Law: Corporations Act 2001 - Essay Example

Law Table of Contents Table of Contents 2 Identification of the Area of the Law 3 2. Explanation of the Area of the Law 3 3. Use of Case and Theory 5 4. Conclusion 8 5. References 9 6. Bibliography 10 1. Identification of the Area of the Law The area of law to which the above case belongs is Corporations Act 2001. 2. Explanation of the Area of the Law Under section 428, Corporations Act 2001 states that,  (1) On appointing a receiver of property, corporations must mention both in every public document and its negotiable instruments as well that the receiver has been appointed and it should be mentioned after the corporation’s name. The statement has to be in the form that either a receiver or a manager has been appointed (according to the requirements). The receiver of the property can be appointed either inside or outside this jurisdiction or even can be outside of Australia.    (2)  The corporation is required to mention in every public document along with each of the negotiable instruments that a controller has been appointed (if appointed) and is acting and it should be mentioned after the name of the corporation.   (3) On the basis of subsection (1) or (2), an offence is considered a strict liability1. The members can hold shares which should not exceed 50 for complying with the Corporations Act 2001. A Proprietary limited Company is not allowed to raise the funds under the Corporations Act 2001 from general public2. Individuals who are appointed as the directors of the companies should comply with the Act. The directors are required to: Act for a proper purpose and in a good faith for the best interest of the Company. Under the Corporation Act (Section 181), a civil obligation is imposed on the secretaries, directors along with officers of the corporation to perform their duties and use their powers in good faith, in the corporation’s interest and also for a proper purpose. Act with diligence and care. Under section 180 of the Corporations Act, a civil obligation is imposed on the directors along with other officers that they must perform their duties with reasonable diligence and care at all the times. Keep away from making improper use of information. Under section 183 of the Corporations Act 2001, a civil obligation is imposed on the directors and other officers that keep away from using the improper information for the purpose of gaining an advantage for them. Make proper use of the position that they are holding. Under Section 182 of the Corporations Act 2001, a civil obligation is imposed on the directors and other officers that they should make proper use of their position. Reveal certain interests. Section 191 of the Corporations Act 2001, a civil obligation is imposed on the directors as well as other officers, who have certain interests regarding the company’s affair to other directors and officers which relate to the company’s affairs3. 3. Use of Case and Theory The two cases are as follows: (i). Re-Engine Pty Ltd and Anor v Fergusson and Ors [2007] VSC 57 (9 March 2007): An action was taken against the Della Court Pty Ltd and Fergussons by Re-Engine Pty Ltd and the liquidators of the same in which Fergussons acted as one of the directors of the Re-Engine Pty Ltd, alleging that the defendants were legally responsible to account for the finances advanced to Re-Engine by the ANZ Bank as to which funds were misapplied. The claim was based on the violation of statutory and fiduciary duties by one of the directors of the company, Mr. Fergusson. It was discovered by the court that Mr. Fergusson, the company’s director had breached the duties of director by causing Re-Engine to apply for the advances of funds from the bank of ANZ which totaled to an amount of $1.8 million without the consent and knowledge of other directors. The proceedings were made between the month of June 2002 and that of August 2004, ‘pursuant to Re-Engines ANZ International Trade Facility’ out of which around $388,000 was unpaid to Re-Engine, neither was it applied for its lawful purposes4. The court had further discovered that Mr. Fergusson, director of the company had breached his duties of being director by causing Re-Engine to continuously apply for the advances of funds from the bank of ANZ without informing the bank that Re-Engine had stopped importing used engines in the month of July 2002 and that Mr. Fergusson was applying the advances for the other purposes instead of international trade. The court had also discovered that Della Court Pty Ltd was responsible to account a sum of $70,712.02 to Re-Engine Pty Ltd which the Della Court Pty Ltd had received, but it did not pay to Re-Engine Pty Ltd. The court held that Della Court Pty Ltd was liable for the uneven receiving or dealing with the property that actually belonged to Re-Engine Pty Ltd4. (ii). ASIC v Maxwell and Others [2006] NSWSC 1052 (10 October 2006) In this particular case, it was alleged by ASCI that the defendants, which comprised of two groups of companies (although all have been liquidated at present), the company’s officers, an accountant and a consultant had contravened the Act of Corporation with regards to the conduct and promotion of fund raising schemes with the help of which each group of the company had raised the funds primarily from the public for the purpose of purchasing and developing the real estate. ASIC alleged that among various claims that was against the defendants, Mr. Nahed who was the director of ‘various companies in the ProCorp Group’ was accused of breaching his director’s duties by allowing, permitting and participating in a numerous contraventions in the schemes of fund raising by those companies. Considering the background and skills of Mr. Nahed, the responsibility distribution within the director’s of ProCorp Group and the advice from the advisors of the companies upon which Mr. Nahed was allowed to rely; the court held that Mr. Nahed was allowed to assume that the fund raising activities of ProCorp Group were according to the appropriate accounting and legal advice with the conclusion that there was no breach of the duties of the director, Mr. Nahed as he had performed his act with reasonable diligence and care as a company’s director in the ProCorp Group. On the other hand, the court also held that Mr. Nahed was to be prohibited from being the director of the company because the way in which he managed the companies in the ProCorp Group had resulted partly in the insolvency of the companies5. 4. Conclusion From the case, we find that the directors of Dookendorf Pty Ltd, which is a small proprietary company, had raised $13.5 million from the Bank of Nigeria for the purpose of purchasing 43 million cartoons of 24x600 ml of bottles of fresh air. The bottles were actually restricted to $3.15 millions which mean that they could only borrow or raise $3.15 million from the bank without the approval of the shareholders. This had therefore resulted in the breach of his duties leading to the violation of the Corporations Act 2001. As a result of this situation’s consequences, the court may impose a fine of up to $200000, or order for disqualification of the director from the management or else ask the directors to compensate. 5. References Australasian Legal Information Institute, No Date. ”Corporations Act 2001 - Sect 428”. ”Commonwealth Consolidated Acts”. http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s428.html Newsletter, 2007. ”Recent Decisions on Breach of Directors Duties”. ”Corporations Law Update: Recent Decisions about Directors Duties and Liabilities”. http://www.stephens.com.au/view/22/47 The State of Queensland (Department of the Premier and Cabinet), 2009. ”Corporations Act 2001 (Cth) (the Corporations Act)”. ”Home”. http://www.premiers.qld.gov.au/publications/categories/policies-and-codes/handbooks/welcome-aboard/member-duties/corp-act-2001-c.aspx SCL, 2010. ”Compliance with the Corporations Act”. ’’Home”. http://dnn.scla.com.au/YourBusiness/tabid/85/ArticleId/45/Solution-Brief-ndash-Universal-Constitution-trade.aspx 6. Bibliography Australia, CCH Corporate Law editors, CCH Australia Limited. Australian Corporations & Securities Legislation 2009: Corporations Act 2001, ASIC Act 2001, Related Regulations. Australia: CCH Australia Limited, 2009. Duncan, William David. Joint Ventures Law In Australia. Australia: Federation Press, 2005. Read More