Task:
1. Identify the risks of liability arising from diverse sources for both the company and its officers and, in particular, define directors’ duties and the consequences of breaching those duties;
2. Describe the financing of companies by debt and equity, the rules and restrictions in place to protect creditors and shareholders as well as the rules regulating fundraising;
3. Use skills, including analytical and deductive reasoning, inapplying the above knowledge, rules and principles of corporations law to factual situations which could arise in practice, in order to solve a problem perceptively and creatively or to have sufficient understanding of the legal issues to know what questions to ask when referring the matter for legal advice.
Case Study
Scintillators Pty Ltd is a company engaged in the event management for celebrities. It is a family owned company and Joe Johnson, his wife and three adult children all own shares. Joe Johnson, a former bankrupt, is the sole Director. Joe manages the day to day business of the company which employs 30 employees, comprising event planners, designers and administrative support.
In June of the year the company is engaged by Jerome Best, Australia’s wealthiest gardening equipment manufacturer, to plan his daughter’s wedding to Simon Stash, the son of Australia’s wealthiest marketing magnate. The wedding promises to be the most glamorous celebrity event of the year and Joe Johnson delegates the planning of the event to a team of 4 wedding planners. The planners arrange the flowers, venue, security and drinks for the event, scheduled for December in that year.
All of the suppliers of these services to Scintillators Pty Ltd require payment in advance and the usual practice of the business is to obtain a personal guarantee from the clients and a 50% deposit. In relation to this particular event, Joe Johnson, directs the planners that they should not obtain a personal guarantee, nor require a deposit because he believes that this particular wedding is worth the risk and will situate the company at the centre of the Celebrity events market.
The total supplier’s costs, paid out of company funds, put the company in a financially precarious position, and Joe Johnson, not knowing the full financial impact, enters the company into a lease for office premises for a five-year period in the most expensive office building in Melbourne, owned by Jerome Best Pty Ltd. This forms part of his grand plan for the company to become the premier celebrity event manager in Australia. In the process of moving premises Joe Johnson discovers that he did not provide written consent to his appointment as Director.
In the meantime, Joe Smith’s wife leaves him shortly after, citing irreconcilable differences and breach of duties owed to the Company. She also says to him that she is going to sue him personally for breaching his director’s duties and notify ASIC of his former bankruptcy and what he has been up to in relation to the company. Jerome Best also personally telephones him to advise that the wedding has been cancelled by the groom and that neither he nor his daughter would be paying a cent to anyone that has provided anything to do with the wedding.
Joe becomes concerned about his legal position, honestly believing he has acted with proprietary and professionalism. He comes to you for advice.
Required
Advise Joe Johnson in relation to any potential equitable and statutory liability. Provide relevant statutory law and/or case law as authority for your answer.
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