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Self Review Questions for Final
Self Review Questions - Week 2&3
1
...
• There must be a valid agreement between the parties as required by the word
‘relation’; the agreement does not have to be in the form of written contract
...
The business may involve a continuing activity over a
period of time, or it may involve a single event;
• There must be two or more persons working in the business together (silent partners
may exist)
...
And whether there are mutual rights and obligations between the parties whose behalf
the business is being carried on
...
2
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Joint liability means that the partners are liable collectively
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b) But partnership is jointly and severally liable for any wrong committed by the firm
...
3
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Why is agency an important concept in partnership law?
a) It builds the partners liability in partnership law
...
c) This means that each partner may incur liabilities or enter into contracts on behalf of the
business, and each partner will be liable for debts and obligations properly incurred on
behalf of the business by other partners
...
5
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Limited partners also enjoy rights to the partnership's
cash flow, but are not personal liable for company obligations
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But LP can inspect the partnership books
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Identify four major differences between a public and proprietary company
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b) Proprietary company cannot lodge a disclosure document during fundraising, which
means they can only raise the funds from its own employees or shareholders
...
7
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Gross operating revenue of less than 25 million for the financial year;
ii
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5 million at the end of the financial year;
iii
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8
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c) Companies which are proprietary companies can be registered as limited by shares and
unlimited with share capital companies
...
What is a discretionary trust and what its primary purpose?
a) a discretionary trust is a trust where the beneficiaries and/or their entitlements to the trust
fund are not fixed, but are determined by the criteria set out in the trust instrument by the
settlor
...
b) The discretionary trust is particularly useful, in this manner, as a method of minimizing tax
as distributions may be tailored to particular beneficiaries
10
...
This
type of business structure is formed when a settlement is made to a trustee (a person or a
company) on behalf of a yet-to-be-formed trust
...
a) Used for distribute income of family business
b) Structure: individual as beneficiary; company as trustee
...
What are the duties, powers, rights and liabilities of trustees?
a) Duties
Trustees owe fiduciary duties to beneficiary
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b) Powers: defined by the trust instrument, which may direct and guide the trustee in many
2
ways
c) Rights
i
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The trustee also has various statutory rights under the
Trustee Act
...
Generally not a separate legal entity
...
12
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What are the features of an unincorporated joint venture?
a) Unincorporated joint venture could only rely on loans and trading profits to finance growth
b) Unincorporated joint venture could have financial privacy, do not need to disclosure their
information
14
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What does the expression “separate legal personality” mean?
According to Salomon Case, the company is a separate legal entity; in s 124 the Corporations
Act treats the company as an individual with their own legal rights, liabilities, capacities and
powers
...
What are the consequences of treating the company as a separate legal entity?
Treat separate legal entity causes four major consequences:
The distinction of corporate and personal debt; the distinction of corporate and personal asset;
Company can enter into contracts with its members; Company could be liable in tort to a
member
3
...
In what circumstances does the Corporations Act pierce the corporate
veil?
a) director’s personal liability for insolvent trading (s588G)
b) financial assistance(s260A)
c) company officer charges (s267)
d) directors liability as trustee (s197)
e) group liability for insolvent trading for subsidiary (s588V)
f) consolidated group accounts (s296)
5
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Were the profits treated as the profits of the parent?
ii
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Was the parent the head and the brain of the trading venture?
iv
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Did the parent make the profits by its skill and direction?
vi
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6
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Can a creditor automatically sue the directors for insolvent trading?
a) No
...
8
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they can use several statutory defences
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9
...
10
...
11
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m) If the provision of s 588G (3) apply, the director will have committed an offence resulting in
the application of criminal penalties
...
What is the significance of the decisions in Deputy Commissioner of Taxation v Clark
(2003) 45 ACSR 332 and in ASIC v Plymin, Elliot & Harrison4 (2003) 21 ACLC 1237 for
company law?
n) DCT v Clark: non-executive director who fails to actively monitor the management of the
company will not be able to escape liability for insolvent trading on the basis that they did
not possess the required skills necessary to monitor the management
o) ASIC v Plymin
i
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Positive obligation on the directors to stop the company’s insolvent trading
The directors cannot prevent insolvent trading they have an obligation to resign
immediately
Self Review Questions - Week 5
1
...
b) Consequently, people such as directors and other executive officers of the company can
be said to be acting as the company rather than act for the company
...
and is determinative of the co’s liability for a civil
wrong or crime
...
How do ostensible authority and actual authority differ? p236
a) An actual authority is a legal relationship between principal and agent created by a
consensual agreement, if the agents enter into a contract pursuant to the “actual”
authority, it does create contractual rights and liabilities between the principal and the
contractor
...
It is a
legal relationship between the principal and the contractor created by a representation
made by the principal to the contractor, intended to be and fact acted on by the contractor
3
...
The aim of the indoor management rule provides some degree of protection for innocent
third parties dealing with companies to make sure their contracts are valid and binding
...
How does the Corporations Act protect third parties who contract with the company?
