Assignment Topic:
One of the main ways in
which the ‘veil of incorporation’ can be lifted is when directors breach their
duties.This essay question is set
around the duty to prevent insolvent trading.You will need to have read the chapter in your prescribed
text that deals with this duty and have then researched more widely by looking
at other textbooks, the relevant CCH online library, articles from the internet
and journal articles.You must
answer both parts of this topic.
Please make sure you have REFERENCED in the body of your work
ACCURATELY,.Remember, referencing
shows you have researched and thought about what material will be relevant to
assist you in answering the questions.
Read
the following scenario and answer BOTH parts (questions) at the end.
OHS Solutions Pty. Ltd. is
a company formed by three friends (Des, Satish and Emma) who bring different
skills and abilities to the business.
Emma is an accounting graduate, Des has expertise in occupational health
and safety (OHS) and Satish has an IT degree.They decided to start up a business which would provide a
portal through which the public and businesses could access (for free)
information on all aspects of OHS.
OHS Solutions would finance its business, and make profits, by charging
businesses to advertise via their website.
The directors of OHS
Solutions are:
Managing Director – Des
Finance Director – Emma
(non executive)
Director – Satish
(executive – employed also to run the technological side of the business)
Director – Ying (non
executive) – a friend of Des’ and director of Support Pty. Ltd.(Support Pty. Ltd. has gone guarantor
for a $50,000 loan from the Business Bank Ltd. to OHS Solutions)
The Shareholders of OHS
Solutions (holding equal amounts of ordinary shares) are Des, Emma, Satish and
Support Pty. Ltd.
As at January 2007 OHS
Solutions had been operating for six months.It had some initial IT problems which prevented some of the
advertisers’ material from being accessed.In order to try to help overcome these technical problems
Satish engaged Trouble Shooters Pty. Ltd.
At the February Board
meeting, Satish reported that two businesses who had paid to advertise on the website
were dissatisfied with what was happening and were threatening to sue for
breach of contract.Emma was
unable to table any financial information as the employee who had been doing
the accounts had been sick and when Emma looked at the records she found that
they seemed to be in a bit of a mess.
She did find a large account from Trouble Shooters that was over
due.Des reported that he was
disturbed by this news.He had
been told by Satish that the IT problems had been fixed since Trouble Shooters
had been engaged, and he had just signed a $10,000 advertising contract with
Promotions Plus Pty. Ltd. to advertise the website and signed up to go to a
trade show to be held in conjunction with a forthcoming OHS conference.He said this was needed because a
number of high profile advertisers were threatening to discontinue their
association with OHS Solutions unless the portal became better known.
Ying just listens in
disbelief at the March Board meeting.
It seemed to her that OHS Solutions is being poorly managed and is
failing to make the most of a potentially profitable business opportunity.This could present an opportunity for
Support Pty. Ltd. to make an offer to buy OHS Solutions at a good price.On the other hand Support Pty. Ltd. is
exposed as a guarantor.
Assume she consults you,
an accountant, for your preliminary view about the predicament of OHS Solutions
and what she should do.
Assume also that the first thing that comes to your mind is whether Ying
herself may be vulnerable as a director of OHS Solutions for failing to prevent
OHS Solutions from trading when it is insolvent.
YOUR
TASK
Part
A- (approx 800-1,000 words)10 marks
Write a brief
explanation about why the directors’ duty to prevent insolvent trading exists
and the circumstances and consequences of the ‘veil of incorporation’ being
lifted for insolvent trading.(Do not just
repeat the words of the relevant sections in the Corporations Act).
And
Part
B(approx 1,500-1,700 words)25 marks
From what you know of OHS
Solutions’ predicament, DISCUSS whether any of the directors may be about to
breach or have already breached the duty to prevent insolvent trading.(In order to do this you will need to
compare what is happening in OHS Solutions case with other precedent cases and
refer to the relevant sections in the Corporations
Act.)What will you advise
Ying?
(Note:you do not have full information, so
state briefly in the essay what information you need and make reasonable
assumptions that will allow you to give your advice.ONLY DISCUSS INSOLVENT TRADING – THAT IS THE QUESTION AND
YOU DON’T HAVE ENOUGH WORDS TO GO INTO OTHER AREAS)
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.