Company Law Essay For Business Employee And Shareholders.

Describe about the Company Law for Business Employee and Shareholders.

The shareholders of a company are other people who are affected by the actions of the company. In the event of winding up of the company, the main stakeholders of the company are its, directors, creditors, employees, owners (shareholders), unions, suppliers and the community through with the company gets its resources.

At the time of winding up not all stakeholders are treated equally. The debenture holder and the creditors are paid first. After such payment is made, the assets are divided among the shareholders according to the types of their shares (Hanrahan, Ramsay and Stapledon 2013).

After a company has been wound up, the stake holders of the company are have no claim against the company as it ceases to exist.

The concept of corporate veil is a legal concept, which parts the identity of the corporation from that of its owners. This is done to protect the owners from being personally liable to the actions and debts of the company (Jackson 2015).

The court can decided to pierce the corporate veil of a company if it finds that the owners with a fraudulent purpose to escape their legal obligations had formed the company.

The two provisions for lifting the corporate veil are

Fraud - The court can pierce the corporate veil of a company it is a fraud or sham. This means that the company has been formed by the fraudulent purpose, to evade an existing liability.

Breach of legal obligations- when the directors of the company breach the regulations relating to the provisions of law, the court may pierce the corporate veil and held the directors directly liable for the acts of the company, as the company cannot act on its own

3. The company has two methods for going into a written contract.

The company can go into a written contract by its own name and common seal. In this method, the contract is directly between the other party and the company.

The company can also go into a written contract with other parties through appointing agents to act on behalf of the company. This kind of appointment by the company can be expressed or implied. The company is liable to the contracts, which its agent enters into with any third party (Hunter 2015).

The company pays dividends to its shareholders when the company makes an excess profit. However, it is not compulsory for a company gaining excess profits to give dividends to the shareholders. The excess profit can also be reinvested according to the decisions of the board of directors this process is known as retained earnings. The company can also retain a fraction of the profit and distribute the rest among the shareholders as dividends. The amount can be paid to the shareholders through cash or bank or the company can allocate further shares to the shareholder (Drexler, Black and Sparks 2015).

Part 2

Issue

Whether Lyons have the right to retain the delivery van or not

Rule:

Section 20 of the PERSONAL PROPERTY SECURITIES ACT 2009, a security interest is enforceable on a third party if the property in context is attached to the security interest and the secured party has through the doctrine of perfection gained control over the property in question (Newton, Hegarty and Lawson 2013).

Application:

The bank had a written contract with was signed by the guarantor ( Able pty Ltd) . According to the contract, the guarantor was not allowed to create any charge with respect to the property without the written assent of the bank. He was only allowed to use the property, which were attached to the security interest in the course of business. The guarantor had violated the term of the contract and gave the property to the third party (lyons) as payment of his debts. The bank provided in the contract that if any such act were done than it would convert the circulating asset security to non-circulating.

The defendant failed to pay the loan taken by the bank due to liquidity, as a result the security interest crystallized. 

If the provisions of Section 20 are applied in this case it can be concluded that the as the guarantor and the bank had a written contract towards security interest , and the guarantor violated the terms of the contract , the third party in this case as no right to the delivery van. The bank is entitled to get the van, as the guarantor did not have the legal title to pass the property as at already became a secured interest when the clause was broken (Whittaker 2013).

CONCLUSION

Lyons does not have the right to retain the delivery truck

Answer 6.

Issue

Whether the directors were liable for breach of duty or not

Rule

The Corporate Act 2001 provides four basic duties of directors.

The directors of the company have the duty to act with due care and diligence towards the affairs of the company, as reasonable man would have done in their position according to Section 180 (Warry and Guthrie 2013).

The directors according to Section 181 of the act have the duty to act in good faith towards the best interest of the company

The directors have the duty not to make improper use of their positions according to Section 182 of the act.

Part c

The directors have the responsibility of not doing any improper use of information according to Section 183.

A director of a company cannot be held liable for the breach of duty if his actions were based on other person advice that he believed on reasonable grounds, in good faith and after making proper inquiries (Keay 2014).

