Corporations ACT Essay: Assessment Questions And Answers.

Question One

1000 word (+/- 10%) assessment.

• Two problem-based questions, approximately 500 words each answer. The questions will cover topics from weeks 4-8.

• This assessment is worth 30% of the course overall marks. See attached Rubric for guidance.

• Due via Turn-it-in, in week 10, Monday 21 May 2018 at 15.55pm AEST.

• You are to use IRAC in analysing and structuring your answer.

• You MUST cite relevant law in your assessment.

• You must adhere to KBS plagiarism rules. Please refer to these rules on the KBS website.

• Your use of proper grammar, spelling, punctuation and expression WILL be taken into consideration. If you need assistance please see student services at your local campus. What is NOT required?

• A bibliography or referencing list is not required.

• A contents page is not required. Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’).

The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. Question One You are a senior analyst working for the Australian Securities and Investments Commission (ASIC). Part of your role involves investigating possible breaches of directors’ duties, and you have been made aware of ME Enterprises Pty Ltd. Liam and Peta are the shareholders and directors of ME Enterprises Pty Ltd. Peta is actively involved in the day-to-day running of the company.

She spends most of her time marketing and growing the business. She relies on the company’s employees to pay creditors on time. Liam is a non-executive director. Every quarter Liam and Peta meet to review the financial position of the company. A simple balance sheet is prepared by an employee but Liam and Peter generally don’t ask any questions about the contents of the balance sheet. In May 2017, Peta started receiving angry calls from her suppliers claiming they had not been paid. She instructed her staff to prioritise paying the suppliers that were critical to the business, and delay paying those that were not. In June 2017, ME Enterprises Pty Ltd received a notice from the Australian Taxation Office demanding payment of unpaid company taxes.

However, Liam and Peta did not pay the outstanding taxes and made no changes to company expenditure. ME Enterprises Pty Ltd continued to operate until the end of June 2017. The balance sheet prepared for the end of June 2017 showed that current liabilities exceeded current assets. You discover that Liam was unaware of these events occurring in May and June 2017 because he had been diagnosed with cancer and was undergoing treatment at the time. REQUIRED: a) With reference to relevant provisions of the Corporations Act, and relevant case law, advise your manager about whether there are grounds for ASIC to bring civil or criminal action against Liam and Peta. Do not consider action under section 180 of the Corporations Act. (10 marks)

Question Two

b) If ASIC’s prosecutions team decides to pursue action against Liam and Peta, what penalties could ASIC seek from the court? (5 marks) Assessment Information COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. Question Two Alexandra, James and Simone are the directors and shareholders of a data storage solutions company called CloudTech Pty Ltd (CloudTech).

Alexandra wants the business to take a new direction – innovation in the music industry. Gnosis Records recently put out a new project to public tender, dealing with music files for a new streaming service. In a meeting of the directors in February 2018, James and Simone resolved that CloudTech should not submit a bid because streaming music was a new industry neither of them knew anything about and they were already having trouble serving their existing clients. Later in February 2018, Alexandra decided to incorporate another company, Banger Pty Ltd (Banger). Alexandra is the sole director and shareholder. Banger submitted a bid to Gnosis Records, which was ultimately successful in securing a $5 million contract over 5 years.

The estimated profit over the life of the contract is $1.8 million. In April 2018, Alexandra realised that she could offer CloudTech’s clients a better service with the innovative solutions developed at Banger. One night, after the other directors and staff had gone home, she downloaded CloudTech’s complete client list. The next day she resigned as a director of CloudTech. Alexandra used the client list to contact CloudTech’s clients, but none of them agreed to engage Banger. James and Simone have found out about Alexandra’s attempts to lure CloudTech’s clients and about Banger’s $5 million contract with Gnosis Records. James and Simone are extremely unhappy with Alexandra. REQUIRED: Advise CloudTech as to whether it can take any action against Alexandra in relation to: a) the contract between Gnosis Records and Banger. (7.5 marks)

b) Alexandra’s use of CloudTech’s client list. (7.5 marks) COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 This material has been reproduced and communicated to you by or on behalf of Kaplan Business School pursuant to Part VB of the Copyright Act 1968 (‘Act’). The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Kaplan Business School is a part of Kaplan Inc., a leading global provider of educational services. Kaplan Business School Pty Ltd ABN 86 098 181 947 is a registered higher education provider CRICOS Provider Code 02426B. Assessment Marking Rubric Learning Outcomes Level 1 (Fail) Level 2 (Pass) Level 3 (Credit) Level 4 (Distinction)

Level 5 (High Distinction)

1. Develop an understanding of the relationship between the law, corporations and legal regulation in commerce.

2. Explore various legislative provisions and relevant case law in relation to the broad areas of Corporation Law.

3. Explain the roles and responsibilities of the directors and officers of the corporate structure, the extent of their accountability to various stakeholders and the ethical framework under which they operate. Inadequate or insufficient understanding. Superficial and general. Does not identify relevant issues and apply properly in the context. Demonstrates sufficient but limited understanding. Does not include adequate detail.

