, the trade debtor failed to pay the credit amount of $45000, and it happened because of a major wrong decision taken by Polyester.

Rule: Now, in this situation, business judgment rule is applicable as it shows that if the director of the company takes the wrong decision, then it affects the outcome of activities of the company. Thus, it can be stated that Polyester, the director of the company, has violated the duty of care towards the company.

Application: In this given situation, Polyester who is the director of the company has violated the duty of care towards Style Pty Ltd by allowing an exceeding credit amount to a trade debtor who has a history of bad debts. The maximum credit amount that can be provided to a trade debtor was $25000 according to the company’s policy, but Polyester allowed a credit of $45000, which the trade debtor failed to pay and resulted in the company to face a massive loss. Thus, it can be stated that it was a violation of the duty of care by Polyester towards the company Style Pty Ltd as she gave an exceeding credit to a trade debtor who has a history of bad debts, which is a massive risk factor (Eastwell, Dale and Dunstone, 2017).

Conclusion: In the end, it can be concluded that it is very important to find a trade debtor who does not have any history of bad debts and after proper verification of the profile, the credit amount can be provided to a trade debtor.

Corporation Law - Answer to Week 7

In the given scenario, Kelvin has asked for information and recommendations that can help him while purchasing a company’s shares. Initially, Kelvin needs to understand the difference between members and shareholders. Shareholders are not permanent members because a shareholder just holds some shares in the company through some mode of transfer. If the mode of transfer is registered, then the shareholder is counted as a member. A member of the company, on the other hand, is one who is registered as a company’s member. The member of the company possesses the authorization of the MOA (Memorandum of Association) signing. A shareholder can be a shareholding member of a company if the shares are allotted or registered to him/her (Hargovan, 2017).

The most important things required to become a member of the company are an agreement and MOA signing as well as pledging in front of the board members in order to become a member of the company. The membership of a person in a company is established after the agreement is written, and the name is registered in the company's register of members. To form a company, it takes a maximum of 15 members and a minimum of 2 members.

Cessation of a member of the company means the member’s termination from the company by removing the name of the member from the company’s register of members. The right process of cessation is based on the situation between the member and the company. It is also important that Kelvin understands that the company under circumstances like forfeiture, transfer, transmission, etc. can cease a membership (Holderness, 2018).

Corporation Law - Answer to Week 8

In every company, the director's duty is almost the same. It mainly depends on the director's official title and the role assigned. As per section-180(1), a director of a company is required to exercise the powers assigned to them with care and diligence or be released from his duties. The director is responsible for the company’s circumstances. This section of 180(1) is applicable for all the directors of Borisda Builder Pty Ltd, who has exercised their powers in a wrong way. Here, it reflects that a director must use the given powers in a genuine way and for the top interest of the company so that the company does not face crisis financially. The negligence from the members of the board of the directors in this given scenario is that despite knowing the company's financial difficulty, the directors continued with the trade without fearing the consequences (Kolev, Wiseman and Gomez-Mejia, 2017).

Corporation Law - Answer to Week 9

In any company, there exist two categories of shareholders. Shareholders can be, referred to as associates of a business. Between the two existing categories of shareholders, the biggest quantity of share is, possessed by one, and they grab a leading spot in the business. The minor and smaller shareholders encompass relatively fewer quantities of shareholding in the business. Hence, they do not get to have any command over the company or are not able to implement command over the company. The minor or diminutive shareholders possess fewer outstanding shares that, in the business are, less than 50%. According to law, if any executive, administrator or chief investor attempts to breach the minor or diminutive shareholder's right, then the minority shareholder has the right to take action against the individual. Therefore, Joe should give a notice to every minor associate ahead of buying out the less significant assets. Outstanding shares can be, defined as a company's stock currently belonging with every single one of its shareholders, counting share wedges, belonging with institutional investors and limited shares possessed by the company's insiders and officers.

Nevertheless, they have some officially authorized rights, so Joe needs to acquire the authorization of the smaller associates ahead of buying the shares. In privately held companies, the stock is not instantly valued and traded on a community swap. Without state commandment, that endow smaller shareholders in close businesses certain rights and protections, those smaller shareholders are particularly vulnerable to the oppressive exploitation of the shareholders who are in control, and the minor shareholders have the slight capability to trade their interests hastily or shield their outlay. When a company, acting through its shareholders, directors or officers infringes the rights of a minor shareholder, that shareholder is capable of taking lawful action against the company.

