Overview of Gerry Bell and his wife’s insolvency and liability under s588G
1.
Florentia is the managing director of the Company XO Pty Ltd and a director of the company AMP Pty Ltd. She proposes a deal between the two companies and thus suggests that she get a small compensation for transactions between the companies. Thus the issue here is to determine if Florentia is in breach of her statutory duties as the director of the two companies under the Corporations Act, 2001.
Companies that function within the jurisdiction of the Australian commonwealth are governed and regulated by the provisions of the Corporations Act, 2001. Under the act the directors have certain fiduciary duties that they must observe due to the nature of their position at the top of the organizational structure. As per section 181 of the Corporations Act, 2001 the directors of a company must act in good faith when acting on behalf of the company and thus must consider the best interests of the company. This means that the directors of a company must not act on conflicts of interest and must disclose the same especially in case of financial self interests. As per Section 183 of the Corporations Act, 2001 the directors of a company have a fiduciary duty to ensure that they do not use any information that they have gained by virtue of their position and must not gain an unfair advantage for themselves or for any other third party. Doing so would thus be a breach of their statutory duties under the Corporations Act, 2001.
Under the facts and circumstances stated here we see that Florentia is a director in both the companies to the transaction. This means that she stands to gain from both companies in relation to this transaction. Thus the same is a conspicuous conflict of interest. Furthermore, she has used the same information she had gained by virtue of her position AMP as a business opportunity that warrants compensation and she is thus monetizing the information that she had gained by virtue of her position in AMP and thus is in breach of her statutory duties under the Corporations Act, 2001. This follows the provision in Section 183 of the act. Additionally, when acting in self interest they were acting on a conflict of interest and was thus in breach of her statutory duties under Section 181 of the Corporations Act, 2001. This is because acting on a conflict of interest, especially financial self interest, is a mala fide act and thus is not an act in good faith and in the best interests of the company.
Assessing Air Con Ltd’s prospectus under Chapter 6D of the Corporations Act, 2001
Conclusion
Thus in demanding compensation and monetizing information she had gained by virtue of her position in the companies, Florentia, was in breach of her duties under Section 181 and Section 183 of the Corporations Act, 2001. Thus Florentia was in conspicuous breach of her duties as prescribed under the provisions of the act. Thus XO Pty Ltd should pursue Florentia under the prescriptions of Section 184 of the Corporations Act, 2001 which would attribute criminal liabilities on her due to her actions.
2.
In the given Scenario Gerry Bell and his wife own a company that is worth $300,000. They incur various losses in the business due to the weather of the area and are in debt. The issue here is to determine if the directors of the company are liable for insolvent trading and thus if the company is insolvent.
Companies that function within the territorial jurisdiction of the Australian Commonwealth are governed and regulated by the provisions of the Corporations Act, 2001. Thus the sections of this act define if the company has observed all warranted legality or if it has neglected to do the same. As per the provisions of Section 588G of the Corporations Act, 2001 when a company is unable to meet its debt on any given day the company is deemed to be insolvent, In such a case the directors are excepted to cease all forms of trading and are thus expected not to transact on behalf of the company. A violation of this would be breach of their duties and thus it would be a civil penalty. If in such a case the directors acted dishonestly then it would amount to a criminal liability as prescribed by Section 588G of the Corporations Act, 2001.
Under the given set of facts and circumstances it must be noted that Gerry Bell was relying on the advice of his friends and his wife was relying on her husband’s business judgment. The company was unable to pay its debts and thus as prescribed by the provisions of Section 588G of the Corporations Act, 2001 it would be deemed insolvent. The directors, Gerry Bell and his wife, continued to act on behalf of the company and the company continued to undertake business transactions. Thus following the provisions of Section 588G of the Corporations Act, 2001 the directors of the company were in breach of their statutory duty to cease trading on behalf of the company. Thus in effect the directors of the company were liable for civil penalties.
Analyzing breach of statutory duties by Florentia as director of XO Pty Ltd and AMP Pty Ltd
However by virtue of the fact that they were honestly reliant on the advice gained from those they considered experts it can be noted that they were not acting dishonestly. Thus under Section 588G of the Corporations Act, 2001 their acts would not entitle them to criminal liabilities under the act. Thus Gerry Bell and his wife cannot be legally pursued under criminal charges they would however be liable to civil penalties as prescribed by the act.
Conclusion
Thus in the current scenario the company owned by Gerry Bell and his wife would be considered insolvent and the same would have to cease trading. Due to their continuing trade even after the insolvency of the company they would be liable to pay civil penalties as prescribed by the provisions of the act.
3.
In the given set of facts and circumstances the issue is to determine if Air Con Ltd was in breach of the provisions of Chapter 6D of the Corporations Act, 2001.
Corporations that exist within Australia are governed by the provisions of the Corporations Act, 2001. Chapter 6D of the Corporations Act, 2001 deals with fundraising and it defines and regulates the acts of companies and defines legal conduct in terms of fundraising. According to the Section 703 of Chapter 6D of the Corporations Act, 2001 a contract for the sale or issue of securities would be void if a party is made to waive compliance in relation to this chapter of the Corporations Act. As per Section 700 of Corporations Act, 2001 all material disclosures relating to the issue of these securities would have to be made in a disclosure document. Thus if the company refrains from disclosing material information it would be in breach of the provisions of Chapter 6D of the Corporations Act, 2001.
