Ambiguous Concepts Of Insolvency Between Temporary Lack Of Liquidity

Relevant Law – Duties to prevent insolvent trading, Section 588G of Corporation Act, 2001, Insolvent trading prohibition and Section 180 duty of care, skill and diligence.

To ensure that the company thrives and overcomes the crisis that may come on the way, the company has various strategies and ways to overcome that and to keep the company on the track which includes constitution and board of directors which has various roles and responsibilities. The company has got a constitution and also corporations’ act. The companies’ values are the trust, integrity and honesty. The board carries out the duties in regard to the interest of the companies’

According to the pro and contra Section 203D and 203E of the Corporations Act as above, most judges and scholars agree that the procedure of removal directors as stipulated in the Corporations Act provides fairness treatment for the directors who may be removed. However, they still strongly argue whether the Section 203D is mandatory or not. Moreover, they questioned the existence of Section 203E since it eliminates flexibility for companies to make decision particularly in the emergency situation as explained above. Therefore, in order to provide broader perspectives about the relevancy of Section 203D and Section 203E, it is necessary to compare the procedure of removal directors in the Australian legislation with the

Second, provisions such as section 588G may be deterring qualified people from becoming company directors and the provisions may be having this effect precisely in relation to those companies in financial difficulties which require the best possible expert assistance from directors.

The study conducted by Hardjo and Alireza (2012, p. 4) represented that the independent directors have a few understandings of the company’s circumstances, and make decisions depends on what the management provides (Hardjo & Alireza, 2012, p. 4). Although Gallagher and Bennie (2015, p. 20) contended that the independent directors are likely to express their individual opinions and focus on the interest of the company. Thus, the formation of the directors’ board with a significant number of independent directors might not prevent DSE from the downfall due to reliance on filter information which is not adequate to make decisions (Rankin et al., 2012, p.

This now gives directors liability by statute, if they place themselves in situations that conflict with the company, they breach their fiduciary obligations. This concept is expressed by Millett L.J. in Bristol and West Building Society v Mothew9, “The distinguishing obligation of a fiduciary is the obligation of loyalty....he must not place himself in a position where his duty and his interest may conflict.” Careful consideration needs to be given to situations that possibly may conflict. In Boardman v Phipps10 it was held that the term ‘possibly may conflict’ means “that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict.” Ambiguity may arise when a difference of opinion occurs between parties of whether a situation may be conflicting or not. Further confusion may occur from s.175(4)(a) where no breach occurs “if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest.” The word reasonably gives scope for uncertainty, who's opinion of reasonableness does this provision refer to, is this subjective? Stephen Jourdan QC clarified in Richmond Pharmacology Ltd v Chester Overseas Ltd & Ors,11 he opined that s.175, conflict of interest, was not subjective but objective. It did not matter that

The removal of a director by the board in the FDC case creates legal and ethical issues, which ultimately led to the onset of commercial issues. Despite the legal, ethical and commercial issues, this case is strongly indicated that there are some problems in the mechanism of removal directors stipulated in the Corporations Act 2001 (Cth) (“Corporations Act”) S 203D and S 203E. This indication is underpinned by some cases in the Australian court in which directors are removed also by the board. Therefore, this paper will analyse the legal, ethical and commercial issues regarding with the removal of FDC’s director, discuss the problem in the procedure of removal directors stipulated in the legislation, and compare other regulations in the common law and civil law countries. Finally, drafts of new mechanism of dismissal directors will be provided in this research to reform Section 203D

Section 588G, which is related with the presumption of the company insolvency incurring of a debt. James Hardie breached the corporation act in this section in terms of not prevent the insolvency to paid the asbestos claims.

“The business judgment rule, as a standard of judicial review, is the common law recognition of the statutory authority that has been vested in the board of directors (Shu-Acquaye, 2004).” “Under the rule, which operates as a standard of judicial review, the burden is placed on the party challenging a decision of the directors to establish facts rebutting that presumption (Skinner, 2006).” “Courts invoke the business judgment rule in assessing the conduct of directors and determining whether to impose liability in a particular case (Shu-Acquaye, 2004).” This rule does not provide unlimited protection for directors though. “Although, the business judgment rule is designed to foster the complete exercise of managerial power granted to directors, it is not an unfettered power (Shu-Acquaye, 2004).” “Consequently, the business judgment rule does not afford protection to directors who exercised "unintelligent" or "unadvised judgment," or who submitted to "faithlessness, fraud, or self-dealing (Shu-Acquaye, 2004)."” “Application of the business judgment rule is based on a demonstration that informed directors did in fact make a business judgment sanctioning the matter being examined. A director's obligation to inform himself, in preparation for his decision, derives from the fiduciary capacity in which he serves the company and its stakeholders (Shu-Acquaye, 2004).” “So long as the directors’ decision was reasonably informed and can be attributed to any rational business purpose, a court will not substitute its own notions of sound business judgment for that of the directors, unless that presumption is rebutted (Skinner, 2006).” Prior to the court’s decision in Smith v. Van Gorkom, the court was reluctant to hold boards liable for breach of

