Australian Corporate Directors
The four step process of understanding business law is very helpful in arriving at some important conclusions about the case of Coco Ltd. And its recent accident. The four step process suggests provides a manner in which this problem can be properly understood and the correct actions may be implemented to prevent further problems. This part of the essay will advise the directors of Coco Ltd. Of their current problems.
Identify the Legal Issue
Before delving into the legal issues of this case it is important to understand the behaviour of Mr. Hugo, a director here at Coco Ltd.. Hugo, in a recent purchase from his in laws' Brett and Sandra cocoa plantation a disastrous terrorist event took place. During the transportation of nearly boat load of cocoa, the ship was attacked and sunk by terrorist pirates disguised as American Navy Forces. The ship was sunk with a missile and the entire crew of 122 were lost. Of more relevance and importance to Coco Ltd. The entire shipment of cocoa was lost.
To make matters worse, the shipment was uninsured and 25% of the payment of this order went down to the bottom of the ocean with the cocoa. As a result of this horrible accident, the company's financial condition has seriously deteriorated and is in bight trouble. Although the company is in this trouble, it continued to trade utile the Australian Taxation Office (ATO) lodged a director penalty notice on the Coco Ltd. And its board members for failure to pay the company's taxes, making the directors possibly liable for these tax obligations.
Several key legal issues arise from this case that must be identified. All directors and officers of a corporation are bound by a number of general law and statutory duties. The Corporations Act clarifies and codifies the existing judge-made legal duties that are imposed upon directors and officers. As a result, there are similarities between the judge-made rules (that is the rules from common law and equity) and the statutory rules. All directors owe the company equitable duties of loyalty and good faith. As part of that duty, directors must:
1. act in good faith in the interests of the company;
2. act for a proper purpose;
3. avoid conflicts of interest; and
4. retain discretion
More specifically Section 182 of the act explicitly identifies that "A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. "
The Australian Securities and Investments Commission (2008) also pointed out how Coco maybe in violation of another statute. This report warned " As well as general directors' duties, you also have a positive duty to prevent your company trading if it is insolvent. A company is insolvent if it is unable to pay all its debts when they are due. This means that before you incur a new debt you must consider whether you have reasonable grounds to suspect that the company is insolvent or will become insolvent as a result of incurring the debt, " (p.2).
Step 2: Explain the relevant rules of law using authority with cases or legislation
The philosophy behind director's duties is to promote good governance and to protect the company and its stakeholders. In Australia, there are three sources law that govern the obligations of Directors of unlisted Companies:
statute Corporations Act 2001 and subordinate regulations and rulings;
common law (judge-made law) that interprets the Act and creates binding authority; and the company's constitution
The authority of these problems comes from several sources. First the Corporations Act gives each corporate director clear and concise direction on how to legally run their organizations. Hugo is not obeying these rules. Case law also provides some precedent for action as the cases Daniels v Anderson (1995), DCT v Clarke (2003), Howard Smith Ltd. v Ampol Petroleum Ltd.[1974] and Metropolitan Fire Systems v Miller (1997) all are good examples of how directors may have overstepped their legal boundaries to attain a competitive advantage despite the interpretations of the Corporations Act.
Step 3: Apply the law to the facts
Facts are hard to determine in instances such as Hugo and Coco Ltd.'s interesting predicament. The relationship that Hugo has with this business partner clearly demonstrates that this fact is against the legal policy previously described. In addition, since the company experienced the horrible terrorist attack, the company has been in violation of the tax codes as well.
Step 4: Reach A Conclusion
My advice to the board of directors is to fire...
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