HI5027S Corporations
Law

Assessment
2

Assessment
Value: 20%

Due: Week
10 in Class

Assignment Topic:

One of the main
ways in which the ‘veil of incorporation’ can be lifted is when directors
breach their duties.This essay question
is set around the duty to prevent insolvent trading.You will need to have read the chapter in
your prescribed text that deals with this duty and have then researched more
widely by looking at other textbooks, the relevant CCH online library, articles
from the internet and journal articles.
You must answer both parts of this topic.Please make sure you have REFERENCED in the
body of your work ACCURATELY,.Remember,
referencing shows you have researched and thought about what material will be
relevant to assist you in answering the questions.

Read the following scenario and answer BOTH parts (questions) at the
end.

OHS Solutions Pty.
Ltd. is a company formed by three friends (Des, Satish and Emma) who bring
different skills and abilities to the business.
Emma is an accounting graduate, Des has expertise in occupational health
and safety (OHS) and Satish has an IT degree.
They decided to start up a business which would provide a portal through
which the public and businesses could access (for free) information on all
aspects of OHS.OHS Solutions would
finance its business, and make profits, by charging businesses to advertise via
their website.

The directors of
OHS Solutions are:

Managing Director –
Des

Finance Director –
Emma (non executive)

Director – Satish
(executive – employed also to run the technological side of the business)

Director – Ying
(non executive) – a friend of Des’ and director of Support Pty. Ltd.(Support Pty. Ltd. has gone guarantor for a
$50,000 loan from the Business Bank Ltd. to OHS Solutions)

The Shareholders of
OHS Solutions (holding equal amounts of ordinary shares) are Des, Emma, Satish
and Support Pty. Ltd.

As at January 2007
OHS Solutions had been operating for six months.It had some initial IT problems which
prevented some of the advertisers’ material from being accessed.In order to try to help overcome these
technical problems Satish engaged Trouble Shooters Pty. Ltd.

At the February
Board meeting, Satish reported that two businesses who had paid to advertise on
the website were dissatisfied with what was happening and were threatening to
sue for breach of contract.Emma was
unable to table any financial information as the employee who had been doing
the accounts had been sick and when Emma looked at the records she found that
they seemed to be in a bit of a mess.
She did find a large account from Trouble Shooters that was over
due.Des reported that he was disturbed
by this news.He had been told by Satish
that the IT problems had been fixed since Trouble Shooters had been engaged, and
he had just signed a $10,000 advertising contract with Promotions Plus Pty.
Ltd. to advertise the website and signed up to go to a trade show to be held in
conjunction with a forthcoming OHS conference.
He said this was needed because a number of high profile advertisers
were threatening to discontinue their association with OHS Solutions unless the
portal became better known.

Ying just listens
in disbelief at the March Board meeting.
It seemed to her that OHS Solutions is being poorly managed and is failing
to make the most of a potentially profitable business opportunity.This could present an opportunity for Support
Pty. Ltd. to make an offer to buy OHS Solutions at a good price.On the other hand Support Pty. Ltd. is
exposed as a guarantor.

Assume she consults
you, an accountant, for your preliminary view about the predicament of OHS
Solutions and what she should do.
Assume also that the first thing that comes to your mind is whether Ying
herself may be vulnerable as a director of OHS Solutions for failing to prevent
OHS Solutions from trading when it is insolvent.

YOUR TASK

Part A- (approx
800-1,000 words)10 marks

Write a
brief explanation about why the directors’ duty to prevent insolvent trading
exists and the circumstances and consequences of the ‘veil of incorporation’
being lifted for insolvent trading.(Do
not just repeat the words of the relevant sections in the Corporations Act).

And

Part B(approx
1,500-1,700 words)25 marks

From what you know
of OHS Solutions’ predicament, DISCUSS whether any of the directors may be
about to breach or have already breached the duty to prevent insolvent
trading.(In order to do this you will
need to compare what is happening in OHS Solutions case with other precedent
cases and refer to the relevant sections in the Corporations Act.)What will
you advise Ying?

(Note:you do not have full information, so state
briefly in the essay what information you need and make reasonable assumptions
that will allow you to give your advice.
ONLY DISCUSS INSOLVENT TRADING – THAT IS THE QUESTION AND YOU DON’T HAVE
ENOUGH WORDS TO GO INTO OTHER AREAS)

PLEASE NOTE THE
FOLLOWING INSTRUCTIONS:

References must be
cited in Harvard referencing style (eg Smith 1992) .The assignment must include
a bibliography (list of references used in the assignment).The Internet may be used for authoritative
reference material provided the source, author, date of access, and site
address is clearly shown in footnote format.

In addition to
sources from the Internet, at least three hard-copy sources must also be
used.These can be either books or
articles or both.Materials from any
common law jurisdiction may be used.