There is a clear shift towards principles based regulation in the insolvency profession. The leading purposes of the Code is to provide broad principles that can be applied to a multitude of circumstances with the aim of averting practitioners from justifying a particular course of action via a loophole in the Act. The results of cases such as the Walton case serve as a reminder to practitioners that the Act merely provides a minimum benchmark as to the appropriate course of action and that practitioners should have regard to the requirements of the code when considering a new appointment. Interestingly, Honourable Justice Robertson made the following comment in the Walton case being that he does not regard the Insolvency Practitioners Association of Australia’s guide as extrinsic material appropriate or permitted to be taken into account in construing s 60 and 436DA of the Act. Although this is the case, the Code is still pertinent to practitioners. As stated by Miss Alicia Hill and Jessica Patrick “although the Code cannot be directly taken into account in construing legislation, it has a very important place in regulating insolvency

The current laws may also require the directors to pay the debt that has been incurred while the company was trading insolvent. It is quite a well built issue that law often requires the company to go for external administration before preferring the option of restructuring it (Sealy, 1989).

Company’s business responsibility goes to the directors for the different subject’s matter of the common law and statutory duties, with their honesty, positive faith and ability towards the company so that the company is prevented from insolvent trading. Insolvency affects not only the shareholders and employees but also the taxation authority, creditors and customers. Safe harbour, a provision set out for the trading companies to provide valid and authentic tax information through registered agent. This essay will show how the safe harbour provision will lead the directors on insolvent trading which results the company to restructure without any losses. Australian government has induced the significant policy considerations for

Most of the Australian corporation law has been brought from Company Law of United kingdom. Australian corporation law legally structured by only one national statute, i.e. Corporation Act 2001. The Australian Securities and Investments Commission is the only regulatory authority who administrate this statute (Corporation Act 2001) throughout the whole nation. ASIC regulates Australia’s corporate, markets and financial services. This authority is set up as per and administer the ASIC Act 2001. ASIC carries most of its work according to the Corporation Act 2001. In the essay below with the help and reference of some case examples and subsections of Corporation Act 2001 I have discussed about the signs of insolvent company, what actions should

Economic recession is often mirrored by an increase in insolvency predicated transfers in turn creating an increased scrutiny of the surrounding law. The insolvency proceedings in the United Kingdom (UK) are underpinned by the Insolvency Act 1986, together with the amendments via the Enterprise Act 2002. Cessation of trading can occur as a result of Court intervention, a voluntary resolution passed by a general meeting or Company voluntary resolutions arrangements with its creditors. The principle differences of these proceedings are the objectives; liquidation is focussed upon realising and distributing assets, while administration is concerned with rescuing the company as a going concern. Another possible outcome is an insolvency device, receivership is limited to secured creditors which involves recovering a secured amount without winding up of the company.

Essential for a firm’s survival and its ongoing success is effective corporate governance. Indeed, when executed effectively, corporate governance helps to not only “prevent corporate scandals, fraud and civil and criminal liability but also enhance a company's image in the public eye” (Sun, 2010). This, in turn, positions a firm as a self-policing institution, accountable and worthy of shareholder and debtholder capital. Responsible for charting the strategic direction, approving policy and ensuring that the mission statement of a firm is carried out, is the Board of Directors. (Coastal Community , 2013) notes that “directors, also, have a responsibility to maintain the balance between economic and social goals and between individual and collective goals, reflected through the efficient and effective use of limited resources. The Board of Lehman Brothers is an example of a board that failed to execute several key corporate governance responsibilities. These key responsibilities of good corporate governance fall under four main pillars according to (In Share ) 1) Accountability (ensure that management is accountable to the board and that the board is accountable