Therefore, it is suggested to Joe to tag along with the lawful method of buying the shares in order to uphold the concern of minor shareholders and to sustain the good image of the firm, as it is one of the most significant aspects of a firm. This acts as a consoling aspect for consumers and guarantees the consumers that they are buying from the finest. In any proprietary corporation, the shareholders possess some rights within the business, for instance, the right of taking part in a ballot, information assessment regarding the corporation, vote for chief business events like the selection of director, endorsement of merger resolution, and trade of chief possessions. Therefore, it is significant at first to give notice; then following the approval of the conditions by the minor holders, Joe can carry on further. However, if he breaches the rights of shareholders, subsequently he might come across trouble according to the law of the state (McCoy, Perrottet and Perrottet, 2019).

Corporation Law - Answer to Week 10

Flywell Ltd desires to ask the investors for funds. Thus, it has to tag along with the duty concerning fundraising underneath the Corporations Act. The initial responsibility illustrates that the rich investors must comprise of net assets of $ 2.5 million and annual earnings of $ 250,000. In contrast, an expert investor must be the individual or a unit, which /who has command over $ 10 million of gross assets. It is depended on the business and the type of investor they are willing to appeal for the outlay. With asset funds, an individual financier does not make resolutions regarding how the fund's resources should be, spent. They merely decide a fund depending on its objectives, threats, charges and other aspects. However, almost all business enterprise capitalists at least at a minimum ask for a place on the directors’ board.

Therefore, the companies should be ready to sacrifice some segment of both ownership and control of the business in exchange for financial support. According to sec-708 of Corporations act, there are diverse sorts of proffers of securities which does not necessitate any revelation. In regards to the sophisticated investors, the sum that can be, remunerated by the financier is the least amount of $500,000. Therefore, Flywell Ltd. can move toward sophisticated investors to empower its project, and that shall be more advantageous for the business. Small-scale handouts will not be able to raise several funds for the scheme since the investors encompass restricted outlay capability to put into the business for a certain phase. Therefore, it is, recommended to Flywell Ltd. to raise funds from investors who are sophisticated to meet up the expenditure perimeter for the venture.

Regarding the matter of diminutive scale assistances, individual offers are given to the financiers are 20 or less, and the funds are, raised in the substitution of securities. In this circumstance, the unit will not be able to rise further than $2 million in the phase of 12 months. Therefore, Flywell will not be able to raise more than $2 million in a 12-month phase if it tags along with the regulations of diminutive level offerings (Ramsay and Saunders, 2019). 

References for Corporation Law

Attenborough, D., 2020. Misreading the directors’ fiduciary duty of good faith. Journal of Corporate Law Studies20(1), pp.73-98.

Bird, H. and Gilligan, G., 2016. Deterring corporate wrongdoing: Penalties, financial services misconduct and the Corporations Act 2001 (Cth). Company and Securities Law Journal34(5), pp.332-359.

Chia, H. and Ramsay, I., 2016. An Analysis of Shareholder Resolutions Involving Australian Listed Companies from 2004 to 2013. Company and Securities Law Journal34(8), pp.618-624.

Choi, J., LeBlanc, L.J., Choi, S., Haghighi, B., Hoffman, E.A., O'Shaughnessy, P., Wenzel, S.E., Castro, M., Fain, S., Jarjour, N. and Schiebler, M.L., 2019. Differences in particle deposition between members of imaging-based asthma clusters. Journal of Aerosol Medicine and Pulmonary Drug Delivery32(4), pp.213-223.

Eastwell, M., Dale, J. and Dunstone, F., 2017. Crowd-sourced equity funding is coming to Australia. Governance Directions69(7), p.411.

Hargovan, A., 2017. Corporate law: Foreign directors of Australian companies put on notice: No leniency for ignorance of duties. Governance Directions69(1), p.37.

Holderness, C.G., 2018. Equity issuances and agency costs: The telling story of shareholder approval around the world. Journal of Financial Economics129(3), pp.415-439.

Kolev, K., Wiseman, R.M. and Gomez-Mejia, L.R., 2017. Do CEOs ever lose? Fairness perspective on the allocation of residuals between CEOs and shareholders. Journal of Management43(2), pp.610-637.

McCoy, N., Perrottet, G. and Perrottet, O., 2019. Safe harbour: legal update: Understanding the'better outcome test'in s 588GA of the corporations act. Australian Restructuring Insolvency & Turnaround Association Journal31(3), p.18.

Ramsay, I. and Saunders, B., 2019. An Analysis of the Enforcement of the Statutory Duty of Care by the Australian Securities and Investments Commission. Company and Securities Law Journal36(6), pp.497-521.

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

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