LAW205 Commercial and Corporate Law for Accountants Assignment Sample

• Subject Code : LAW205
• University : Charles Darwin University My Assignment Services is not sponsored or endorsed by this college or university.
• Subject Name : Commercial and Corporation Law

Commercial and Corporate Law for Accountants: A Case of NT Gold Resources Ltd

Introduction

In any organisations, two bodies take control. They include its owners and its board of directors, both operating in one corporation. NT Gold Resources Ltd also has the board of directors comprising of three members (Vincent, Steve, and Paul) and shareholders. The executive board is responsible for the overall's management; they are instrumental in making the company's corporate and financial decisions and ensuring that the company complies with its statutory obligations. The job of every individual director is to attend board discussions so that the board can take certain decisions and ensure that the responsibilities of the company are upheld. Even though NT Gold Resources Ltd has gone bankrupt due to directors’ failed decision to stop the operations, they have an arguable defence following the fact that there is a possibility of discovering a lucrative gold site.

Directors’ Breaching

The directors are essentially the company's employees, named to run their day-to-day operations by shareholders. From DeMott (2017) perspective, the underlying rule is that the managers must work together on the same board. Still, the board may delegate such responsibilities to particular directors or a board panel. For instance, NT Gold Resources Ltd has employed three executive directors with different duties. Vincent is the chief executive officer (CEO), Steve is the chairman of the organisation and Paul is the company secretary as well as a director. A director may also be an investor or a worker of the business (or both). If so, he may have additional privileges and responsibilities that go beyond those strictly related to his directorate office. The contrast between these various positions must be drawn, and you must 'wear an appropriate hat for the work.'

As such, being a director, certain things are essential to work along. Firstly, the director of an organisation should act within the competence of the Commission. He has to behave in compliance with the constitution of the company, and he should have to exercise his authority for its purposes (Trautman & Ormerod, 2016). The charter of the Company contains its articles of incorporation and its legislative laws and agreements. For instance, Vincent used the powers given as company CEO to continue insisting on continuity of the company. Since Steve and Paul do have less powers than Vincent, they decided to let the company continue working without stopping Vincent for the company was spending but earning nothing. Therefore, Vincent’s powers have resulted in the company going completely bankrupt, yet shareholders have gained nothing and made a considerable loss.

Secondly, the director should promote the company's success. A director is expected to do as he finds in good conscience, in the interest of its members as a whole, that it is most likely to encourage the company's success. Success would usually mean an improvement in valuation over a more extended period. Still, it is ultimately up to each director to determine if a company will take a particular line of action in accordance with the law. According to Kastiel & Nili (2017), when taking into consideration the most likely aspects of the company's achievement, the law states that a manager must take account of the potential impact on society of any judgment, in the concerns of company employees.

Thus, there is a need to encourage the company's business interactions with suppliers, customers, and others. Therefore, Vincent did not act in line with the interest of fellow directors (Steve and Paul) as well as shareholders. He also knew that the company was spending a lot on drilling but finding no valuable gold site but continued to use company funds more and more till they were depleted (Trautman & Ormerod, 2016). In as much as he depended on hope, the company made improvements in terms of revenue generation despite an earlier view by fellow directors to terminate the company. As a result, he breached the agreement according to the Australian Company’s Acton the director’s roles.

Lastly, a director should declare interest in a planned or ongoing transaction or commitments with the company. The existence and magnitude of the interest should be reported by the other directors if they are, explicitly or implicitly, involved in a transaction or framework with the business. From Kraakman (2017) perspective, a director has to do so before joining a proposed transaction. He must do so as soon as possible in the situation of an ongoing transaction. This responsibility is not infringed if it is not fair for his interest in the exchange to be perceived as likely to create a conflict of interest because he does not realise that he has a stake. Therefore, Vincent breached agreement as he did not declare his interests as to why he wanted the company to continue operating until their sources were all exploited.

In the event of financial problems for a corporation, administrators will pursue independent advice as quickly as possible if the bankruptcy law is to avoid unnecessary liability. The potential risks for a manager in this field are complicated and include the threat, for an extended period of 15 years, of being disqualified or engaged in promoting or managing a business (Akanmidu, 2017; Rehman, Mohamed, & Ayoup, 2019)). For a manager of an insolvent or insolvent corporation, some of the critical issues are as follows.

