Question

Mr T and Mrs T are directors of P Pty Ltd which trades as “Fluffy Donuts of Manly”. Mrs T makes the donuts and serves in the shop while Mr T attends to financial matters. In fact Mrs T was attracted to Mr T before they were married because he was an accountant, and could, she believed, provide her with the financial guidance she lacked. The business operates from leased premises. The company owns certain stock and fittings valued at $15,000 but other than this has no assets of value. Bad weather has slowed business, however, Mr T’s spiritual advisor says the weather will get better. With this in mind Mr T decides to invest in advertising the business so that when the weather gets better he will sell more donuts than before. Accordingly Mr T approaches the company’s bank and borrows $50,000 on behalf of the company. He uses all of this money to pay for advertising for the business. Suppliers are owed $60,000 but have held off enforcing their debts because they also believe the weather will get better. There is group tax outstanding for the two part time employees. Mrs T trusts Mr T’s judgement. The rain stops but the customers do not return. The advertising company (owed $50,000) winds P Pty Ltd up and a liquidator is appointed. Discuss the liability of Mr and Mrs T under s.588G.

Answer 1

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