Law assignment management on: Case study of Melbourne pty ltd
FACTS OF THE CASE:
Melbourne Pty Ltd has been referred to as an organization which consists of five main members namely Sarah, Jill, Susan, William & Jack as its directors. Out of the five members mentioned above, Jill is the secretary, William the managing director, Sarah, Susan & Jack are the executive directors. Being the executive directors of the company Sarah & Susan did not involve themselves within the business much and completely relied upon Williams for running of the business. Apart from the same, Jack also involved him in the functioning of the company before he was regarded ill in 2008. Due to severe illness, Jack planned to resign from the company. At this moment, the financial position for the organization i.e. Melbourne Pty Ltd was at a worsening stage. As stated in the case study, Williams intended not to tell anybody regarding the financial position of the company or else everybody would be in deep depression. William always tried to mislead the other members regarding the financial position of the organization. Based upon the reports generated by Williams, it was seen that members had planned to declare dividend and declared that the company is on the urge of getting liquidated. In this situation the liquidators had discovered that the financial position of the organization was not good due to severe illness of Jack.
SOLUTION:
Based upon the facts discussed in the case study, it is seen that there has been a willful breach of duty being the managing director of the enterprise. It has been seen that, the financial records of the enterprise are not kept in safe & the records are not maintained in a meaningful manner. After reading the case study it is very well understood that, there has been breach of the duties within the organization. For the entire loss, William is responsible as he dealt in insolvent trading. It has been seen that, he being the managing director of the company breached his primary duty of informing the other members regarding the financial position of the enterprise. It must be taken into consideration that, if and only if the other member of the enterprise was informed then the situation of insolvency would not have been occurred. Though, William had a reason behind of not telling it to the other members but he should have informed the other directors regarding the same. William should have communicated to the other members that the financial position of the organization is not up to the mark & the financial records which were maintained by Jack lacked accuracy. By not informing the other directors of the enterprise, William created blunders which lead to the liquidation of the company. As stated in the beginning that, Sarah, Jack & Susan did not interfere in the business much and completely relied upon William. William has even breached Sarah, Jack & Susan’s trust of relying upon him completely.
ISSUES:
Based upon the definition of the Corporations Act (CA), William possesses certain obligations of performing his duties for the success of the enterprise. William being the managing director has been catered with high levels of trust as well as obligation to perform certain duties with utmost care, respect & diligence. Being catered with such responsible position, he is no one to breach the trust of the people who are working with him as well as entrusted full trust in him. Based upon the case study it has been understood that, Williams did not take proper decisions in regards to the business matters. Based upon the provisions it shall be seen that, the subject matters shall be taken in good faith keeping in mind purpose of the organization thereby surpassing personal benefits. Based upon the roles & responsibilities of the managing director (MD) mentioned in the Companies Act U/S 80, the decisions taken by the MD shall not be taken due to any personal benefit or interest whereas it shall be purely based upon the benefit of the enterprise.
LAW:
After looking into the issues mentioned within the case study, the managing director of the company i.e. Williams would be covered under Section 181. Based upon the Section 181 of the Companies Act, the director of the enterprise would be liable to perform its duty in good faith keeping aside its personal or betterment of the members of the enterprise. Under Section 182, William being catered to as one of the main members of the enterprise should not have misused its position by not providing the other members of the organization regarding the financial position of the same. William has misused its position as well as broke the trust of the other members of the enterprise. Therefore, he would be liable for civil penalty. It shall be seen that under Section 184 Sub – Section 2, William shall be held liable as well as found guilty for commission offence i.e. he misused its position & his action led to high levels of loss for the organization.
As mentioned above that, what are the duties of Williams and what actually did he breached the duties. Along with Williams the other members of the company shall also be made responsible for the insolvency of the enterprise even when they were quite ignorant about the financial position of the company. After reading the case, it is well understood that whatever William did was in good faith & there were no harsh and negative feelings regarding the enterprise. When such situations arise, it would be advisable to know the various grounds which would be available for the defence.
