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...

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Length: Approximately 1500 words
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.
Advise whether Baxter, Abbott and Mann may be liable for failing to prevent insolvent trading by the company.
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Further References
Crosling G.M. and Murphy H.M How to Study Business Law-Reading, Writing and Exams, 3rd ed, 2000
Answered Same DayDec 20, 2021

Answer To: CORPORATIONS LAW ASSIGNMENT Length: Approximately 1500 words Question Dart Limited (“company”) is a...

David answered on Dec 20 2021
46 Votes
1 | P a g e

It can be said that Baxter, A
ot, and Mann were actually very much liable for the failure of
preventing the insolvent trading by the company. The company (Dart Limited) itself had a very
good background. In the 1990s and the 2000s, t
he company was being regarded as one of the
most liable company to be invested on. It was on the topmost list of the interested investors in
the stock exchange (ASX). The company even had international tie ups and relation. The fortune
of the company was rising at a very rapid speed in those years.
Alan Baxter, the Chief Financial Officer (CFO), appointed by the company had asked the
ookkeeper of the company, to give him the details of the all the creditors when the company
started to face difficulties in its operations. Instead of trying to re-acquire the status which the
company had in the early years, Baxter was more interested in clearing of the debts of all the
creditors of the company. Though, the step taken by him was for the betterment of the company,
yet in the long run it had made difficult for them to operate. The company must have followed
certain policies regarding the change in the sales of the company. Baxter had asked the
ookkeeper to give him the information regarding the creditors on the basis of “on the level of
urgency”. As per this principle, high priority will be given to those creditors who are pressing the
company to the clear all the payments. Because of this principle the company was not being able
to concentrate on the sales and the main focus had lied in the payment of all the creditors.
Daniel A
ot, who was one of the directors of the company had suggested and given the
information to the company saying that if the non-core assets of the company are being sold,
then the company will be able to prosper till the 31
December 2008. According to him, the
company can be operated for more 12 months if it sells its assets (the non-core ones). It was
2 | P a g e

necessary for them to retain all the proceeds that they will procure after the sale of all the assets.
This is because, with the help of those, the company will be able to operate its activities till the
date as mention above. It was being realized by him in the early 2008 that, if the company sells
off its assets they will be able to operate its activities till the end of the year. Therefore, it can be
said that Daniel A
ot, the director of the company, was one of the reasons for the insolvency
trading of the company.
It can be said as well that Patrick Mann, who had resigned as the director of the company, in
the early 2008, had given the company the information that the company has to pay the required
amount of interest to the bank. Though he had retired from the company as the director, but still
acted as the consultant of the company. And also, he did not have details regarding the accounts
of the company, but still he had enough knowledge to give the company the right and the most
appropriate advice on a particular issue. With the help of this information, the directors of the
company took the decision of selling of the non-core assets of the company so that they can
operate its activities for a certain period of time as...

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