LAW2001 - Corporate Law Assessment
- Subject Code :
LAW2001
- University :
Torrens University Exam Question Bank is not sponsored or endorsed by this college or university.
- Country :
Australia
- CASE STUDY 1
Charlotte, Harrold and Boris are the executive directors of Quick Products Pty Ltd. Charlotte is the Managing Director. Harrold is the Chief Financial Officer. Margaret and Kate are non- executive directors of the company.At the end-of-year Board meeting, the directors meet to approve the annual report for release to shareholders. Harrold presents the financial reports for the approval of the directors and the reports are examined by the directors.Margaret notices that there seems to be an error in the Balance Sheet. The 15-year mortgage is recorded as a Long-term liability. Margaret is aware that the mortgage is to be repaid on 30 September of the coming year and is therefore a Short-term liability. She raises the matter at the meeting, but Harrold advises that it is still a mortgage and is to be classified as Long-term. Margaret and the other directors accept Harrold’s explanation. They sign off on the report and it is released.Shareholders are misled by the error and pay high prices for the shares. When the mortgage is to be repaid on 30th September, the company has to borrow funds and enters into a further short-term loan. The company’s cash flow falls. It is unable to pay its debts and creditors move to appoint a liquidator.Share prices drop and shareholders and creditors begin an action for breach of director’s duties.As a non-executive director, Margaret believes she should not be responsible for the breach of director’s duty. She seeks your advice.
REQUIRED:
Using the IRAC method to advise Margaret whether she and the other non-executive directors would escape responsibility for breach of duty.(50 Marks)
CASE STUDY 2
Alex and Pascal are the directors and shareholders of “New-Concepts Pty Ltd”. The company keeps its goods at a small warehouse from where it also distributes all its products. Two months ago, the company entered a contract to supply a large quantity of their product to a local manufacturer. Alex and Pascal were excited and ordered twelve additional shipments of the product from their supplier and have paid a large deposit. The shipping company which brings the goods into Australia is now waiting for payment.After the first delivery to the local manufacturer, a defect is discovered in the product and the government puts a banning order on the sale of items that contain their product as an ingredient. The local manufacturer cancels all further orders.The company now has no future revenue; there are stocks of goods which cannot be sold. The shipping company needs to be paid. There are various other bills to the tax office, employees and others who have provided services and have yet to be paid.
REQUIRED:
- Alex and Pascal are desperate, and do not know what to do. They approach you for advice on whether the company is insolvent. Use the IRAC legal problem-solving approach to explain the relevant provisions of the Corporations Act 2001(Cth) that would determine whether a company is insolvent and the circumstances under which a duty to prevent insolvent trading Provide relevant case law as authority for your answer.(30 Marks)
- Based on the provisions of the Corporations Act 2001 (Cth) identified in part (a), explain to the directors whether the company is likely to be found insolvent and whether they have breached the duty to avoid insolvent Are there any defenses available to them? (20 Marks)
