Answer to question 1: Issue:
In this case two issues have been cropped up:
Rules:
The present case deals with the function and role of the directors regarding the insolvency of a company. Directors are possessed a higher position in an Australian company and it certain duties have been imposed on them so that they can act on behalf of the company. According to the general provision of Corporation Act 2001, a director is required to act for the best interest of the company and for the interest of the shareholders. According to the provision of section 180 of the Act, a director should act with due care and diligence. Further, they have to take all the decisions so that it may not cause any detriment to the company.
All the important decisions of the company are taking by them and they are required to make reasonable decisions for that. It has been mentioned in section 95A of the Act that in case a company has no ability to meet the debts of the company, the company will be regarded as insolvent company and the directors of the company are required to make all the possible investigation regarding the financial statement of the company. According to section 588G of the Act, the director of a company should not take any decision that can make the company insolvent. Further, the director of the company is restricted to make any misleading financial statement. In case of any failure regarding the provisions of those sections, the alleged director should have to face civil penalties mentioned under section 1317E of the Act 2001.
Application:
According to the brief of the case, it is a clarified fact that the characters of the case are active member of the company and therefore, they are required to take all the prudent decisions for securing the interest of the company. In addition, they have to accustom with all the financial statement and debts of the company. However, it has been observed in this case that certain loopholes have been observed regarding the balance sheet of the company and the directors of the company had failed to make proper investigation regarding the financial statements. Therefore, the company had to incur huge losses due to the careless acts of the active members of the company. Further, it has been observed that because of their wrong acts and decisions, the company has become insolvent. Therefore, it has been established that Liam and Peta had failed to act in accordance with the principles mentioned under section 588G of the company.
Conclusion:
To conclude, it can be stated that Liam and Peta has failed to act prudently and failed to collect internal information of the company. Therefore, they held liable under the Corporation Act 2001. According to the provisions of the Act, civil penalties will be imposed on them.
Answer to question 2: Issue:
Considering the case, two issues have been come into the light:
Rules:
The case has two phrases; first deals with the action taken against a company by other company and the second deal with the action taken against the director of a company by other directors. The first issue of the case is based on the case principle mentioned in Salomon v Salomon. In this case, it has been proved that no company will be held liable for the personal debts of the directors and the principle of corporate veil has been established in this case. According to the general principle of Company law, a company is a separate legal entity and it could not held liable for the any liabilities of the directors or the shareholders. No person has any right to make any claim against any company for the wrongful acts of the directors.
According to the second issue, it can be stated that a director of a company has certain liabilities and they are bound to act with all the provisions. A director is required to act in good faith and with due care and diligence. Further, according to the provision of section 182 of the Act, they are restricted to use their position in a wrong and unethical way. Further, according to section 183 of the Act, the directors should not share the confidential information with any third parties. They should always think about the best interest of the company.
Application:
In the first Para of the case, it has been observed that a company has been incorporated by Alexandra named Banger. However, Alexandra was one of the directors of another company named Cloud Tech. certain disputes had been cropped up between them and he has established this new company. According to the principle of Salomon v Salomon, it can be stated that the directors of the Cloud Tech against the newly incorporated company could take no action, as Banger is a separate legal entity.
However, in the second issue it has been observed that Alexandra, after incorporated the new company used all the information of the previous company and used the client list of the previous company. According to section 182, he is restricted to use his position in unethical way. Further, it has been mentioned under section 183 of the Act, any director should transfer no information to any third party. However, it has been observed that he had failed to meet any requirements mentioned under the Act and therefore, the directors of the Cloud Tech could take action against Alexandra.
Conclusion:
Therefore, the action provision will not apply against the newly corporate company. However, action can be taken against Alexandra under the Corporation Act 2001.
Reference:
Salomon v Salomon [1897] AC 22
Corporation Act 2001 (Cth)
ASIC v Adler [2002] NSWSC 171
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