Question

Week 6 - Question 1

Polyester is a director of Style Pty. Limited involved in in making women's clothing.

Situation 1. She arranges with the companies bank to transfer an amount of $65,000 from the company account into a personal bank account held by her in her own name. She uses the funds to finalize some outstanding personal debts.

Situation 2. As a director she receives information that the company is in a serious financial position. She arranges to transfer a larger amount of the assets of the company over a new proprietary company that she formed with the intention of caring on the same business.

Situation 3. Contrary to a resolution of the Board and notwithstanding established business practice that limits credit to $20,000 she allows a trade debtor (who has a history of bad debts) to exceed its credit limits by $25,000. The debtor fails to pay the outstanding amount of $45,000. Can she rely on the business judgment rule in this situation?

Required: Has she breached any duties under the Corporation Act in the three (3) situations listed above?

Answer 1

Directors are obliged to perform their duties and responsibilities as obliged to perform under corporation Act in sound manner. Corporation Act expect a little due diligence and action in favour of the company rather thna working for the personal interest over the fund of the company.

Keeping in mind Coporation Act laid down several respnsilities and duties for Directors:

- Judgemnt in the Interest of the business

- No personal interest in Any kind of decision making process

- Do all the Hit and Trial and analysis of he all the situation before supporting any decision it means,

But in Current Situation Polyster who has transfered 65000 $ as loan same is utilised for personal purpose, Secondly Transfereing Asset with a intention to operate separately are not showing sound judegement in favour of Company. Lastly, Allowing the limit beyond the extent of 20000 $ even knowingly that the debtor is already baddebt in history, Showing the Lack of due diligence and unprofessional behaviour. Hence from above discussion it can be concluded that duties are not perfoemd well by the director and looking for personal interest in all the decision taken above. Hence as per Corporation Act ned to be penalised or disqualified.