Australian Company Law-Incorporation and Corporate Liability

Question 1
Samantha operates a corporate gift and clothing business as a sole proprietor. She decides to form a company to take over the business. She is the sole shareholder and sole director. Samantha sells her business to the company at an inflated price and lends the company $50,000 to meet the cost of the purchase. As security for the loan, Samantha arranges a mortgage over a house (from which the business operates), which she transferred to the company as part of the business sale. For the next two years, the business makes a reasonable profit, but in 2010 there is a significant downturn in the economy and the company loses several of its most important clients. By 2011 it is evident that the company needs to be wound up. The unsecured creditors’ amount is $175,000. Samantha claims she is entitled to the $50,000.
With reference to the Corporations Act 2001 and case law, discuss whether Samantha is entitled to the $50,000. Use the 4 Step Method to answer this question.
15 Marks; 850 words

Question 2
Windy Willows Winery Pty Ltd owns and operates a successful winery situated in the Perth
Hills. The directors and shareholders are all members of the Frost family.
The four directors of the company are Bill Frost (the father) and the children Dan Frost, Ian
Frost and Anne Frost. Dan is the managing director and Anne is the financial officer. Mr Bill
Frost is a non-executive director.
The company is governed by a combination of the replaceable rules and a constitution. The
company has adopted Replaceable Rules 2 and 4.
Ian and Anne attend a wine trade show in South Australia. They are very impressed with the
state-of-the-art equipment especially the automated basket press that would be ideal for
pressing the grapes for making their organic wine. They decide to take advantage of the
special offers at the trade show and purchase two large basket presses for AU$15,000 each.
They also purchase other wine-making equipment to the value of $20,000. All the
equipment is purchased from Vinotec Ltd.
A clause in the company constitution states:
‘All contracts over $40,000 require the approval and signature of the managing director.’
Read the facts carefully and advise Windy Willows Pty Ltd on whether the company will have
to honour the contract.
Refer to the Corporations Act 2001 (Cth) and relevant case law, and use the 4-Step Method
to answer this question.
15 Marks; 850 words
The assessment aims to address the following unit learning outcomes:
1. Explain, analyse and apply basic legal concepts and principles relating to company law.
2. Apply appropriate research techniques to select, evaluate and use information from primary and secondary sources to make informed judgments about legal issues.
3. Write well-structured documents relevant to company law using appropriate language and styles.
The following are the assessment criteria for this assignment:
1. Relevant legal concepts and principles of company law are identified, clearly explained and correctly applied.
2. Appropriate and relevant primary and secondary sources are used.
3. Answers are logical and coherent using appropriate and accurate language.
4. Answers are fully and accurately referenced.

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