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BUSI2301 Business Law

tag 0 Download 13 Pages / 3,017 Words tag 07-11-2020
  • Course Code: BUSI2301
  • University: Panola College

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  • Country: United States



Simon and Marilou are directors of SkyTrans Phones Pty Ltd (SkyTrans), a company with a paid capital of $2.00 that operates a mobile phone store from rented premises in Sydney. Simon is SkyTrans’s managing director and looks after the finances. He previously worked for several years as a senior accountant with a large accountancy firm. Simon also takes care of SkyTrans’s stock control and leasing arrangements. Marilou manages SkyTrans’s staff, business marketing and client relations. Marilou knows very little about finance but is a good peoples’ person. Marilou has complete trust and confidence in the ability of Simon to manage SkyTrans’s finances, given his accounting background and experience. Both Simon and Marilou are also the only shareholders of the company. 

On 1 March 2017, Marilou received a telephone call from one of SkyTrans’s trade suppliers (SupplyCo) demanding that an overdue monthly supply account be paid. Marilou thought that this was very strange because Simon was normally very efficient at paying the company’s bills. Marilou, however, was busy that day, and left a message on the matter for Simon on his desk.

Two weeks later, when Marilou finally asked Simon face-to-face about SupplyCo’s outstanding account, Simon replied that he had paid it. On 1 April 2017, Marilou received a further telephone call from SupplyCo demanding payment. Marilou emailed Simon about this, and Simon replied that he had ‘sorted it out’. Simon panicked, because he had not actually ‘sorted it out’. So later that same day, Simon quickly paid off the SupplyCo outstanding account using his corporate credit card, which was now over its credit limit. Given the delay in making the payment, SupplyCo then informed SkyTrans by email that all further orders were to be on ‘cash on delivery’ terms only.

Any doubts that Marilou had about SkyTrans’s financial position were removed when Simon sent a further email to him. The email advised that after reviewing its tax position, SkyTrans had received a ‘huge’ refund from the Australian Taxation Office, which Simon had used to buy new luxury company cars for both himself and Marilou as directors of SkyTrans. The cars cost $55,000 each. Although Marilou was not happy about Simon buying the luxury cars without first consulting him, Simon was able to convince Marilou that the purchase price of the cars included an advantageous special tax benefit that applied to luxury cars used for business purposes. Simon said it was a deal too good to refuse.

Perceptions about SkyTrans’s financial prosperity were further bolstered when the company’s Christmas party was held in December 2017 at an expensive restaurant, which Simon boasted had cost $40,000. SkyTrans’s major clients and suppliers attended this party, where Simon had told them all that SkyTrans was in a very profitable position.

Simon, however, had actually been selling several of SkyTrans’s assets to pay off the purchase price of the luxury cars and his personal gambling debts. The money used to pay for the Christmas party was taken from another corporate credit card that Simon signed up for. SkyTrans had been utilising the corporate credit cards to continue trading for a considerable period. Simon had been able to conceal this from Marilou by failing to keep proper financial records since 1 March 2016.

On 2 January 2018, Marilou tried to use his own corporate credit card to pay for some company purchases but it was rejected due to insufficient funds. Marilou tried to contact Simon but was informed by Simon’s answering machine that Simon was on holiday and would only return to work at the end of January 2018.

Marilou was too busy in the period after Christmas to worry about the problems with his corporate credit card. By 14 January 2018, when some of SkyTrans’s stocks were running low, Marilou was unable to make the cash payment upon delivery for an order he had placed with SupplyCo. Shortly before delivery, Marilou had also received a telephone call from SkyTrans’s bank manager at Friendly Bank, informing him that SkyTrans had exceeded its overdraft limit of $200,000.

On 14 February 2018, a liquidator was appointed by the court because SkyTrans had insufficient funds to make any repayment of the debts that were totalling more than $350,000.


(a) Assess and evaluate the potential contraventions of the Australia Corporations Act 2001 (Cth) that may have occurred in the above scenario.

(b) Determine and discuss the possible consequences of these contraventions with reference to the Australia Corporations Act 2001 (Cth).

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Total 13 pages

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