This essay seeks to analyse whether any of the proposed contractual arrangements could be challenged on the grounds of lack of capacity and/or lack of authority as well the legal implications if Rco is placed in liquidation.
Lack of Capacity
Rco v Invco
In this contractual relationship, Rco’s corporate constitution enables the company to ‘engage in activities calculated to facilitate the development of furniture retailing.’ This would include borrowing money from banks and investment funds for the purpose of buying inventory or ‘brick and mortar’ stores both of which facilitate the development of furniture retailing giving Rco capacity to enter this agreement as well as s125 of the Corporations Act. However, Invco by way of…show more content… In order for Invco to attempt to recover as they (by way of their initial loan) would be considered an unsecured creditor they would would have to argue IATA v Ansett Holdings (2008) and the ‘Pari Passu’ principle meaning ‘all creditors are equal in the size and settlement of their claims’ in this case. Rco may argue that they did not pass the “cash flow” test outlined s95A of the Corporations Act and that they were not solvent at the time they approached Invco for loan and that under Lewis v Doran and ASIC v Plymin , it should have been an indicator of possible insolvency that they were unable to borrow more funds from Southpac (the bank they normally receive loans from), that they had changed their supply and payment terms to Cash-On-Delivery or “COD”, and that the company was post-dating cheques to pay their debts. Rco would argue that were insolvent before they received the loan.
Southpac and Rco v Invco
The deed created between these three parties at the behest of Invco’s Vice-President, would come under intense scrutiny in the event of Rco’s default. Southpac and Rco would argue the loan altogether should be voidable by statutory law under section 588FD(1)(a) of Corporations Act which states; [1. A loan to a company is unfair if, and only