Law of Business Association - Future Ltd - Assignment Example

Law of Business Association Students Name Institution Supervisors Name Date Question 1: The Issue Future Ltd is a mining company, which owns several claims in Western Australia. It needs capital in order to exploit these claims. On 10 September 2012 Future Ltd lodges a prospectus with ASIC, signed by all its directors. According to future earnings report Mr. Peter Grunt, qualified geologist and partner of Grunt and Heave Professional Geology, our mining claims are likely to yield 25 carats per metric ton of which, at present costs, gives a production price of $500 per ton. Henry purchases 1,000 shares in Future Ltd at $5.00 each. A few months later experts predicted a crash in world diamond prices in the short to medium term. It also transpires that the mine had yielded only 15 carats per ton. Henry sells his shares immediately, but is able to get only $1.00 for them. He has never received any earnings. The effects of future limitations and the directors on their liabilities caused by the factors mentioned above. According to Section 3 and 41 of the corporations act, company directors and officer are usually subject to various liabilities under the common law of Australia. This will include dealing with environmental liability and other tax laws. The extent thus to which Future Limited and its directors might accept liability will be subject to a detailed inquiry that will be done by Australian Corporations and Markets Advisory committee as under2. The problem will be identified in relation to liability laws to see as to whether they will impose penalties, defences for the future Ltd and its directors. The problem will only arise if the issue of liability as automatically imposed3. When we look at section 1804, the statutory duties that are imposed on the future limited and its directors will also reflect on the duties that arise under the common law and principles of equality. In this sense, the duty of care and diligence that will be imposed will also be imposed to the company under the common law principles for negligence. Under section 181 and section 1835, the company will also want to look at some of the fiduciary duties that will be imposed on the directors of the company as having to act in good faith and in the best interest of the client, Henry and also the company so as to avoid conflict and not to misuse their position and abuse the client, by the act of making secret profits. In addition, under section 1816 all the fiduciaries are usually under the obligation of avoiding conflict of interest. In this case, it is clear that there was little conflict of interest among the directors.7 This is because the company acted in general and not on personal interest,8 Directors satisfy their fiduciary duty if they disclose to the companies shareholder’s their material interest in a transaction in compliance with the statutory disclosure duties contained in Section 191 of the CA.910 This may be taken to be an act of good faith according to the factors mentioned above. This beyond doubt goes against the Australian law although there is no single known doctrine or general application. Generally, the law is prepared to fight against acts of bad faith (Mann & Roberts, 2011). For example this situation came to be since Future Ltd had provided information which was true according to the information on the ground. During the pre-contractual negotiations and in an instance where their prime intension was to explore Henry, Henry was not forced into this, the concept of the contract law will only apply if he was forced in to doing it. There is no liability however which is made against the party which acts in its best interests from the negotiations. The traditional view of the law moreover is that one party’s motivation is not right to define contractual rights; also bad motives may not increase the scope of express obligation during the performance of the contract (Conviser, 2002). Also, various types of contracts similar to the one mentioned above about Henry and Future Limited, there is no known extra-contractual duty on one party to tell off the facts that may be regarded to be of importance to another party. With a position in Australia where the act of good faith is very much accepted, this may be contrasted (Klein, Ramseyer, & Bainbridge, 2011). This is much alike to the supreme court of Ireland who have opted to take a different approach to the principle of good faith in insurance law and this is best seen in the case of Aro Road and Land Vehicles Ltd versus the Insurance Corporation of Ireland thus the assured wished to send goods by road through a carrier. Through the carrier’s instigation, insurance was affected since the carriers were acting as insurer’s agents for this purpose (Mancuso, 2013). Questions concerning details on the journey and the value of the goods were asked and no further information was actually provided. According to the law, utmost good faith needs a genuine effort at accuracy. Also according to the sale of land, the vendor of land is bound to reveal material matters relating to title which are known that are well known to the vendor though the purchaser has no means of acquiring this information unless told. The duty of good faith also exists in other situations such as; the mortgagee’s exercise of power of sale, according to the principles of equity governing fiduciaries not because of influence and unconscionable conduct and estoppels. This includes promissory notes and in the duty to refrain from making misrepresentations (Australia, 2012). This is specifically observed in the case of Henry and Future Ltd where the performance of the contract was conditional on the buyer receiving amounts of Gold at 5.00 per share on satisfactory terms. This means that Future Limited and its directors must put into consideration that Henry had a duty to make an effort so as to obtain finance on such terms although the buyer was needed to do more than act honestly in deciding if he would accept or reject an offer of finance. This kind of approach to the situation gave effect to the expectations of the two individuals and gave forth to a fair and sensible balance of both their interests. Future Limited and its directors can provide proof that there was an element of concept of good faith in another area is that it can be seen in the ct of fiduciary relationships.The principle of good faith also focuses in the doctrine of unconscionable bargaining thus the situation in which relief granted when transaction is unconscionable that it cannot be allowed to stand. The requirement is that there exists an unconscientiously taking advantage of serious disability of the person in the inferior bargaining position by procuring the benefit in question in a way that is both unreasonable and oppressive. Question Two: The issue Bob, Brad and Mary are the only shareholders and directors of Coco Pty Ltd, a trading company that supplies food products to cafes around Canberra and New South Wales. In recent times, Coco’s cash flows have been pressured because several large customers including Café now have been late in paying their