Model Business Corporation Act: the Australian Law

The given case should be analyzed in terms of the Australian corporate law and basic regulations suggested by it. The fact is that the given sphere could be considered rather complex and there are several important factors that should be taken into account when cogitating about the actions which could be performed by every actor. At the moment, companies Top Engineering Pty Ltd. and Shifty Sellers Pry Ltd. are in specific relations that regulate their further partnership and cooperation. The fact is that the second company placed an order and wanted to obtain steel cables. It was ready to pay $200.000. However, at that moment Shifty Sellers did not have that sum. It undertook a commitment to pay the debt later. However, soon after it collapsed without paying. Con, the director of Shifty Sellers, was the main promoter of the given deal. He placed the given order and also stated that the company would pay. Besides, the given obligation was not performed. The given fact is extremely important when cogitating whether Con, the companys director, could be held liable for the unpaid debt of Shifty Seller.

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The fact is that in accordance with the current legal environment peculiar to Australia, a companys director is responsible for all actions, duties, and obligations, that a company assumes1. Moreover, the Corporations Act also states that there should be a board of independent directors who should be responsible for their actions and decisions2. Considering these facts, there are several points that should be introduced. First of all, the given case demonstrates a perfect example of the rude violations of the basic responsibilities assumed by one of the main actors of the deal3. In this regard, the interests of Top Engineering Pty Ltd. should be protected by the existing legal environment as the current terms of the partnership guarantee the security of different deals and preserve their ethical side.

Moreover, there is another aspect that should be mentioned. The fact is that Con, as the main promoter of the given deal, perfectly realized the great risk of this very affair. However, he still insisted and accepted the responsibility to pay $200.000. For this reason, Con, as one of the independent directors, could be considered liable for the debt, event knowing the fact that the company collapsed. Furthermore, taking into account the common law principles, we could also state that the deal should be considered a fraud4, as Con was informed about the current state of finances in the company and still insisted on the given deal. He used the insider information to impact decision-making and assure Lee that there were no risks. For this reason, the given actions could be considered unethical5, and Con should be ready to accept the responsibility that comes from his behavior and intentions.

Continuing the investigation of the case, we should also devote our attention to another significant aspect that is mentioned here. Susan is Lee wife, and she is also a non-executive director of Top Engineering Pty Ltd. At the moment, she does not accept any decisions. She decided to leave management and let Lee make all significant decisions and resolve problems that might appear in the course of the companys functioning. Besides, delving into the case, we admit that she signed the bank loan document despite bad feelings she had. It turned out that the company had some expected problems with the repayment as the previous unsuccessful deals with Shifty Seller and the decrease of the level of incomes coming from the Chinese market undermined its financial stability. For this set of reasons, a serious problem exists at the moment. The company has a certain financial obligation. Considering the fact that both Lee and Susan are its directors, they have to create some possible solution. Besides, there are some factors that should be mentioned. First of all, even if Susan does not manage the company, she still remains one of its shareholders and directors. It means that according to the Corporations Law, she has the right to make some decisions, assume responsibilities, and duties6. Thus, in case there are no special amendments, directors possess equal shares and could sign different acts and engage in business relations.

Therefore, Susan is a non-executive director which means that it is her main duty to observe all deals, agreements, and provide her perspective on the possible success or failure. From the case we get to know, that she had bad feelings about it; however, she failed to warn her husband and partner. It means that she becomes responsible for the given mistake. Moreover, according to Chapter 1, Section 1, Part 1.5, the director of a company may be asked to give a mortgage over the house to secure the loan7. Because of the fact that Susan and Lee are husband and wife, and they possess their house together, Susan could also be liable for repayment. Moreover, her ability to repay comes from the character of the relations within the company and between its main shareholders. She still remains one of its directors. That is why, in case Lee fails to pay, the representatives of the bank might address her and ask for repayment. In general, analyzing the given situation, we could state that Susan should be ready to act, accept this responsibility and look for the possible ways to pay the bank and carry out obligations that were accepted by the company and her partner and husband. The given situation demonstrates the impact Corporations Act has on the relations within a company and the way shareholders might interact if some emergent situation appears.