Application

In this case, the directors of the company have breached their duty of care and diligence by not stopping the exploring process in time and as a result have caused significant loose to the company and its shareholders.

The directors did not have any strong basis to continue with the exploration process, which caused loss to the company and the shareholder. 

In their defense with respect to the breach of the duty under Section 180 of the act, the directors have to prove that.

The decision was made in good faith

They did not have any personal interest in the decision

They had inquired and gained knowledge about the subject matter

Believed that the decisions was for the benefit of the company rationally

In this case, Andrew and Eddie can take the defense of reliance on others as they relied upon the judgment of Red and Geena who were the chief executive directors and officers of the company.

According to Section 344(1) of the CORPORATIONS ACT 2001, a director of a registered scheme, disclosing entity or a company breaches the provisions of this Section if reasonable steps are not taken by them with respect to compliance of Part 2M.2, 2M.3 or the sections 324 DAA,DAB and DAC (Bruce 2013).

The breach of this Section attracts a civil penalty under Section 1317E.

The part 2M.3 of the CORPORATIONS ACT 2001 deals with financial reporting.

Section 295A deals with the content related to the financial report.

Section 296 provides the rules for complying with accounting regulations and standards.

Section 297 provides for stating the true and fair value.

Section 298 provides with the provisions with respect to the annual report of the director.

According to Section 601 FD, an officer of the company has the duty to act in good faith with care and diligence towards the affairs of the company (Knepper et al. 2015).

The directors have in this case breach their duty of care and diligence towards the company by , by reporting incorrect financial statements. The officers of the company along with the external auditors have failed to identify the mistake having reviewed the report previously.

If the provisions of section 180 of the act are applied, in this case that it could be concluded that the directors should apply their own reasonable knowledge with respect to the affairs of the company. Moreover, if the directors are relying on any other source, they must properly investigate about the matter themselves before making a decision. Thus, in this case the directors have failed to act responsibly towards the company.

In this case ASIC can seek a disqualification order against the directors as the contravention of section 344 attracts a civil penalty under section 1317 E of the act. After the declaration of the court towards the breach of duty by the directors is made, the ASIC can seek for disqualifications of the directors under section 206C of the act.

The board in this case failed in their responsibility towards dealing in content related towards to the annual report under section 295 A of the act.  The board failed to comply with accounting regulations and standards under section 296. The board failed to provide true and fair value in the annual report under section 297 of the act. The directors have also made a breach of the section 298 of the act by not complying with sections 299, 300, 300A and 307 relating to the information required in the director’s annual reports (Keay 2014).

The PwC should not be implicated in this case, as it is not the director of the company. a spate case can be filed against the PwC by the company for not complying with its duties.

References

Bruce, M., 2013. Rights and duties of directors. Bloomsbury Publishing.

Drexler, D.A., Black Jr, L.S. and Sparks III, A.G., 2015. Dividends (Vol. 1). Delaware Corporation Law and Practice.

Hannigan, B., 2015. Company law. Oxford University Press, USA.

Hanrahan, P.F., Ramsay, I. and Stapledon, G.P., 2013. Commercial applications of company law. COMMERCIAL APPLICATIONS OF COMPANY LAW, CCH Australia Ltd,.

Hunter, H., 2015. Modern Law of Contracts.

Jackson, K., 2015. Behind the Corporate Veil. ReVista (Cambridge), 15(1), p.50.

Keay, A.R., 2014. Directors' duties.

Kershaw, D., 2012. Company law in context: Text and materials. Oxford University Press.

Knepper, W.E., Bailey, D.A., Bowman, K.B., Eblin, R.L. and Lane, R.S., 2015. Duty of Loyalty (Vol. 1). Liability of Corporate Officers and Directors.

Newton, N., Hegarty, P. and Lawson, R., 2013. Getting your priorities right [The Personal Property Securities Act 2009.]. Law Society Journal: the official journal of the Law Society of New South Wales, 51(7), p.46.

Warry, B. and Guthrie, G., 2013. Directors' liability and the environment-business as usual?. Keeping Good Companies, 65(2), p.100.

Whittaker, B., 2013. Retention of Title Clauses Under the Personal Property Securities Act 2009.