invoices. This has meant that on several occasions Coco has not had sufficient funds to pay its bills, particularly rent. The owner of its warehouse has written several letters warning that if Coco is late in paying its rent, it will be evicted from the premises. Bob, Brad and Mary convene a board meeting to consider their options. Bob and Brad would like to negotiate with their creditors to restructure the company’s debts. Mary, however, would like to sell out and change industries. Advise for Bob, Brad and Mary as on their options under the external administration procedures under the Corporations Act. The above case is an issue of insolvency where a person is not able to pay one’s debt are that they fall to pay when the date is due. In Australian Securities Investment Corporation, the three most common corporate insolvency procedure are usually liquidation, receivership and voluntary administration. The personal insolvency procedures which apply to a person and not a company will include personal insolvency and bankruptcy (Gans & Shapiro, 2014). According to Section 14611 of the corporations act for example, there are certain proceeding that will be made against the company and the person associated with the company. This means that it will be stayed during the term of certain forms of external administration (Palmer, 2010). This will include the company’s creditors and administrators, it is also important that Bob, Brad and Mary understand that there are different types of proceeding which are stayed in the particular form of external administration12 and will most likely be faced with prospects of enforcement or litigation against them13, these will also be for reasons that are readily imagined (Committee, 2012). The other thing they will have to consider for their business would be their inability to pay their debts and their workers, or their inability to render the required services on the ground and also complete supplies of which may have provided an opportunity for the contract to be breached (Beck, 2010). There is also the situation of disagreement between Mary and Bob on the selling of the business and the security over property that is still under the possession of the business (Friedland, Bergman, & Taslitz, 2010). For example, there may be disputes on the validity of the sale of the business to another investor in order to raise the much needed funds (Committee A. B., 2014). For example, an external administrator. However, according to this perspective, it would be distracting for both, Bob, Brad and Mary to defend the company’s activities as it will deplete the available assets to its creditors to the extent that the money they will get will end up being spent for legal fees (Cross & Miller, 2014). There is also a possibility that this will lead to the company being liable for the remaining costs. In addition, from the perspective of its creditors, litigation my be considered to be a necessary requirement especially where there is need to enforce a charge in relation to the business assets, or determine the status of the company as a creditor on the quantum of the company’ debit to it14. Or rather in order to protect the company’s interest from the perceived mismanagement of the organisation (Buckle, 2001). Bob, Brad and Mary may also choose to have a four schemes arrangement which is compromise under Section 5.1 of the corporations act15. These type of schemes are also binding to all the creditors, and to some instance, Bob, Brad and Mary if a they are approved by their creditors or the court. In addition, no statutory defines the stay of proceedings against the company under the scheme of arrangement (Fox, 2010). There is also the common term of a scheme of arrangement that Bob, Brad and Mary may look at when dealing with all or some of their creditors who act against the company, that will be stayed for the duration of the scheme. In this case, the three can apply such a scheme until they are finally settled (Caher & Caher, 2009). These terms and conditions also need to be contained in the scheme document and is not legislatively prescribed. Question 3: Company Contract Issue Steptoe Pty Ltd (Steptoe) operates a small chain of retail shoe stores. James was appointed managing director of Steptoe for a period of three years from 1 December 2008. Steptoe’s constitution restricts its managing director from borrowing more than $50,000 on behalf of the company. However, James was not formally reappointed at the end of three years, but he continued to carry out the duties of managing director. No new document of appointment was lodged at ASIC. During this time when he was still not appointed, James went to the Willis Bank and asked to borrow $100,000 on behalf of Steptoe. The challenge is whether Steptoe is bound by the loan contract with Willis Bank? Contracts According to section 12816 the corporations act, a company manager, director or secretary can in certain circumstances act on behalf of the company. The implied actually authority that is implied will extend to making the contract on behalf of the company which on the other had will relate to the internal workings of the company. In this case, the authority of James will be dicated onter the same times. For example in Panorama Developments (Gilford) Ltd v Fidelis Furnishing Fabrics Ltd.17 A company secretary entered into a contract for the hire of cars for the purpose of carrying the company’s major customers. The secretary then used the cars for his own purposes. The car hirer sued the company on the basis that its secretary had apparent authority to enter into that contract. According to Section 12918 James at the capacity that he was, had many liabilities and authorities when performing any transaction on behalf of the company. This is because he was not authorised by the principle to perform the transaction, in addition he was still an acting manager and his appointment had not been confirmed yet. Meaning that he had no authority to perform the transaction. There was need to create a legal contract between the two of them. The manager like any other is governed by the by laws of the company. Conclusion In concluding the above three issues, it can be agreed that the corporations act, especially when we look at sections 129, 12919 all seem to balance in favour of the third party. This is because they ensure that the person who deals in good faith with persons that have the authority of the company is highly protected against later claims. In addition, According to sections 128 and 12920, ‘ “provide added protection to outsiders by allowing outsiders to make an assumption in relation to dealings with a company” . This means that an organization cannot argue the assumptions whether correct or not. Sources Australia. (2012). Corporations Act. Contentmedia group. Beck, N. (2010). Bankruptcy; Chapter 11 Bankruptcy Blueprint: Successfully Navigate Chapter 11 Bankruptcy With Complete Confidence (insolvency, liquidation, receivership, ... law bankruptcy, chapter 7 bankruptcy). Amazon Digital Services, Inc. Buckle, T. (2001). Laws of Evidence. Cengage Learning; 1 edition. Caher, J. 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