What are the limitations to this protection? P240
5
Self Review Questions - Week 6
1
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b) Assist investors in identifying risks
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What types of disclosure documents can a company issue?
Section 709: (1) prospectus (2) short from prospectus, (3) offer information statement, (4)
profile statement
3
...
4
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Small scale exemption (20 issues in 12 months with maximum of $2 million raised);
ii
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5 million);
iii
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senior manager/relation exemption;
v
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takeover and schemes exemption;
vii
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viii
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In general terms, what information must a prospectus contain?
a) General disclosure test:
b) Section 710(1) requires the prospectus to provide all the information that investors and
their professional advisers would reasonably require to make an informed assessment of:
i
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The assets and liabilities of the body
6
iii
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The profits and losses of the body
v
...
What type of activities can give rise to civil and criminal liability during corporate
fundraising?
7
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b) Liability could be avoided if the defendant can prove they:
i
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After doing so, reasonable believe that the statement was not misleading or deceptive,
or omission from requirements
...
What is the role of ASIC and what powers does it have during corporate fundraising?
a) all disclosure documents must be lodged with ASIC prior to the public distribution
...
*Interim stop order (co must issue supplementary/replacement disclosure document and
address ASIC’s concerns to cure defect)
*Final stop order
-Seek publicity orders from court (under s 1324B) against person in breach of Ch 6D
-Seek banning orders (under s 206E) against directors in breach of the Corporations Act
9
...
What are the main statutory obligations on the borrowing company when issuing
debentures?
A system of registration of company charges that must be registered with ASIC
...
Priorities between competing charges are determined according to time of lodgement
2
...
Discuss the nature and practical utility of floating charges and the need for the creditor
too ensure that the debtor company has registered the charge
Self Review Questions – Week 7(不考)
1
...
Definition: the money that the company has borrowed and may be secured or not
secured
...
）
ii
...
Advantages: interest payments are normally tax deductible
Tax deductable for cost of fundraising and interests
...
Definition: money supplied to the company by shareholders
ii
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Advantages: voting rights
...
3
...
What is the difference between an ordinary share and a preference share?
a) The dividend payments of preference shares are fixed when dividend payments of
ordinary shares are floating through the change of net income
...
c) Preference shares have priority to be paid after the company is winded up compared to
ordinary shares
...
Describe three sections in the Corporations Act which seek to enforce the maintenance
of share capital rule?
a) S 254T: a company cannot use share capital to pay dividends
...
c) S 260A: company’s finance assistance to others to buy its own shares
...
Who enforces a breach of director’s fiduciary duties?
a) The company enforces a breach of director’s fiduciary
b) This is a consequence of the duties being owed to the company, which at law is a
separate person
...
2
...
Who enforces a breach of director’s duties under the Corporations Act?
a) ASIC enforces director’s duties under the Corporations Act
...
Can directors be criminally liable under the Corporations Act?
a) If a director is held by the court to have breached either s 181, 182 or 183 and at that time
has been dishonest, then s 184 will be relevant and a criminal 8penalty will be imposed
...
What are the limits to forgiveness for breaches of directors’ duties?
a) The consent made when members were not been given fully informed
b) The ratification form minority oppression
c) The company become insolvent
d) The acts are illegal
e) The acts represent a misappropriation by the directors of the company’s property
...
What are the limits to insurance and indemnification (under the Corporations Act) for
breach of directors’ duties?
a) The company must prove that the director’s breach of the duty caused the company to
suffer loss or damage
...
7
...
8
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But with some exceptions: p485
i
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The ratification constitutes minority oppression
iii
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The act are illegal
v
...
vi
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What are examples of conflict of interest?
Two common situations: diversion of business opportunities; misappropriation of company
property
...
How may directors be excused and given relief for breach of directors’ duties?
1) Defences: disclosure
...
2）Relief from liability (s1318): only applies to civil matters and requires that the person has
acted honestly and having regard to all the circumstances of the case, including those connected
to the person’s appointment, the person ought to be excused from liability
...
11
...
What are the sources of a director’s duty of care?
a) Common law: AWA v Daniels, Daniels v Anderson, ASIC v Adler, ASIC v Rich, ASIC v
MacDonald
...
2
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c) Monitored management
...
Obtain a basic understanding of their company’s business;
ii
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Monitor the company’s financial position
3
...
Can the same standard of care be expected of both executive and non-executive
directors?
a) It depends on the situation
...
No directors can absent from
any of that
...
In this situation, generally, executive directors will be expected
more than non-executive directors
...
To what extent can directors delegate and rely on others inside the company to do their
job properly?
a) Delegate: S198D, directors are responsible for the actions of the persons who are
delegated powers: S190
...
The reliance is made in good faith
ii
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Identify two important limitations which apply to the business judgment rule
...
It can only be relied on as a defence relating to the
reasonable care and diligence under s 180(1) or the equivalent duty under the common
10 trading
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It does not apply to other directors’ duties such as insolvent
7
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Duty of care, skill and diligence was to be objectively assessed
ii
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b) ASIC v Adler:
i
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Conflict of interest and acting bad faith, lack of business judgment will not allow the
defence to be succeeded
...
