Australian Corporate Law

Order Description

Please refer to Australian corporate Law and focus on topic: Directors and Officers,The Duty of care and Diligence. the required reading is Chapter 17 of Jason Harris,

Anil Hargovan and Michael Adams, Australian Corporate Law , 4th edition (2013) and also the Corporations Legislation 2014 Edition (Annotated version by Thomson

Reuters)

Required Text / Resources:
Chapter 17   Jason Harris, Anil Hargovan and Michael Adams, Australian Corporate Law , 4th edition (2013)
Corporations Legislation 2014 Edition (Annotated version by Thomson Reuters)

* If you’ve explained a relevant legal rule once and applied it, you dont have to explain it again if you want to apply it a second or third time. No need for

repetition anywhere really…

* Writing these answers is like writing a mathematical solution – I want to see your conclusion sure, but I’m probably more interested in the reasoning you used to get

there, so show me your working! Explain the relevant principles, take me through their application, then show me the result.

* You’ve been asked to advise directors on their liabilty under s180 which includes discussing potential defences. To aid you in your prioritisation, the defences part

will be worth 25% while dealing with the duty of care proper and covering any consequences in your conclusion will be worth 75% of the marks available.

Read the question carefully (and I mean the question, at the bottom, in bold, not the actual hypothetical situation, yet…) and think about the areas you’ve covered

that it relates to.

After you’ve done that, read the hypothetical situation, paragraph by paragraph and note the interesting facts which pop out at you as informative, interesting, weird,

or simply, what you think might be a legal issue.

Do this again and try to put the pieces of the factual puzzle together, using the facts you’ve just noted to work out what the legal issues might be as the different

facts interact with eachother.

After you’ve done that to the point you’re comfortable you’ve worked out what the relevant legal issues might be, consult whatever sources you think appropriate (text,

annotated act, other texts) to get a deeper understanding of the area so that you can complete the next step effectively.

Outline/discuss the relevant law. For legislation, not just blind quoting, but describing and explaining; for cases, not just the facts, but the ratio/ratia that you

think might be useful when you come to the next step.

Just to reiterate, again: Explaining the law in that step above is crucial. I think I’ve said it every week we’ve talked about this, the less developed your

explanation of the law is, the less detailed (read ‘worse’) your application and analysis of the actual situation is likely to be.

It might help to think of the situation practically, like ‘who’s lost what’ or ‘who wants what’ or ‘who’s taken something from someone’ and ‘what should they have done

instead to avoid legal issues’. Asking these kinds of questions, simple as they are, would have kept some of you on topic.

Be specific in your analysis. When you see a fact, ask not just ‘what is this saying’ but also the reverse, ‘what is this not telling me that I need to know’.

If you haven’t maxxed out the whole two pages then your analysis is likely to be deficient in some or many respects. Using half a page for a ‘summary’ on the other

hand is a waste of space that could have been better used for detailed analysis of the law and its application. Better to have a concluding paragraph where you outline

your major points and explain consequences/practical next steps/outline what the people in the situation should have done to avoid legal issues than a ‘summary’.

Don’t be afraid to use and discuss cases! So few people discussed Crabtree or Freeman Lockyer in any real detail and their analyses suffered as a result. I can count

those who quoted or even used Lord Diplock’s formulation for implied authority (as opposed to apparent authority) on one hand. Be clear in distinguishing between

different concepts – don’t just say ‘Tim had authority’ – tell me what type and why. I need to see reasoning (i.e application of legal rules).

Try not to assume anything. If you have to, spell out why and also the opposite case (remember Lady Justice, balancing arguments). The directors were not drunk. The

facts say only that they were having a ‘quiet scotch’. Not that they were popping bottles with Lady Justice.

Set up/plan your discussion methodically. So many people jumped straight to apparent authority without even considering implied authority by acquiescence for Tim.

Try not to assert anything or make any conclusions unless you’re on some solid ground, in the form of legal rules (legislation and/or cases). If you’re not, either

find some, or be tentative in your statements.

Differences between statute and common law, i.e Sunburst Properties v Agwater [2005] should have been highlighted.

Do you really think Mr Kaza discharged his duty to himself/Audiophiles in the circumstances? Would you have asked any further questions of Tim if it was your work,

your money on the line?

Use all the relevant facts available to explain your position, and if you lack any, ask for them! Then analyse briefly each option if you think it’s an issue that’s

important enough, but only briefly. Eg, Olivia’s status.

As for the tortious primary/secondary liability issue, barely anyone discussed the extremes of the doctrine, with Tesco on one hand and ABC Learning on the other and

what these might mean for Tim and Olivia and Sounds.

Homework  Assignment   2  –  CLAW  6002  –  Due  11pm Monday  6  October 2014, Blackboard

When  Jokers   Attack   (WJA)   Pty  Ltd  operates   a  music  store  in   Newtown.  The   company   has  four   directors:   Anton,
who   completed  a  degree   in   business  and   manages  the   company’s  daily   operations;   Dave,  who   dropped  out  of
school   and   became  the   lead   singer   in   an  inner-Sydney   pub   band  but  works  in   the   store  during   the   week;  Elvis,
an  old  friend   who   works  full-time   as   a  doctor   and   takes  no  active  role   in   the   management  of   the   company   but
attends  board  meetings;  and   Dave’s   ex -girlfriend   Phoebe,  who   used   to   work  in   the   shop   and   became  a  director
after   she   injected   a  large  amount  of   capital   in   return   for  25%   of   the   shares   in   the   company   when  it   was  facing
financial   difficulties  over   five   years  ago.   Phoebe  has  become  a  successful  musician  in   her  own   right   and   has
neither   the   time   nor  the   interest  to   maintain  involvement with   the   business  in   any  real  capacity.

