corporation law
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 share holders 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 shooter 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 emmma looked at the records she foun d 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 at $10000 advertising contract with promotions plus pty.ltd to advertise the website and signed up to go to a trade show to be held in conjuction 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 by 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 (1,000 WORDS )
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 corporation act)
PART B (1700 WORDS )
From what you know of ohs solutions predicament discuss whether any of the directors may b e 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 releveant 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 wioll allow you to give you advice
Only discuss insolvent trading that is the question and you don’t have enough words to go into other ares
Pleallse not the following instruction s
References must be cited in Harvard referencing style (eg smith 1992)
The 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 in clearly shown in footnote format
In addition to surces from the internet at least three hard copy surces must also be used these can be either books or articles or both materials from any common law jurisdiction may be used
How to answer
Part a
Does the section apply
What does it apply and to whom?
Director when a company incurred debt
Company what insolvent at that time are become insolvent by incurring that debt
Insolvency
Loan is a debt
Describe insolvency
Section 95 a
Step 2; contravention of s 588g(2)
Awa vs donial reasonable director
Alter meetings
No what company does
No the finances
Step 3
Reasonable to pay debt
Metroplition time system
Found by third party
Step 4
Consequences civil penalty compensation liquidation
Paragraph an each director wheather they have breached the duties
Advice him of what further step
Conclusion
Why company incurred the debt ,inslolvent and the consequences.