What is the current legal status of the rule in Foss v Harbottle?
a) The rule in Foss is (1) the court won’t interfere in the internal management of companies;
(2) when a wrong was done to the company, then the company was the proper person to
bring an action to seek a remedy
b) This rule had been removed by statutory derivative action (SDA) in s 236(1) in CA
...
2
...
3
...
What conduct is covered by s 232?
a) The conduct of a company’s affairs; an actual or proposed act or omission by or on behalf
a company; or a resolution, or a proposed resolution, of members or a class of members
of a company
...
5
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Winding up the company;
ii
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Ordering the company to purchase the member’s shares under the value the
oppression had not occurred
...
Who can bring proceedings under a statutory derivative action?
a) s 236, a member, a former member or a person entitled to registered as a member,
whether of the company or a related body corporate; or
b) An officer or former officer of the company
...
Explain the difference between a member’s derivative rights and personal rights
...
b) Derivate rights: A cause of action that does not actually belong to the member but in fact
belongs to the company
...
But the person who obtains leave to bring the SDA is liable for
the costs of the litigation
...
Who may apply for a statutory injunction and under what circumstances can the
application be made?
a) The application for an injunction under s 1324 can be made by ASIC, or by any person
whose interest are affected
...
9
...
10
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a) An improper exercise of voting power by the majority of members of a company
...
11
...
g
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b) Breach of equitable considerations; e
...
one family excluded other from information about
running of the company and transferred funds from the company
c) Fraudulent or oppressive conduct, e
...
d) Company unable to make or implement decisions caused by deadlock in management;
e
...
two individual directors refused to communicate with each other
e) Failure of substratum, e
...
the company can’t carry out its original functions when it was
registered
...
Explain the significance of the High Court decision in Gambotto v WCP Ltd (1995) 182
CLR 432 for minority shareholders
...
b) The reversal of onus of proof: the majority must prove that the amendment is for a proper
purpose and was fair in all the circumstances
...
Who may appoint an administrator?
a) The board of directors
b) Liquidator or provisional liquidator
...
12
What powers does the administrator have?
S 437A:
i
...
carry on that business and manage that property and those affairs;
iii
...
property;
Exercise all of the functions that the company or any of its officers could perform
...
How is the company’s property protected during administration?
-Only the admtor is permitted to deal with the co’s property during the course of adm
...
Any attempt to deal with the
co’s property without the adtor’s prior written consent or the court’s approval will have no legal
effect:s437D, and the director or anyone involved may be liable to pay compensation to any
party that suffers damage as a result of the invalidity of the transaction: s437E
...
What is the purpose of the first and second meeting of creditors?
a) First meeting of creditors: set the organisational base for administration, dealing with such
matters as the appointment of a committee of creditors
...
b) Second meeting of creditors: s 439A, s 439C: the creditors decide on one of the following
alternatives: whether to execute a deed of company arrangement; whether administration
should merely end; or whether the company should be wound up
...
How is the deed put in place during administration?
a) At the second creditors’ meeting, the administrator must present the creditors with a report
concerning the business, property, affairs and financial circumstances of the company
...
c) When over 75% of creditors vote to allow the company to continue to trade if they think it
is in their best interest according to the administrator’s report, a deed of company
arrangement will be entered
...
Who is bound by the deed?
a) Unsecured creditors are bound by the deed
b) A secured creditor is not prohibited from enforcing or otherwise with its security, subject to
certain matters set out in s 444D
...
What is the role of the court during voluntary administration?
a) The court maintains an overriding supervisory role to ensure the processes of
administration are undertaken equitably
...
b) Section 447A sets out the general power of the court to make orders it thinks appropriate
...
How are schemes of arrangement initiated?
a) Is commenced by the debtor company formulating a debt reorganisation with its creditors
...
b) During creditor’s meeting, 75% majority agree
...
13
9
...
this majority must comprise at least 50% of the creditors of the co who are
eligible to vote at the meeting
...
10
...
11
...
b) Members, creditors voluntary winding up; compulsory winding up
12
...
the commencement of liquidation provides
the creditors with a right to lodge a claim with the liquidator (called a proof of debt), to attend and
vote at creditors’ meetings and to receive a share of the distributions made by the liquidator
...
How is a creditors’ voluntary winding up initiated?
s490 provides that a co
...
members’ special resolution is required even for a creditors’ voluntary winding up, which
is achieved by holding a members’ meeting first and then holding a creditors’ meeting: s 497
...
14
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Once this is
achieved the liq must determine what is the most efficient method for realizing the cash
value of the co’s assets
...
15
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a) Uncommercial transactions
b) Unfair loans
c) Unfair preference
d) Unreasonable director-related transactions
...
How are the funds distributed when a company is being wound up?
Priority payment in winding up in s 556
1
...
Expenses of winding up
3
...
Unsecured creditors: In equal shares (s 555)
5