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RUNNING HEAD: COMPANY’S LAW

Company’s Law
Student’s name
Name of the Institute
COMPANY’S LAW 2
Contents
Introduction ....................................................................................................................................................... 3
Liability of Gemsales Pvt. Ltd. ...................................................................................................................... 3
Defenses for the case of Insolvency ............................................................................................................... 4
1) Colin: ..................................................................................................................................................... 4
2) Diana: .................................................................................................................................................... 5
3) Elizabeth:.............................................................................................................................................. 5
4) Brian:..................................................................................................................................................... 5
5) Andrew: ................................................................................................................................................ 6
Breaches of director’s duties .......................................................................................................................... 7
Remedies available to Gemsales Pvt. Ltd. .................................................................................................. 9
List of References ........................................................................................................................................... 10
COMPANY’S LAW 3
Introduction
Gemsales Pvt. Ltd. Is a jewelry supplier as in the local market as a wholesaler. The
situation discussed in the case in which there exists many parties consisting of five directors,
the Gemsasles Pvt. Ltd., Victor, who was the retailer and the bank named Friendly Bank Ltd.
Every party has one or the other liability in the present situation according to the common or
corporation law. The liability of each of the party will be discussed below.
Liability of Gemsales Pvt. Ltd.
Since Gemsales Pvt. Ltd. was took a loan of $4 million from Friendly Bank Ltd. and was
not able to pay the interest payments due to the overall situation at the company and the stage
of solvency, the court should first look at section 588G (Nwogugu 2004). This section will be
aised if the company has been engaged in insolvent trading or intentionally leading the
company towards insolvency. This section is applied when the following conditions hold
true:
 The person holds the director’s position in the company when it incu
ed the debt.
 The company is becoming insolvent at that particular time, or it became insolvent at
the time debt was taken
 There are reasonable facts to suspect the company being on the verge of insolvency
 The situation occu
ed after the starting of this act
The solvency of a company is defined on the bases of following grounds:
 It is able to pay the installments of its debt and the interest when they fall due. This is
defined in section 95A (1)
 Section 95 A (2) simply defines solvency simply as a state of not being insolvent
COMPANY’S LAW 4
Considering all the above conditions, it is highly likely that Gemsales Pvt. Ltd. will be
declared insolvent due to its inability to pay its dues. This section gives a facility to the bak to
lay down all the liabilities that the company has onto the directors of that company. This
condition is mentioned above. Since section 588G says that it is the duty of directors to save
the company from insolvency, the liability can be laid upon them in case of solvency. This
condition is an exception to the Separate Legal Entity Doctrine. This defines the
accountability of the legal business entity to be detached from the owner or director’s
liability. This was established by Solomon v Solomon Co. Ltd. Thus, the courts can lift up
the corporate veil and catch hold of the directors.
Defenses for the case of Insolvency
Since Gemsales Pvt. Ltd. is accountable for the case of insolvency under Section 588G,
for all the four directors, there has to be some or the other defenses, which they could take so
as to save them from the liability that the...