Based upon the different circumstances, there are various defenses which are available when an individual breaches its duty as a director or etc. Therefore, it is quite advisable for Williams to take proper legal guidance which would have helped him to save the company. Some of the defences which would be available for the directors have been listed in this section of the report. They are as follows:
The defences available to the director are:
Þ The director shall take up various steps which would help to prevent the levels of debt as well as have a fair reason or incurring debt.
Þ The directors shall on reasonable grounds should expect that the enterprise is solvent as well as after incurring the debt shall be regarded as solvent.
From the two defences mentioned above, it can be readily seen that William will not be able to escape from its liability which he has committed unintentionally. It shall also be seen that, granting dividends to the members of the organization will also affect the financial position of the company in the long run.
But the other directors who relied on the information given by William can excuse the guilty of offence by proving that they were ignorant of the fact and also that they relied completely on William for the information about the company. With reference to Manpac Industries Pty Ltd v Ceccattini [2002] the other directors who had relied on William for the information can claim defence on the allegation that they had relied on William for the information and were ignorant about the financial position of the company.
Susan and Sarah can claim defence stating that they had relied on William and that they believed that William reliable and competent in relation to the matters of management of the company under sec 189 of the act. They can also defend themselves with the help of provisions given under sec 588H(3) of the act, stating that they had reasonable ground to rely and believe the information provided by William and they felt that he had provided them the accurate information and that they assumed the financial position of the company to be solid. Trusting the information they had received they declared dividends thus they can defend their act stating that they had performed the act based on the information provided to them by William. Jack on the other hand can use the defence of being absent during the decision of incurring debt because he was down with ill health and that he was not available at the time of the decision making along with Susan. Thus from the given offences we can advise Susan, Sarah and Jack the allegations they can defend themselves with.It can be seen that, from the given defences William does not has a way out to defend itself from the act which were being performed in good faith. William will not be able to defend itself under the various provisions as there are no reasonable grounds based upon which he can prove that the financial position of the company is quite stable. He cannot excuse his act as he did have the idea that the company would become insolvent if there was any debt transaction made. He had the financial data present before him which stated the feeble financial position of the company, knowing this he intentionally made false statement that the financials of the company were solid and based on this statement the members had gone forward for declaring dividend and thus based on the facts of the case and the provisions under the corporation and also the orders passed in the different cases it can be held that William and Jill are held guilty for the act of insolvency trading and that they cannot defend themselves from the guilty of offence.
We understand that apart from William and Jill the other directors have defences to keep aside any allegations made against them. The liability that would be imposed on the director for breaching the duties of insolvency trading under the provisions of the act can be penalized under a wide-range of offences and also very stringently.
It shall be seen that, in the given scenario even though William had committed the mistake intentionally and is clearly stated within the case study that, the act is performed in good faith and did not burden any of the members of the enterprise. If this would have been the case, then the financial position of the enterprise would not have been like this. After reading the case study & giving it a deep though it shall be seen that, this is a case of criminal offence as the act was performed with no intentions or defraud anybody. This case was performed with sheer good intention.
The second category of sanction refers to the civil penalty where in the people would be penalized for undertaking any type of civil offense. The civil offense may be in any form direct or indirect wherein the act is performed without any bad intentions to affect anybody. It shall be seen that, the commencement of the act has affected large number of people therefore, the person involved in this situation would be penalized by the same amount under the criminal penalty i.e. $2, 00, 000. But, at the same time they will not be left out from the management for 5 years. Hence, the person involved within the act would be required to pay equal amount of loss which is being suffered by the creditors. From the facts discussed above in the report, William along with Jill would be covered under civil criminal as they performed the act intentionally without any bad intentions to deceive anyone.
CONCLUSION:
Hence, it could be concluded that based upon the given information in the case study William (Managing Director) along with Jill (Secretary) have breached their duties based upon the provision discussed within the Corporation Act. Therefore, with no one to support them it civil liability is to be incurred by both of them.
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