In the given set of facts and circumstances it can be determined that the exploding batteries, which were the product of the company, would be a material information to prospective and existing investors. Thus refraining from disclosing the same in a disclosure document would be warranted by the provisions of Chapter 6D of the Corporations Act, 2001 particularly the prescriptions of Section 700 of the act. Thus in not disclosing the same it would in effect be circumventing compliance with the provisions of Chapter 6D of the Corporations Act, 2001. Thus as per the provisions of Section 703 this would be a breach of the provisions of this chapter.
Conclusion
To conclude the acts of the company in relation to the fundraising provisions prescribed in Chapter 6D of the Corporations Act, 2001 would constitute a breach of statutory provisions.
1.
In the given set of facts and circumstances the issue is to determine if by paying additional dividend when the company’s financial position is unstable would be considered insolvent trading and if the directors of the same would face liabilities for such an act.
The Corporations Act, 2001 governs companies that function within the Australian commonwealth. According to Section 95A of the Corporations Act, 2001 when a company is unable to meet its debts at any given day it is considered insolvent. As per the provisions of Section 588G of the Corporations Act, 2001 the directors of a company have a duty to ensure that when a company is insolvent or nearing insolvency they cease trading on behalf of the company. Any trades undertaken after that would constitute insolvent trades and thus the same would be a breach of this section.
In the given set of facts and circumstances the directors of the company wished to continue with the payment of the declared position even though the financial position of the company was unstable. In such a case even if the total assets of the company reflects a positive balance, if the company is unable to meet its debts at any given day it would be considered insolvent. Thus in such a case the directors would be in breach of their duties under the provisions of Section 588G of the Corporations Act, 2001. Thus in such a case, if the directors of the company were in fact trading after the insolvency or at the brink of insolvency and were being dishonest about the same they would be liable to be pursued legally under criminal charges as prescribed by the provisions of Section 588G of the Corporations Act, 2001. Thus, the directors of the company would be criminally liable for their acts and thus would face legal action for the same.
Conclusion
To conclude, form the above analysis it can be inferred that the directors of the company would be criminally liable for insolvent trading as the same is prohibited under the provisions of the Corporations Act, 2001.
2.a.
In this given scenario the issues that have been identified are:
- What options are available to Garry White in dealing with the insolvency of his company?
- Whether the bank which has a security interest over the assets of the company can enforce or protect its interest subsequent to the company’s insolvency?
It has been provided in section 95A of the Corporations Act that a person can be called solvent if he can pay off all the debts when such debts become due or payable. It can also be stated in accordance with the provisions of this section that person who cannot pay off his debts when they become payable will be considered to be insolvent. In section 436A of the Corporations Act 2001 it has been provided that a company can appoint an administrator if it feels that the board of directors of the company thinks that company will become insolvent in future. It has been further provided in this section that the board of directors needs to pass a resolution of appointing the administrator by voting if the board thinks that the company is likely to become insolvent in the future. As provided in section 438A, it can be stated that an administrator has the power to investigate the affairs and the property of the business. An administrator also has the power to inspect the financial standings of the company. An administrator also has the power to form an opinion in relation to the following matters:
- Whether it would be in the best interest of the creditors to issue and execute a deed of company arrangement
- Whether it would be in the best interest of the creditors to end the process of administration
- Whether it would be in the best interest of the creditors to wind up the company.
It has been provided in section 446A that an administrator may act as the liquidator if the creditors of a company at a particular time resolve that the company be wound up. In case the administrator decides not to wind up the company; he will opt for the Deed of Company Arrangement upon approval by the directors of the company. This is known as DOCA. It is worth mentioning that the Deed of Company Arrangement sets out the modes of repayment t the creditors. However, it can be said that a deed of company arrangement does not affect the rights of the secured creditors unless the secured creditor votes for it during the time of approval of the DOCA according to provisions of section 441D of the Corporations Act 2001.
In the given set of circumstances, it has been provided that Garry White, the executive director of the company has been faced with the difficulty of paying off the debts of the company due to two years of poor trading. In this case, Gary has the power to appoint of an administrator if he feels the company is likely to become insolvent in the future as per the provisions of section 436A. This can be considered to be the most viable option. Appointing an administrator can be beneficial as the administrator will decide whether it is viable for the company to go into liquidation or if the company can survive y executing a deed of company arrangement. Executing a deed of company arrangement will lay down the provisions of repaying the debts of the company. However, the interest of he secured creditors will not be affected if they do not vote for approving the DOCA. Therefore, in this case the bank will have the right to recover the loan given to the company as the bank has a security interest over the assets of the company.
Conclusion
Thus in conclusion it can be said that the Mr. White can appoint a company administrator and the rights of the bank will not be affected
b.
In this given scenario the issue is to identify what options are available to Mr Li for the purpose of addressing the company’s insolvency.
It has been provided in section 95A of the Corporations Act that a person can be called solvent if he can pay off all the debts when such debts become due or payable. It can also be stated in accordance with the provisions of this section that person who cannot pay off his debts when they become payable will be considered to be insolvent. In section 436A of the Corporations Act 2001 it has been provided that a company can appoint an administrator if it feels that the board of directors of the company thinks that company will become insolvent in future.
By analyzing the given facts of the case, Mr Li can be suggested t appoint an administrator while addressing the company’s insolvency. A company administrator has the right to execute a Deed of company Arrangement (DOCA). Such lays down the ways to repay the debt to the creditors. However, it can be said that the deed of company arrangement does not affect the rights of the secured creditors unless the secured creditor votes for it during the time of approval of the DOCA according to provisions of section 441D of the Corporations Act 2001. Thus the bank will have the right to recover the loan given to the company as it is a secured creditor.
Conclusion
Thus, to conclude it can be said that Mr Li can appoint a company administrator and the rights of the bank will not be affected.
Corporations Act, 2001 (cth)
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