Demonstrates identification of issues, and basic application of the rules in the context. Demonstrates accurate and clear understanding in adequate detail. Identifies key issues and applies the rules in the context. Demonstrates a well-developed understanding of the topic. Identifies key issues and rules, explains the application to the context persuasively. Demonstrates a sophisticated under-standing of the topic. Provides a logical and comprehensive view of the issues raised by the question.

Answer to question 1: Issue:

In this case two issues have been cropped up:

• Whether Liam and Peta have any liabilities under the Corporation Act 2001 or not
• Whether any penalty provisions could be applied on the directors or not

Rules:

The present case deals with the function and role of the directors regarding the insolvency of a company. Directors are possessed a higher position in an Australian company and it certain duties have been imposed on them so that they can act on behalf of the company. According to the general provision of Corporation Act 2001, a director is required to act for the best interest of the company and for the interest of the shareholders. According to the provision of section 180 of the Act, a director should act with due care and diligence. Further, they have to take all the decisions so that it may not cause any detriment to the company.

All the important decisions of the company are taking by them and they are required to make reasonable decisions for that. It has been mentioned in section 95A of the Act that in case a company has no ability to meet the debts of the company, the company will be regarded as insolvent company and the directors of the company are required to make all the possible investigation regarding the financial statement of the company. According to section 588G of the Act, the director of a company should not take any decision that can make the company insolvent. Further, the director of the company is restricted to make any misleading financial statement. In case of any failure regarding the provisions of those sections, the alleged director should have to face civil penalties mentioned under section 1317E of the Act 2001.

Application:

According to the brief of the case, it is a clarified fact that the characters of the case are active member of the company and therefore, they are required to take all the prudent decisions for securing the interest of the company. In addition, they have to accustom with all the financial statement and debts of the company. However, it has been observed in this case that certain loopholes have been observed regarding the balance sheet of the company and the directors of the company had failed to make proper investigation regarding the financial statements. Therefore, the company had to incur huge losses due to the careless acts of the active members of the company. Further, it has been observed that because of their wrong acts and decisions, the company has become insolvent. Therefore, it has been established that Liam and Peta had failed to act in accordance with the principles mentioned under section 588G of the company.

Conclusion:

To conclude, it can be stated that Liam and Peta has failed to act prudently and failed to collect internal information of the company. Therefore, they held liable under the Corporation Act 2001. According to the provisions of the Act, civil penalties will be imposed on them.

Answer to question 2:  Issue:

Considering the case, two issues have been come into the light:

• Whether Cloud Tech can take any action against the Banger Ltd for making contract with Gnosis Records or not
• Whether the director of the Cloud Tech can take any action against Alexandra or not

Rules:

The case has two phrases; first deals with the action taken against a company by other company and the second deal with the action taken against the director of a company by other directors. The first issue of the case is based on the case principle mentioned in Salomon v Salomon. In this case, it has been proved that no company will be held liable for the personal debts of the directors and the principle of corporate veil has been established in this case. According to the general principle of Company law, a company is a separate legal entity and it could not held liable for the any liabilities of the directors or the shareholders. No person has any right to make any claim against any company for the wrongful acts of the directors.

According to the second issue, it can be stated that a director of a company has certain liabilities and they are bound to act with all the provisions. A director is required to act in good faith and with due care and diligence. Further, according to the provision of section 182 of the Act, they are restricted to use their position in a wrong and unethical way. Further, according to section 183 of the Act, the directors should not share the confidential information with any third parties. They should always think about the best interest of the company.

Application:

            In the first Para of the case, it has been observed that a company has been incorporated by Alexandra named Banger. However, Alexandra was one of the directors of another company named Cloud Tech. certain disputes had been cropped up between them and he has established this new company. According to the principle of Salomon v Salomon, it can be stated that the directors of the Cloud Tech against the newly incorporated company could take no action, as Banger is a separate legal entity.

            However, in the second issue it has been observed that Alexandra, after incorporated the new company used all the information of the previous company and used the client list of the previous company. According to section 182, he is restricted to use his position in unethical way. Further, it has been mentioned under section 183 of the Act, any director should transfer no information to any third party. However, it has been observed that he had failed to meet any requirements mentioned under the Act and therefore, the directors of the Cloud Tech could take action against Alexandra.

Conclusion:

            Therefore, the action provision will not apply against the newly corporate company. However, action can be taken against Alexandra under the Corporation Act 2001.

Reference:

Salomon v Salomon [1897] AC 22

Corporation Act 2001 (Cth)

ASIC v Adler [2002] NSWSC 171