TO: Gregg Cash
FROM: Jihee Kim
TITLE: Conclusions from Tech Gadgets Liquidation
Dear Mr Cash,
You have requested advice on the matter of Tech Gadgets Ltd. Your questions, my answers to those questions, and the reasons for our answers are set out below.
Question 1
Issue: Which persons and/or entities are a director of Tech Gadgets Ltd for the purposes of the directors’ duties in sections 181-183 of the Corporations Act 2001 (Cth)?
Law - s 181: Act in good faith in the best interests of the company and act for a proper purpose, s182: not misuse position, s183: not misuse information
Application
• Susan, Paul Smith and Ben Jones are directors: s 9
• Victoria was not appointed director, however, under s9, she acts in Paul’s position as …show more content…
Need to determine, but for good faith would the power have been exercised when she had no knowledge about the Miracle Batteries product and whether it is for the best interest of TGL?
• She used her power as acting director to put forward proposal to gain personal interest and interest of third parties without consent of other directors or the company which conflicts with her duty to the company. (Regal (Hastings) Ltd v Gulliver)
Conclusion
Improper purpose seems to be the dominant reason power is exercised – duty to act in good faith has been breached. Victoria also breached director’s duty not to misuse her position to gain advantage for herself.
Question 3
Issue: Advise whether Susan and Ben would successfully raise reliance (s 189) or any defences in the Corporations Act.
Law: s 189 …show more content…
However, any assessment which directors may have made as to ability of company to pay its debts is irrelevant whether they were aware of insolvency of the company. (Powell v Fryer (2001)) If a person is in the position of director in the company, ability to be aware of reasonable grounds for suspicion of insolvency / future insolvency is expected. (s 558G (2)
• Susan was aware of account payable were post-dating cheques and had reasonable grounds for suspecting company’s financial position is not simply temporary lack of liquidity but rather gradual shortage of working capital whereby liquidity can only be restored by a successful outcome of business ventures (i.e. i-shoe) (Hymax Concrete Pty Ltd v Garrity (1977)) If this forms the basis of Susan’s decision to pay Edward for his invention, then Susan is breaching her duty as director to prevent invent trading.
• Section 588G(2) is a civil penalty
FROM: Jihee Kim
TITLE: Conclusions from Tech Gadgets Liquidation
Dear Mr Cash,
You have requested advice on the matter of Tech Gadgets Ltd. Your questions, my answers to those questions, and the reasons for our answers are set out below.
Question 1
Issue: Which persons and/or entities are a director of Tech Gadgets Ltd for the purposes of the directors’ duties in sections 181-183 of the Corporations Act 2001 (Cth)?
Law - s 181: Act in good faith in the best interests of the company and act for a proper purpose, s182: not misuse position, s183: not misuse information
Application
• Susan, Paul Smith and Ben Jones are directors: s 9
• Victoria was not appointed director, however, under s9, she acts in Paul’s position as …show more content…
Need to determine, but for good faith would the power have been exercised when she had no knowledge about the Miracle Batteries product and whether it is for the best interest of TGL?
• She used her power as acting director to put forward proposal to gain personal interest and interest of third parties without consent of other directors or the company which conflicts with her duty to the company. (Regal (Hastings) Ltd v Gulliver)
Conclusion
Improper purpose seems to be the dominant reason power is exercised – duty to act in good faith has been breached. Victoria also breached director’s duty not to misuse her position to gain advantage for herself.
Question 3
Issue: Advise whether Susan and Ben would successfully raise reliance (s 189) or any defences in the Corporations Act.
Law: s 189 …show more content…
However, any assessment which directors may have made as to ability of company to pay its debts is irrelevant whether they were aware of insolvency of the company. (Powell v Fryer (2001)) If a person is in the position of director in the company, ability to be aware of reasonable grounds for suspicion of insolvency / future insolvency is expected. (s 558G (2)
• Susan was aware of account payable were post-dating cheques and had reasonable grounds for suspecting company’s financial position is not simply temporary lack of liquidity but rather gradual shortage of working capital whereby liquidity can only be restored by a successful outcome of business ventures (i.e. i-shoe) (Hymax Concrete Pty Ltd v Garrity (1977)) If this forms the basis of Susan’s decision to pay Edward for his invention, then Susan is breaching her duty as director to prevent invent trading.
• Section 588G(2) is a civil penalty