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BUSL251 Business And Corporation Law
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BUSL251 Business And Corporation Law
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Course Code: BUSL251
University: Macquarie University
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Country: Australia
Question:
A person who:1) Is appointed to the position of a director; or 2) Is appointed to the position of an alternate director and isacting in that capacity b) Unless the contrary intention appears, a person who is not validly appointed is a director if1) They act in the position of a director (‘de facto director’) or
2) The directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes. (‘shadow director’)Who is a director? Who is a director? Types of directors
Directors owe their fiduciary duties to the company.• Breach of fiduciary duty is enforced by company.• If the company is in liquidation, it will be the liquidator who has power to bring actions on behalf of the company.• ASIC, on the other hand, enforces the statutory duties 16 Directors’ Fiduciary Duties• Where there is a breach of the fiduciary (general law) duties the company seeks a remedy (an order compensating the company for any loss sustained)• Note that where there is a breach of the statutory duties ASIC will seek a penalty (punishment)
When a company is solvent the directors should be aware of the shareholders interests ?Parke v Daily News
• When a company is insolvent the directors should be aware of the creditors interests Directors fiduciary duties require them to act in the company interests at all times• Furs v Tomkies – it will be a breach of duty where directors conduct secret negotiations to the company’s detriment• Where opportunities arise in the normal course of directors carrying out their role (corporate opportunity) they should not seek to benefit personally, or take the matter further, unless they have disclosed relevant matters to the board• Disclosure is essential – Qld Mines v Hudson; and see s 191
Answer:
The following report analyzes the case of insolvent trading. Recently an article was published in the newspaper which provided information about insolvent trading practices adopted by Adriano Zumbo since 2017 (Han, 2018). Insolvent trading is an unlawful offence and it may result in directors becoming personally liable for the dents of a company.
Analysis
Insolvent trading is considered to be unlawful in the Australian Law under Corporations Act 2001 section 588G.In the recently published newspaper reports it was highlighted that three businesses run by Zumbo in Australia, including 611 Pty Ltd, I’m So Fancy Pty Ltd and Mel611 Pty Ltd, entered into voluntary administration at the beginning of August 2018and continued to trade.
There were no releases from the side of the company justifying the reasons for entering into voluntary administration. Later, it was revealed that the company had an outstanding debt of approximately $10 million and was still trading in the market. Further, it was also mentioned in the reports that the business did not have sufficient business working capital, since the year 2016 and was not able to meet even the short term business obligations. This is a lawful offence under the Corporation Act 588G. According to this Act the companies and the directors of the company were banned from further trading as they will further incur debts for the company (Powell, 2018).
It is the duty of the directors to prevent the insolvent trading by the company. If the director of the company fails to fulfill his duties after being aware of the factor that there are grounds of predicting insolvency, the penalties ,may range up to $200,000. If the dishonest factors are associated with the insolvent trading of the company, the directors may have to pay the penalties as high as $220,000 and may even go to jail. Engagement of the directors in such a transaction of insolvent trading attracts both criminal as well as civil liabilities. The civil liabilities of this act are covered under section 1317E, where if the court declares the director guilty, the ASIC can apply for penalties as per section 206C or can even ban the director from holding his position back for a given tenure of time (Australian Institute of Company Directors, 2018).
In case of Adriano Zumbo, the director of the company as well as the company can be banned from further trading or incurring further debt. Apart from this, if they are found to be guilty or being engaged in any dishonesty practices, the penalties can be raised and the director may have to spend time in the jail. However, the director of the company is hopeful of settling all the debts in a time period of a month or two (Commonwealth Consolidated Acts, 2018).
Apart from this, the director can also be charged of breaching his duties as a director where he was required to manage his company and prevent it from getting insolvent in spite of getting warnings from various financial agencies. In this case, he is liable to be charged guilty under civil penalty provision 1317E. This subsection considers all those people guilty who are either officers or directors of the company at the tie when it is detected. ASIC can further disqualify the director from managing the company ever or may ask the director to pay the sum of money to the creditors equivalent to the losses incurred by them (Australian Government, 2013).
The director of the company could have sought the professional advice in such case where they must have been advised to stop functioning in order to prevent the company from incurring further debts. However, the company adopted the correct measure of getting into voluntary administration and restructuring its affairs. The company could also have asked for financial support from a few external parties. The best measure for the company would have been to stop trading while insolvent, which it did not adopt (Australian Institute of Company Directors, 2018).
The directors of the companies in Australia must be aware of ASIC’s national insolvency trading program (NITP) which allows the companies to deal with the possible insolvent trading before it actually occurs. This approach involves the review of the companies to ensure the compliance by the directors of insolvent trading and their duty of care under the section 180(1) (Australian Institute of Company Directors, 2018).
Conclusion
The report highlights a case of insolvent trading where the director of the company continues to trade even after the company became insolvent and was under debt of $10 million. This act can be listed as the breach of the Corporation Act section 588G under Australian Law. The director also breached his duties as a director.
References
Australian Government, 2013. Corporations Act 2001.
Australian Institute of Company Directors, 2018. Insolvent trading:Duties of directors. Australian Institute of Company Directors.
Commonwealth Consolidated Acts, 2018. Corporations Act 2001 – Sect 588G.
Han, M., 2018. Adriano Zumbo may have traded while insolvent, say administrators.
Powell, D., 2018. Administrators report Adriano Zumbo’s business “may have been insolvent” while still trading.
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