Question

Vishal, Ajay and Jasper are students who are keen to make some money in their spare time in order to kick-start their future. Vishal owns a small van, Ajay has a lawnmower and Jasper has a computer. They thought about starting a lawn mowing service business and decided to establish a company, Freakdew Pty Ltd, to launch their dream business with everyone as equal shareholders and directors in the company.

Jasper prints flyers for the business and the three business partners dropped them in the local neighbourhood mailboxes and distributed at the train and bus stations. It did not take long for them to develop a stream of regular clients, and it suddenly became a lucrative business. Because of the increase in the demand, Ajay decides to purchase on a loan a state-of-the –art lawn mower for $100,000 from a company called ORCO. Ajay told ORCO that he was the Head of Operations as well as a director of Freakdew Pty Ltd. Ajay did not inform nor consult Vishal and Jasper about this purchase.

As the business continued to grow, Jasper then hatched a plan to develop a separate business with some of their existing clients and started channelling some of their income to his other business.

The company’s business suddenly slowed and their profits dried up. As a result, Freakdew was unable to service its loan with ORCO for the lawn mower that Ajay ordered. ORCO are now demanding Freakdew to pay for the lawn mower.

Answer the following questions with reference to specific provisions of the Corporations Act 2001 (Cth) and case law:

Advise Vishal and Ajay if they can lodge a complaint against Jasper for breaches in the Corporations Act.                                    

Answer 1

According to the Corporations act 2001(Cth) if a person does any activity which result in advantage for himself/herself rather than advantage for the company it is treated as an offence. It may also lead to criminal offence depending upon the size and damage to the company.

In the present case Jasper started new business which is not related to the company (Freakdew Pty Ltd) started by the three friends. It is his own business apart from the company. Jasper can start a new business without damaging the company or soliciting existing customers of the company. It is not an offence to maintain other businesses. But he started a business with the existing customers of the company and with the income generated by the company which is a serious offence which led to the downfall of the company and making the company insolvent because it cannot repay to the loan taken from OCRO company. In the lights of The Corporations Act,2001 it is advisable to Vishal and Ajay to lodge a complaint against Jasper as he committed offence and claim for breeches.

Even though Ajay bought a lawn mower on a loan of $100000 saying that is head of the operations and director of of the company without consulting or informing the other two, it is is not an offence because he purchase the lawn mower for the purpose of the business activity and not for his own advantage.