Besides, the Corporations Act not just introduces some regulations needed for the efficient cooperation of different actors and companies. At the same time, it also provides a list of possible penalties and punishments that could be applied in case a person breaches its main conditions and performs actions that contradict to the legal framework outlined by it. If to apply these rules to the given case, the following main points should be outlined. First of all, a special board might prohibit a person from being a director in case some violations are found8. The given measure could be considered an attempt to prevent a person from repeating similar acts and could also guarantee that a company will not preserve the given tendency9. If to speak about Susan, he could also be downgraded because of her inability to observe the deal and prevent Lee from engaging in relations with Con, who is considered a risky actor. The monitoring of the financial aspect of the most important deals is one of the main responsibilities of the non-executive director.

That is why Susan could be punished for her inability to cancel the deal. Furthermore, there are some other legal consequences that might appear in case some violations or breaches are found. The Corporations Act states that an actor might be obliged to pay to compensate the damage which comes from the breach of the contract or inability to perform the main duties and maintain the companys efficient functioning10. Moreover, the company might terminate a contract of partnership in case one of the shareholders is not able to act within the outlined legal framework and engages in some unethical actions11. In such a case, he/she might be punished by imposing fees and even summoning to the court. Speaking about Susan, we should obviously admit the fact that she is one of the directors in Top Engineering Pty Ltd. which means that she has a certain list of responsibilities. At the same time, she is also Lees wife, and he will hardly file a lawsuit. However, in case violations are too obvious and rude, a special board might determine an appropriate punishment and apply it to Susan. Acting within a certain framework, Lee should follow any prescriptions and recommendations outlined by the act to assure that the company observes the existing laws and guarantees the absence of such cases in the future. Altogether, the Corporations Act introduces a specific framework which is needed for the efficient functioning and interaction of different companies. If to speak about the given case, the application of this act obviously helps to analyze the situation and understand the main actions that could be applied to create an appropriate solution and guarantee the companys survival.

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Bibliography

ABA: Business and Corporation Litigation Committee. Model Business Corporation Act: Official Text with Official Comments and Statutory Cross-References Revised through December2010. Chicago: American Bar Association, 2012.

Berman, Karen, Joe Knight, and John Case. Financial Intelligence, Revised Edition: A Manager’s Guide to Knowing What the Numbers Really Mean. New York: Harvard Business Review Press, 2013.

Emerson, Robert. Business Law. New York: Barron’s Educational Series, 2015.

Ferrell, Owen, John Fraedrich, and Ferrell. Business Ethics: Ethical Decision Making & Cases. New York: South-Western College Pub, 2014.

Office of Parliamentary Counsel. Corporations Act 2001. PDF. WIPO, 2013.

Vallabhaneni, Rao. Corporate Management, Governance, and Ethics Best Practices. New Yorl: Wiley, 2008.

Footnotes

  1. Office of Parliamentary Counsel, Corporations Act 2001, PDF, WIPO, 2013.
  2. Ibid., 35.
  3. Owen Ferrell, John Fraedrich, and Ferrell, Business Ethics: Ethical Decision Making & Cases (New York: South-Western College Pub, 2014), 77.
  4. ABA: Business and Corporation Litigation Committee. Model Business Corporation Act: Official Text with Official Comments and Statutory Cross-References Revised through December2010 (Chicago: American Bar Association, 2012) 45.
  5. Karen Berman, Joe Knight, and John Case, Financial Intelligence, Revised Edition: A Manager’s Guide to Knowing What the Numbers Really Mean (New York: Harvard Business Review Press, 2013), 98.
  6. Office of Parliamentary Counsel, Corporations Act 2001, PDF, WIPO, 2013.
  7. Ibid., 147.
  8. Ibid., 155.
  9. Rao Vallabhaneni, Corporate Management, Governance, and Ethics Best Practices (New Yorl: Wiley, 2008), 84.
  10. Office of Parliamentary Counsel, Corporations Act 2001, PDF, WIPO, 2013.
  11. Robert Emerson, Business Law (New York: Barron’s Educational Series, 2015), 45.
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StudyCorgi. (2021, May 4). Model Business Corporation Act: the Australian Law. Retrieved from https://studycorgi.com/model-business-corporation-act-the-australian-law/

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