CORPORATIONS LAW ASSIGNMENT
Length: Approximately 1500 words
Question
Dart Limited (“company”) is a listed company on the ASX. It had a splendid radiance in the commercial life of Australia during the 1990s and early 2000s. It had aspirations to international prominence. It was a favourite of the stock market and had accumulated (at least on paper) a relative fortune.
However, by mid 2007, the company was not doing so well and had incurred a substantial debt to various banks. To reduce the debt, the company began selling assets.
From early 2008, the expenses of the company exceeded the available recurrent income. The monthly interest payable to the banks was running at about $1 million, or $12 million per year, and corporate overheads (such as rent) totalled about $500,000 per year. Predicted cash receipts from the company’s only ongoing business operations were about $10 million.
Around this time, Alan Baxter, who was employed by the company as its chief financial officer, gave the company’s bookkeeper the task of preparing lists of creditors with notes “on the level of urgency” and, on occasion, notes “about the creditors' attempts to press for payment”. Decisions on who did and did not get paid were made by Baxter. A policy of managing creditors according to the old adage “the squeakiest door gets oiled” was applied so that the creditors who pressed most for payment were paid in full or in part before other creditors.
Daniel Abbott, a director of the company, realised around early 2008 that the company’s ordinary business activities could be continued by the sale of assets alone for a limited period only. He believed that the company’s “non-core” assets which could be sold gave the company about 12 months to turn things around. In a note dated 20 January 2008, Abbott wrote: “If we retain all proceeds from asset sales, we will have enough cash to last until 31/12/08”.
Also, in around early 2008, Patrick Mann, who had recently resigned as a director of the company but who remained involved in its management as a “consultant”, realised that the critical times for the company’s cash flow were the due dates for bank interest payments. While he had not personally reviewed accounting information of the company, he did have a general knowledge of where the company was at in terms of its income and its obligations over the next few months. He also realised that it was not possible to carry on indefinitely using asset sales to cover interest shortfalls.
In November 2008, the company moved from its existing premises into new leased premises where the rent was cheaper. During that month, it also sought to borrow further funds from its existing banks, but without success. However, the company was able to borrow some further funds for a limited time from a finance company. In early 2009, the company was placed in liquidation.
Required:
Advise whether Baxter, Abbott and Mann may be liable for failing to prevent insolvent trading by the company.
INSTRUCTIONS FOR ASSIGNMENT
When answering the question, ensure that you:
• identify the issue(s) raised by the facts
• identify the relevant legal principles
• apply the relevant legal principles to the facts
• reach a conclusion
You may, and are encouraged to, hand in an introduction or outline of how you propose to answer the questions so that feedback will be provided to you from the communication and study skills staff before you complete the assignment.
GUIDE TO FORMAL PRESENTATION OF THE ASSIGNMENT
General
The assignment should be typed on A4 paper, on one side of the paper only, and with a margin of at least 5 cm.
Formal language should be used so avoid jargon, slang and colloquial abbreviations such as “don’t”. Ensure that you use correct spelling.
Headings and subheadings may be used if you think that this would assist the presentation of your material.
Referencing sources of information
Avoid plagiarism by referencing your sources. Sources must be referenced where:
• You are using someone else’s ideas
• You are quoting directly from a source
• You are paraphrasing someone else’s views
Footnotes or the Harvard system should be used to reference your sources.
Where footnotes are used, they should appear at the bottom of each page. Do not include substantive material in the footnotes. All substantive material should appear in the body of the assignment.
Citation of cases
When you first refer to a case, you should cite the case in full, either in the text or in a footnote eg Mabo v Queensland (No 2) (1992) 175 CLR 1. The case name should be italicised or highlighted in some other way eg underlined or placed in bold letters.
When subsequently referring to the case, it is acceptable to use a common name for the case, such as “Mabo’s case” or “Mabo”.
Where a particular page or paragraph in the case is referred to, then the page number or paragraph number must be given eg “Mabo’s case at 9” indicates that the information came from page 9 of Mabo’s case. There is no need to write “page” or an abbreviation of the word page.
Citation of statutes
When citing a statute, the name of the statute should be italicised and the jurisdiction should appear in brackets after the name eg Commonwealth of Australia Constitution Act 1900 (UK).
When a particular section in the statute is being relied on, then the section should be specified eg section 1. It is acceptable to use the abbreviation “s” for “section” or “ss” where more than one section is being referred to eg s 1 or ss 5, 6 and 7. However, when a sentence begins with a reference to a section, the word should always be written in full eg “Section 1 of the Commonwealth of Australia Constitution Act 1900 (UK) provides that ...”
Secondary sources
When initially referring to secondary sources such as books, the author’s name and initials, full title of the book, edition (if relevant), publication date and page number should be given eg Crosling G.M. and Murphy H.M How to Study Business Law-Reading, Writing and Exams, 3rd ed, 2000, p 122.
Bibliography
A bibliography/ reference listing all books and articles (not cases or statutes) used in the preparation of the assignment should appear at the end of the assignment.
Use your prescribed textbook and recommended texts as a guide to the way in which cases, statutes and secondary sources are cited and the manner in which legal arguments are structured.
Further References
Crosling G.M. and Murphy H.M How to Study Business Law-Reading, Writing and Exams, 3rd ed, 2000