The Formulation of Corporation Law - Essay Example

? The Corporation Law Case Scenario The formulation of corporation law aimed at helping the directors understand as well as comply with their duties in an effort to prevent the insolvent trading (Bosen 2009, p.94). The law sets out key principles that require consideration in compliance of directors with their duties. According to the law, the step towards prevention of insolvency by a director depends on the size of the company, business complexity and expertise of the management staff. In the case scenario, Emma directly oversees the financial situation of the company and receives advice from the directors. In her role as accountant, Emma should ensure that the employees, management and the external advisers possess the required skills in managing the business finances. The case scenario indicates that the employee in charge of the accounts was unwell and this distorted all the financial records. Therefore, Emma could have ensured maintenance of all the financial records to enhance effective communication of any information like the Trouble Shooter’s dues and other affairs of the company. As a result, appropriate enquiries could have remained informed on the financial position of the company. As the financial director, Emma could have ensured that the financial records remained updated. The financial director must ensure information on the financial affairs of the company by presenting the current financial viability as well as the impacts related with any further debts (Bosen 2009, p.96). The directors failed in their duty of preventing insolvent trading. At the time of debts, the company was already insolvent, and Ying engaged in trade with OHS solutions. The law sets out the contravention levels where the directors pay a civil penalty for failing to prevent the incurred debts when aware of the insolvency of the company. Ying new that OHS was insolvent, and he proceeded to trade with the company. According to the Corporation Law, this presents a criminal offense when the directors failed in preventing the company from incurring such debts even after the awareness on the company’s insolvency. The consequences for breaching the duty involve the compensation order where the court may order the director to compensate the companies the equivalent of the suffered loss. This results due to failure of preventing the company from making losses while insolvent. The managing corporation of OHS Solutions could have been disqualified under the justification of sections s206C. In their prevention of breach of duty, directors must account for the fundamental principles. This ensures availability of information on financial affairs of the company and enhances immediate identification of the concerns on the financial position of the company. The company assesses realistically any financial difficulties experienced by the company (Davis 2002, p.403). Failure of the directors in monitoring the company’s solvency as well as the investigation of the financial difficulties and consideration of the timely advice results in breach of duty. The executive director; Satish and non-executive directors; Emma and Ying must have been involved in active monitoring of the OHS Solutions’ financial position. The directors must ensure proper financial records for the company as well as reasonable inquiries to enhance an understanding of the cash flow requirements and financial position of the company. The director must monitor the position of the company to ensure its capability in paying the debts. This requires that the director be remain informed on the ongoing basis that rely solely on the financial statements. In the quest for sufficient information of the company, the financial director must ensure they monitor the preparation of the financial records as well as reviewed the company’s capabilities in repayment of debts. The actual steps by the director must ensure proper information on the company’s situation. The director, as in case of Emma, may not be involved directly in overseeing the daily activities of the company. Instead, they must ensure appropriate systems remain in place to make adequate enquiries that ensure the financial position of the company remains informed (Davis 2002, p.405). Whenever the directors suspect reasonable grounds of insolvency, the financial director must obtain appropriate advice from competent persons. Such people provide guidelines on how to approach the financial situation. This will enable the company take reasonable steps in preventing incurring of any debts through active pursuit of advice. Nevertheless, the consideration of advice by the directors must take into consideration all the qualifications and reasonableness of the advisers. The Corporation Law emphasizes on the need to seek for the facts related to insolvency. The law also offers the liquidators or creditors legal rights of recovering compensation for the loss that results from insolvent trading. If Support Pty Ltd brought the proceedings against the director, of which Ying was among the directors, the other directors could have considered whether Ying complied with his duty as one of the non-executive director. Unless properly justified, the director must engage n active participation of the company’s management (Nevill 2005, p. 115). Case Scenario 2 According to the corporate act, the appointment of the director must follow certain MOI (Tillman 2009, p.73). The power of appointing the director requires that the person be a shareholder of the company. According to the law, a company must appoint director who must be a natural person. The liquidator of a company may bring proceedings against the director in order to recover compensation. Any claim against the director as outlined by the creditor must be determined in the court of law. The adoption of the constitution by a company may be either through registration or special resolution. In the current scenario, the company Fees ruthless Solicitors may adopt the replaceable rules within the corporation act instead of relying on their constitution. First, the constitution depends on the active majority while the replaceable rules contain the subject of the rule that do not apply to the proprietary company if the person is both a shareholder and director. This is the situation in the current case study where Mr. Shifty wants his family company become the director, and at the same time, he is a shareholder. Replaceable rule never apply to the proprietary company, and it can be maybe modified or displaced by the constitution of a company (Tillman 2009, p.74). According to the replaceable rule 194, if the director has a personal interest in company affairs or discloses the extent and nature of interest in meetings, the director must give the prior notice on his interest. If the person expresses his interest, the person may retain benefits under the position he is interested. In this case, Mr. Shifty expresses the interest of his family company taking the role of the director. Therefore, the company cannot prevent him just because of the expression of his interest. The corporations act offer provisions for each company having at least one secretary. Any person disqualified from management of a corporation may only be appointed under the approval of ASIC. On the other hand, the appointment of the company’s director must be in accordance to the listings within the replaceable rules. Replaceable rules within the corporation act are irreplaceable by constitution. The company should first confirm the appointment by resolution of the company’s director. The director appointed must not hold office past the following AGM. Any corporation whose shares lies under the hands of more than one director means that the shareholders become the directors or at least three directors, of which two should not have any affiliation with the corporation. Subject to unanimous agreement, directors manage and supervise the business and other affairs of the corporation. The appointment of directors is a procedural requirement under the Companies Act. Generally, the shareholders appoint the directors. However, this must correspond with the provisions of the corporation act (Davis 2002, p.407). The corporation act contains no prescriptions for the qualifications of the directors. However, there is a limit to the specified qualifications for the directors. Some provisions for the conditions for the choice of director include; the person must not be sentenced to imprisonment or fine imposed under central exercise act, industries and regulations act of 1951 and companies act of 1956. Therefore, Ms. Avoider automatically becomes disqualified from appointment as director due to her act of falsifying a company. The director must not be convicted or detained for any period as stipulated by conservation of foreign exchange act of 1974. The other condition for a person to be appointed as director is age; must be over 25 years of age but below 70 years. This disqualifies Mr. Marginal. However, according to act, the age limit may not apply the appointment is by special resolution through the company AGM. This means that he can still eve as the director in case of resolution. A person cannot be appointed as a director when with direct affiliations with another company that conduct its businesses with the intention of making a profit or a company where a person I appointed as the alternate director. Furthermore, a person may be illegible for appointment as a director when the company he heads fails, a case similar to that of Mr. Shifty whose company goes into liquidation. This automatically disqualifies any person from the company being appointed as the director (Nevill 2005, p. 117). Therefore, Mr. Marginal remains the only legible person for the post of the director but under the resolution through an AGM. References List Bose, I. (2009). Corporate Governance and Law-role of Independent Directors: Theory and Practice in India, Social Responsibility Journal 5(1), pp.94-111. Davis, R. (2002). The Bonding Effects of Directors' Statutory Wage Liability: An Interactive Corporate Governance Explanation, Law Policy 24(4), pp.403-32. Nevill, P. (2005). New Zealand: The Privy Council Is Replaced with a Domestic Supreme Court, International Journal of Constitutional Law 3(1), pp. 115-27. Tillman, R. (2009). Making the Rules and Breaking the Rules: The Political Origins of Corporate Corruption in the New Economy, Crime, Law and Social Change 51(1), pp.73-86. Read More