Case Study of Corporate Law

Topics: Corporation, Board of directors, Corporate governance Pages: 7 (2110 words) Published: August 8, 2013
(Case- study )| May 30
2013 |

Commercial applications of company law

CONTENTS

1. INTRODUCTION ................................................................................ 2

2. ISSUES ………………………….................................................... 2 3. ARGUMENTS OF THE DIRECTORS FOR THEIR DEFENCE.................... 2, 3

4. ARGUMENTS PUT BY ASIC AND THE COMPANY............................ 3,4

5. BREACH OF DUTIES.................................................................................. 5

6. CONCLUSION ..................................................................................... 5
7. REMEDIES ..............................................................................................6

8. REFERENCES .........................................................................................6

Introduction
This assignment related to the company Gemsales Pty Ltd, which is engaged in the business of importing and supplying jewellery as wholesalers to the local market. Andrew, Brian, Elizabeth, Diana and Colin were the directors of the company. The company decided that the market becoming more competitive so they need to expand its business. To achieve their target they obtained 4 million dollar loan from Friendly Bank Ltd. They spent all the money to increase their business. All the directors of the company not attended the meetings of the company. Brian and Andrew only participate in the meetings actively. At this time Brian contact with another retailer of jewellery company, victor who looking for reliable suppliers. But he would not deal Gemsales Pty Ltd because he didn’t like the managing director Andrew. Brian could not miss this great opportunity so he setup his own business and entered into a contract with victor without telling other directors of the company. All other members were unaware about this deal. After six months Brian resigned from director post because company become insolvent and could not pay the interest on its loan

Issues
* The main issue in this case was that the company became insolvent due to the expansion and was unable to pay the interest on its loans. * Another issue is Brian s breach of duties which he owned to Gemsales Pty Ltd. * There are many other issues in this case like; the other directors were unaware that Brian was a major shareholder in Trades Pty Ltd.at the time of purchase of the warehouse and showrooms. * Brian entered into a contract with victor to set up his new business.

* Brian approaches established customers of Gemsales Pty Ltd.to secure orders for his own business.

There are different arguments which is used by each of director in his or her favour under the common law as well as the corporation law and the counter arguments given by ASIC which is discussed below

Arguments of the directors for their defence
1) Colin can be argued that when the above decision taken he was absent from the meeting because he was suffered from illness due to serious accident. Section 588H Corporation act states that: if a person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some good reason, he or she did not take part at that time in the management of the company.

Colin would use the defence under S588h (4) and argued he was not responsible for the decision taken in his absence due to accident and has no liability for the debt was incurred. Although not relevant here there are cases used for a defence under this section: Metropolitan Fire Systems v Miller (1997) 23 ACSR 699

Tour print...

References: * Lynn A Stout, In Praise of Procedure: An Economic and Behavioural Defence of Smith v. Van Gorkom and the Business Judgement Rule, 96Nw.U.L.Rev 675 (2002)
* Daniel Fischel, the Business Judgement Rule and the Trans Union Case, 40 Bus.Law.1437, 1455 (1985).
* Pamela Hanrahan, Lan Ramsay, Geoff Stapledon,(2013), Commercial Application Of Company Law,14th Edition, Publisher McPherson’s Printing Group.
* Farrer J, “Corporate Governance, Business Judgement And The Professionalism Of Directors”(1993) 6 Corporate And Business Law Journal 1 At 21-22.
* Allen’s Arthur Robinson.2007, Directors Duties during Insolvency, 2nd Edition, and Thomson Law book Co., ISBN 9780455223490.
* Keavy A, 2006, Company Directors Responsibility to Creditors, Rutledge-Cavendish, ISBN 9781845680084.
* Baxt R, “Forgiving Directors For Insolvent Trading- Some Promising Signs”(February 2008) Company Director 48.
* Wong S, Forgiving A Director’s Breach Of Duty: A Review Of Recent Decisions (Centre For Corporate And Securities Regulation – Research Reports And Research Papers, 2009).
* Redmond Paul, University Of New South Wales Law Journal, “Directors Duties And Social Responsiveness” The Vol. 35, No 1, 2012:317-340.
* Reiter, Barry, J, 1948, “Directors Duties In Canada” 3rd Edition, Published By CCH Canadian Limited, Toronto, Ontario.
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