Australian Corporations Law - Assignment Example

Australian Corporations law Name Institution Question 1a Issue The issue is whether the company can cancel the order authorized by Harry. Rule A person is entitled to make certain assumptions when dealing with a company under the Corporations Act 2001. Section 129(2) provides that when dealing with a company, a person may assume that anyone who appears from the information provided by the company to be a director, that such person has the power to perform duties similar to those exercised by a director of a similar company. Further, where there is a constitution or internal rules, that the requirements of the constitution have been complied with. Application Harry is a duly appointed director of Engineering Products Pty Ltd but under the constitution of the company, he was not allowed to make an order for the company without the approval from the other directors. This means that he acted beyond his powers in making the order with the supplier of engineering products. The company and the directors may therefore conclude that the company is not bound by the order hence they can cancel the order In accordance with section 129 of the Corporations Act 2001, any person dealing with a company is justified in assuming that the constitution of the company has been complied with. This means that in entering in to any agreement with the company or its directors, the person can assume that any necessary requirements have been complied with. The person may also assume that any director of the company has power to perform duties that any other director in a similar company would perform. From the suppliers view, he made the assumptions as provided in the Act and hence the company cannot cancel the order. Even if the order did not comply with the requirements of the constitution, section 128 prevents the company from alleging that the assumptions made were wrong. The court in Turquand’s case (1856) did establish the indoor management rule. The rule states that though outsiders dealing with a company are required to take constructive notice of the contents of a company’s public documents, they ought not follow up to ensure that the internal requirements have been complied with. This rule was established to protect any outsiders dealing with the company. (Hughes v NM Superannuation Pty Ltd (1993)) This rule will not apply where the outsider knew of irregularities or suspected but failed to enquire. (Ciro et al., 2013) Conclusion Though the Corporations Act entitles an outsider to make assumptions when dealing with a company, there may be limitations. A person is not supposed to go further to ensure that requirements of the constitution have been complied with but has to take constructive notice of a company’s public documents. The constitution of the company is a public document and had the supplier taken constructive notice he would have known that Harry could not approve the order on his own. Since he did not take look at the constitution of the company, the order is not binding and hence the directors can cancel the order. Question 1b Issue Would the partnership be bound by the order if Harry was a partner in a partnership? Rule Section 9(1) of the Partnership Act 1963 provides that a partner in a partnership is an agent of the firm and of the other partners. The Act1 further provides that an act done by one of the partners in the firm in the usual course of business will bind both the firm and the partners unless the partner has no authority to act on behalf of the firm and the person dealing with the partner knows that the partner has no authority. Application In the case that Engineering Products was a partnership, the supplier would be in a position of knowledge that the Harry was a partner of the firm. The order authorized by Harry involved engineering parts which was the business that the partnership carried out. To that extent, Harry would have been considered to have done an act that is in the usual course of the business of the firm. Section 9(2) of the Partnership Act 1963 clearly states that the acts of a partner will only bind the firm where the partner has the authority to act in that way on behalf of the firm. In this case Harry did not have the power to act in that matter on his own. The making of such an order required the consent of all partners. Section 10(1) of the Act further states that an act relating to the business of the partnership, executed by a person with the power to do such an act in the firm’s name shall be binding on the partnership. In this case, Harry did not have the power to authorize such an order. It must also be shown that the other person knew that the partner did not have the power to authorize such an order2. In the case the rules of the powers of the partners was contained in the internal rules of the partnership, these rules are not public documents hence the supplier would not have known that Harry did not have the power to authorize such an order. This, from the supplier’s point of view, would mean that the order would be binding on the partnership and the partners of the firm. Conclusion An act by a partner of the firm will be binding on the firm unless it can be shown that the partner acted without authority and that the other party knew that the partner did not have the power to act in that way. In this case Harry did not have the power to authorize the order hence the first requirement has been met. However there was no way of the supplier knowing that he did not have the power to make the order as the documents of the partnership are not public. The partnership would therefore be bound by the order. Question 2 The Australian Securities and Investments Commission (ASIC) has the power under the Corporations Act 2001 to apply to the court for the disqualification of a person from either being a director of a company or from managing a company. Section 206D of the Corporations Act allows ASIC to apply to the court to ban a person from being a director where within the last 7 years the person has been a director or manager of two or more corporations that have failed. The failure of the company must be attributed, in whole or in part, to the way the corporation was managed. This means that even where a person was a director of two or more companies that have failed, such person may not be banned where the management was not responsible for such failure. (Bird et al., 2004) The failure of the company in this case is when the company has been wound up, declared insolvent or where the corporation is unable to pay its creditors3. In Tarrant v Australian Securities and Investments Commission [2015] FCAFC 8, Mr Tarrant was banned by the court, through an application by ASIC, for seven years from providing financial services. Mr Tarrant was the sole director of Tarrants Financial Consultants and in managing the company he had breached laws on financial services leading to loss to the clients. An appeal to overturn the decision was dismissed by the Federal Court. A person may also be banned from being a director of a company where such person has twice been a director in a company that has contravened the Corporations Act 2001 and has failed to stop such contravention4. The contravention of the Act by the company must have happened while the person was a director or part of the management of the company. ASIC may also apply for the ban of a person who has contravened the provisions of the Corporations Act for at least two times while they were directors of a company or were part of the management of such company5. (Bird et al., 2004) Where a person who has been a director has failed to exercise care and diligence (section 180) of a reasonable person while they were directors, ASIC may apply for their disqualification as directors6. This means that during the time they were directors they failed to act in good faith or that they made decisions that were not in the interest of the company7. Such person may also be disqualified if they failed to perform their duties as a director in good faith8. An application may also be made to the court to ban a person who has been banned as director or from managing a corporation where such person has been banned under the law of a foreign jurisdiction9. References Austin, R. P., & Ramsay, I. M. (2007). Ford's principles of corporations law (Vol. 14). Sydney: LexisNexis Butterworths. Bauman, J. D., Weiss, E. J., & Palmiter, A. R. (2003). Corporations Law and Policy: Materials and Problems. West Academic. Berle, A. A. (1931). Corporate Powers as powers in trust. Harvard Law Review, 1049-1074. Bird, H., Ramsay, I., Chow, D., & Lenne, J. (2004). ASIC Enforcement patterns. Available at SSRN 530383. Ciro, T. and Symes, C., Corporations Law In Principle (9th ed, 2013), Thomson Reuters O’Neal, F. H. (1958). Close Corporations: Law and Practice (Vol. 1). Callaghan. The Australian Corporations Act 2001. The Australian Partnership Act 1963. Read More