Scenario 2: Murphy Jones and his wife Lorreta Jones were the two directors of BEST Equipments...

Scenario 2:

Murphy Jones and his wife Lorreta Jones were the two directors of BEST Equipments Pty Ltd. Murphy managed all the affairs of the company and Loretta was just a housewife and had no business experience and knowledge, due to her busy schedule she had most willingly left the management of the business to her husband.

BEST Equipments Pty Ltd had been facing liquidity problems and Murphy was well aware of this fact and yet continued to operate the business, took additional financial loans and made purchases on credit. Lorreta would often sign the business documents as and when requested by her husband.

BEST Equipments Pty Ltd was unable to pay the loan instalments on due dates and some of the cheques issued by the business were not cleared due to shortage of funds. The business could not withstand the financial pressures for long and received court orders to wind up and the court appointed an official liquidator for settling the liabilities and payments to creditors.

Lorreta in her defence said that she signed the documents as she had always been doing so, as and when requested, and the documents were never explained to her and neither did she feel the need for it as she totally trusted her husband’s business skills.

You are now required to read the above case scenario and answer the following questions:

Define insolvency as mentioned in s95A of the Corporations Act?
As per s588G of the Corporations Act, which statutory duty of the director has been breached by Murphy and Lorreta? What fact mentioned in the related case indicates application of liability of s588G.
For the purposes of deciding the liability of Lorreta, was it a “good reason” for her not to take part in the management, is it a sufficient defence available for breach.

HINT: Response must be based on Director’s duty to prevent insolvent trading, and defences available for breach of the same (s588G and s588H). Facts mentioned in Deputy Commissioner of Taxation v Clark

Solutions

Expert Solution

as per the above sections director is not liable for debts if it is incurred during illness or some other good reason

As Loretta jone is not ill and she is director of the company being director of the company she has a duty to be excercise care and skills so she is not excercised care so she is liable for debts it incurred as she signed the various documents of the company

ekkarill92 answered 1 year ago

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