Assignment Topic:Andrew, Brian, Colin, Diana and Elizabeth were the directors of Gemsales Pty Ltd, a...

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Assignment Topic:Andrew, Brian, Colin, Diana and Elizabeth were the directors of Gemsales Pty Ltd, a company engaged in the business of importing and supplying jewellery as wholesalers to the local market.The company decided that as the market was becoming more competitive it needed to expand its business as it felt with increased volumes of sales it would be able to lower its prices and be more competitive. In order to do so it obtained a $4 million dollar loan from the Friendly Bank Ltd. $3 million was used to buy more stock and $1 million was used to buy a large new warehouse and showrooms from Traders Pty Ltd.Colin was not at the meeting that had made these decisions as he was in hospital recovering from a serious accident. Elizabeth, as was her usual custom, had not attended the meeting but signed the requisite documentation agreeing to the expansion of the business and the getting of the loan. Diana who attended, said she did not know if she agreed and abstained from voting. Andrew and Brian both voted to go ahead with the expansion and the getting of the loan.At about this time Brian has established contact with Victor, who was setting up a new business as a retailer of jewellery. Victor was looking for reliable suppliers, but said he would not deal with Gemsales Pty Ltd as he did not like Andrew, the Managing Director. Not wishing to miss out on such a lucrative business opportunity, Brian arranged to set up his own business as a jewellery wholesaler and a contract was entered into between Victor and Brian for the supply of jewellery.Six months later, Brian resigned as a director. At the same time it was clear the company had over-extended itself and was insolvent and could not pay the interest on its loans.It also became clear that Brian was a major shareholder in Traders Pty Ltd and the other directors were unaware of this at the time of the purchase of the warehouse and showrooms. Furthermore, Brian had been approaching other established customers of Gemsales Pty Ltd and had secured orders for his own business.Advise as to the liability of ALL the parties both under common law and the Corporations Law. In your answer you should address all the issues relating to each of the directors and their duties to the corporation.PLEASE NOTE THE FOLLOWING INSTRUCTIONS:References must be cited in Harvard referencing style (eg Smith XXXXXXXXXXThe assignment must include a bibliography (list of references used in the assignment). The Internet may be used for authoritative reference material provided the source, author, date of access, and site address is clearly shown in footnote format. In addition to sources from the Internet, at least three hard-copy sources must also be used. These can be either books or articles or both. Materials from any common law jurisdiction may be used.

Robert · Accepted Answer

Running Head: CORPORATE LAWS   1 

Corporate Laws
Running Head: CORPORATE LAWS   2 
 
Introduction 
This paper would describe the liabilities of directors in different situations in the context 
of the company and its insolvency states. The paper would describe the different issues that 
would help to recognize the liabilities of directors. 
Case of Gemsales Pvt. Ltd 
In the case, there are five directors that have different nature in the context of board 
meetings and some of them do not take interest to attain the meeting for making the significant 
business decisions related to the growth of business and sustainability also (Adams, 2002). 
Hence, on the basis of case, it could be stated that there are some issues that describes the 
liabilities of the directors towards the company.  
First Issue 
The first issue in the case is related to the liability of company’s director to pay the 
interest of take loans to Friendly Bank Ltd. the corporation laws and common laws of Australia 
describes the liabilities of the directors within the company as a director of the organizational 
groups. Both laws describe about the liabilities of the directors on the basis of the situation and 
their acts or decisions. Hence, the corporation act 2001 significantly describes the liabilities of 
directors in that situation when the company has a liability to pay the loan (Cassidy, 2006). 
Hence, the section588G of corporation act 2001 and its subsection (1) (2) (3) helps to describe 
whether the directors of the company is responsible for the insolvent trading and contract 
breaching or not (Adams, 2005).   
At the same time, the section 588g (1), (2) and (3) also focus over that situation, when 
debt was obtained and insolvency suspicion. The section of S95 A defines the meaning of 
company insolvency. Its subsection (1) describes about the situation of solvency that help the 
Running Head: CORPORATE LAWS   3 
 
company to pay its liabilities or debts in those conditions, when the company is not be able to 
perform its duties and responsibilities related to debt. The subsection S95 A (2) describes 
insolvency when it has not being solvent. As a result, it could be possible that the company 
would like to declare it’s self as in the insolvent state.  
When the management of a company has declared it’s self in insolvent stage, the rules 
and regulations of corporation laws lift its corporate covering and legal identification. This 
situation also describes the liabilities of the company on the behalf of its directors under the act 
of S588g. This act also attaché the liabilities of the directors, if the company is under the 
insolvency stage.  Under the given liabilities, it is a duty of directors to prevent the right of 
stakeholders by preventing the insolvent trading at the time of insolvency. 
Under the corporate laws and common laws of Australia, there are some personal rights 
of the directors by that they could protect them from the liabilities of the prima facie case of 
insolvent trading.  
Colin: 
Under the act of S588H (4), Colin could get significant defense from any kind of liability 
(Adams, 2005). It is because this act describes about the relief to the directors in that situation, 
when he or she was ill and did not attend the board meetings and the decisions related to the 
financial debt is taken by other directors without his or her proper consideration or proper 
communication  
Dina:  
The case of Dina is totally different from the case of Colin because at the time of voting, 
she did attain the meeting or could not take the participation in the voting process. On the basis 
of this situation, Dina could protect herself with the help of corporate laws 2001, S588H (5) 
Running Head: CORPORATE LAWS   4 
 
(Baxt & Baxt, 2005). This section of the act provides some remedies to the directors, if he or she 
has not attained the board meetings. This section of the act also states that the director of the 
company could not be liable in that situation, when the other directors were taken the decision 
for the prevention of the company from the negative impacts of debt.   
On the other hand,

Assignment Topic: Andrew, Brian, Colin, Diana and Elizabeth were the directors of Gemsales Pty Ltd, a company engaged in the business of importing and supplying jewellery as wholesalers to the local...

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