While  finding   some  initial   stability  after   Phoebe’s   capital   injection,   operations  at   WJA  have   yielded   average
returns   in   recent   years.  In   Phoebe’s   absence,   Anton  has  recently  lent   a  large  proportion  of   the   injected   capital
to   other  companies  he  is   associated  with.  Given  he  plays  a  central   management  role   in   those  companies  as
well,   he  did  not  think  there  was  a  need  to   document  the   loans,   expecting   them  to   be  paid   back   within  a  few
months.  After  a  few   particularly   bad   months  of   trading   at   WJA  which  have   resulted  in   creditors   making   abusive
phonecalls  to   WJA’s  main  number,  some  of   which  Dave  answers,   Anton  begins   to   think  the   shop   should   be
moved  to   an  area   where  people   might  be  more  willing  to   spend   more  money   on  music.  After  a  few   hours
searching   the   internet   for  suitable  areas  and   premises,   he  calls   a  meeting  of   the   Board  (the   first   in   2   years)
where  he  tells   Dave  and   Elvis   that   he  has  found   a  suitable  location   for  the   shop   to   move  to   and   that   this   would
result  in   sustained   profitability   for  the   company   in   the   future.   Although   he  has  not  physically   inspected   the
property   due   to   his  busy   schedule,   Anton  is   impressed  with   its   size   and   proximity   to   the   main  shopping   centre
in   the   area,  and   tells   Dave and   Elvis   there  is  a  degree   of   urgency as   there may  be  another  interested buyer.

Dave  and   Elvis   are  a  little   apprehensive   at   first   in   view   of   WJA’s  average  financial   position  and   are  concerned
about  its   ability  to   pay  for  the   new   site.   Sensing  this,   Anton  presents  Dave  and   Elvis   financial   statements   and
projections   which  show  the   business  making   a  solid   profit  with   good  cash   flows  should   it   move.  These  figures
omit   the   financial   effects   of   the   loans  Anton  has  provided   to   entities  he  is   associated  with.  Dave  and   Elvis
briefly   inspect   the   information   provided   to   them.   While  the   rushed   nature   of   the   transaction   concerns   Elvis,  he
does   not  ask  Anton  any  questions.  Likewise   Dave,  who   is   not  very   good  with   numbers,   and   just   relies  on
whatever   Anton  says   anyway.  Dave  does   however   take   the   opportunity   to   ask  Anton  about  the   phonecalls  he
has  been  getting   from   distressed  creditors.   Elvis   expresses   some  surprise,   though   Anton  brushes  the   question
off  saying   ‘they’re  crazy,  don’t  worry  about  them  man,  creditors   don’t  know  how   to   count!’.  The   three  laugh,
and   Anton  mentions   that   he  thinks   it   would  be  a  great  idea   to   throw   a  big  opening  party  at   the   new   store,  so
he  proposes   that   WJA  retain   his  brother  Thom,   a  party  planner,  to   organise  it.   Both   Dave  and   Elvis   end   up
agreeing   with  Anton’s new   plan   for the  business.

After  the   meeting,  Dave  and   Elvis   walk   out  of   WJA’s  office  and   find   an   envelope   from   the   bank   addressed  to
WJA  on  the   ground.  They   go  to   a  bar  for  a  drink  and   open  the   envelope.   In   it   they   find   a  bank   statement  which
details   large  figures   being  transferred   from   WJA  to   companies  they   have   never  heard  of.  They   wonder  whether
Anton  accounted  for  these  movements   in   the   figures   he  presented,  concurring:   ‘its  Anton,   he’s   good  with
business  and   stuff,  he  did  a  business  degree   right,  he’s   probably   just   trying   to   get  more  interest  or   something’.
They   then   bump  into   Phoebe  at   the   bar,   who   tells   them  that   she   has  heard  that   Anton’s  other  business
interests   have   not  performed  well  lately  after   pursuing   risky   business  projects.   When  she   asks   how   WJA  is
going,   they   tell  her  that  they’re   about  to   move  to   another area.  She   says  simply,   ‘cool’.

WJA  purchases  the   new   premises   and   moves  its   business  across.   When  Thom  asks   his  brother  for  approval   for
party  related   expenditures,   Anton  flicks  a  WJA  Pty  Ltd  credit  card   at   him   and   says   –  ‘I   want  the   best   party  you
can   organise.   You   know  how   to   do  this   stuff,  just   do  it   man,  now   get  out  of   here,  I’m   busy.’  Thom  uses   the   card
to   organise  the   craziest  party  he’s   ever   organised,  and   pay  himself   a  sizeable  bonus.   While  the   event  itself   is   a
success,  it   does   not  result  in   any  noticeable  change   in   profitability.   This   could  be  because,   as   the   directors   soon
realise,   Anton  has  paid   an  excessive   price  for  the   premises,   and   there  is   a  Music  Megamart  around   the   corner
which  has  a  loyal   customer   base   and   is   able   to   undercut   the   prices  offered   by   WJA.  When  visiting   WJA’s  store
one   weekend  Elvis   chats  with   the   neighbouring  business  owner   and   finds   out  that   the   site   was  formerly   owned
by   Anton  and   Thom’s   parents.  Meanwhile  Anton  decides  to   authorise   the   extension   of   credit  to   all   customers
to   2   months  interest  free   in   circumstances   when  the   industry   average  is   14  days   for  those  with   pre-approved
credit  status   in   an  attempt  to  compete   with  Music Megamart.  Returns continue   to   fall.