Firstly, there is an increase in the general duty to support the profitability of a company where the business is (or is about to be) insolvent. The general obligation is amended to ensure that the management behaves in the best interests of the shareholders of the company. Secondly, there is injurious trading. The director may, by the court of law, be required to contribute into the common pool of resources that are accessible to lenders of a company if he or she knows or must have concluded that a company has no fair chance of escaping insolvent payments.

Arguable Defence

A director should have independent decision practice. He has to exercise critical judgment and decide for himself. As such, this does not prohibit him from acting as stipulated in the company constitution or an arrangement entered into by the company. According to Langford (2016), a company director should practice due diligence and treatment. He must exercise the capacity and diligence of a reasonably diligent man with the general abilities, knowledge, and experience that a person who has the same duties, skills or experience, would possibly be expected to perform in relation to the business. Both analytical and subjective tests assess the desired norm (Nietsch, 2018). This means that Vincent has an arguable defence since he acted on independent decisions practice. Similarly, Steve and Paul served independently by choosing to let Vincent continue allowing drilling of mining sites. Detailed understanding and strengths of a director may not be adequate if somebody in his role could probably expect more.

Thirdly, a director should avoid conflicts of interest (situations of conflicts). He needs to prevent a problem where he has or can have an emotional investment that clashes or conflicts with the company’s interests. Therefore, this is particularly true with respect, regardless of whether the business might profit from the use of any land, knowledge, or opportunity. According to Whyte (2018), the duty is not infringed if he cannot fairly be perceived to contribute to a conflict of interest in the position in which he is.

In a careful review of the circumstances, the situation is pre-authorised to determine whether there would be a dispute or a possible conflict with the companies’ interests. In terms of involvement, Rehman, Mohamed, & Ayoup (2019) observed that the permission might be issued by special investor resolution or other directors. They, in some instances, do not share this dispute. Therefore, Vincent breached agreement because he did not review carefully the circumstances the company was in after spending $5million, yet no value was added.

However, there are no specific guidelines to determine which circumstances lead to conflicts of interest or not. Potential conflict-situational impact: multiple managers like in the case of Vincent, Steve, and Paul. Steve and Paul wanted the company terminated, but Vincent insisted that it should continue operating as it is his source of income, thus a conflict of interest among the directors (Koh, 2018; Rehman, Mohamed, & Ayoup, 2019)). Also, there are instances where directors have a personal interest like when he is a significant shareholder, business partner, client, supplier, or own land adjacent to the premises of the Company that may be influenced by the operations of the Company. There are Consultative positions which are critical such as an accountant or financial officer). For instance, Jack is NT Gold Resources Ltd.’s chief financial officer and in charge of providing funds for drilling, thus a critical partner to the company’s downfall. A fact that might make Vincent find it hard to defend himself in a court of law due to conflict of interest.

Chief Financial Officer’s Verdict

A Chief financial officer (CFO) is the senior management officer responsible for monitoring a company's financial activities. From Aguilera et al. (2015) perspective, the responsibilities of CFO include controlling cash flow and financial planning, assessing the financial strengths and limitations of the company, and recommending remedial action. According to Jesse (2018), the CFO is an accountant or manager because he/she is responsible for handling the finance and business divisions to making sure the financial statements of the business are reliable and timely. Many of them have a name for CMA. The CFO accounts to the CEO but has an essential role in the company's spending, the cash flows and the manner in which its profits and expenditures are handled.

The CFO should provide reliable information because the details it produces are the basis of many choices. The CFO shall adhere to the widely accepted accounting standards of the Securities and Exchange Commission (SEC) and other regulatory bodies and shall oversee the financial transactions of an entity (Ramsay, 2015). Besides, CFOs must comply with laws including requirements such as Sarbanes-Oxley, including prevention of fraud, and disclosure of financial information. To control taxation problems, state, national, and federal governments are hiring CFOs. In general, CFOs apply to accounting and other spending problems involving residents and appointed supervisors.

The CFO operates with other senior executives and plays an essential role in the continued success of a company, in particular in the future. For example, if a new campaign is initiated by the marketing department, the CFO can help to ensure that the campaign can be carried out or to contribute to the campaign funds available. The CFO assists the CEO to forecast and assess the cost-benefits for various programs and secure finance for them (Board, 2019). A CFO is the top position in the financial system and is often the third-highest role in a company in other sectors.

Westbrook (2015) and Ramsay (2015) claimed that a CFO might be made CEO or Chairman of a Company. Therefore, Jack will not be treated in the same standard as Vincent, Steve, and Paul. They are the top-ranking level, and Jack follows their commands and decisions. However, as the controller of finances in the organisation, he will be judged according to his actions and depending on the interests held. He should have also raised concern about the money expenditure before it was fully depleted.

Conclusion

In summary, a director does not need to be dishonest to be responsible for incorrect trade. If potential problems are found, he cannot avoid accountability by the resignation from the business. As such, this is an especially thorny environment for directors that should always be seeking professional advice. A failure to perform a general obligation typically gives the company various possible remedies, such as an injunction, compensation, or liability. The risk of a criminal prosecution is also levied by a failure to disclose involvement in an ongoing agreement or contract with the client. Vincent, Steve, and Paul have an arguable defence following the fact that they had an idea and maybe in future, they could have found a lucrative site that could add value to the company.

References

Aguilera, RV, Desender, K, Bednar, MK & Lee, JH 2015, ‘Connecting the dots: Bringing external corporate governance into the corporate governance puzzle’, The Academy of Management Annals, vol. 9, no. 1, pp. 483-573.

Akanmidu, O 2017, The deterrence theory: A case for enhanced enforcement of directors' duties.

Board, CIT 2019, Annual report and accounts 2018/19.

DeMott, DA 2017, ‘Corporate officers as agents’, Wash. & Lee L. Rev., vol. 74, p. 847.

Jesse, N 2018, ‘Organizational evolution-how digital disruption enforces organizational agility’, IFAC-PapersOnLine, 51(30), pp.486-491.

Kastiel, K & Nili, Y 2017, ‘Captured boards: The rise of super directors and the case for a board suite’, Wis. L. REv., p. 19.

Koh, AK 2018, ‘(Non‐) Enforcement of directors’ duties in corporate groups: Goh Chan Peng v Beyonics Technology Ltd’, The Modern Law Review, vol. 81, no. 4, pp. 673-688.

Kraakman, R 2017, The anatomy of corporate law: A comparative and functional approach. Oxford University Press, South Melbourne.

Langford, RT 2016, ‘Corporate culpability, stepping stones and mariner-contention surrounding directors' duties where the company breaches the law’, Stepping Stones and Mariner-Contention Surrounding Directors' Duties Where the Company Breaches the Law (February 2, 2016), p. 34.

Nietsch, M 2018, ‘Corporate illegal conduct and directors’ liability: an approach to personal accountability for violations of corporate legal compliance’, Journal of Corporate Law Studies, vol. 18, no. 1, pp. 151-184.

Ramsay, I 2015, ‘Increased corporate governance powers of shareholders and regulators and the role of the corporate regulator in enforcing duties owed by corporate directors and managers’, Eur. Bus. L. Rev., vol. 26, p. 49.

Rehman, SU, Mohamed, R & Ayoup, H 2019, ‘The mediating role of organizational capabilities between organizational performance and its determinants’, Journal of Global Entrepreneurship Research, vol. 9, no. 1, p. 30.

Trautman, LJ & Ormerod, PC 2016, ‘Corporate directors' and officers' cybersecurity standard of care: the yahoo data breach’, Am. UL Rev., vol. 66, p. 1231.

Westbrook, AD 2015, ‘Does banking law have something to teach corporations law about directors' duties’, Washburn LJ, vol. 55, p. 397.

Whyte, D 2018, ‘The autonomous corporation: The acceptable mask of capitalism’, King's Law Journal, vol. 29, no. 1, pp. 88-110.

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