Law of Business Organisation

Describe about these act..
Corporations Act, 2001: Section 124
Corporations Act, 2001: Section 129 (1)
Corporations Act, 2001: Section 588m (3)

 

 

Corporations Act, 2001: Section 124

This section deals with the fact that a company possess legal capacity and power of an individual both in and outside the legal jurisdiction and this has been described in detail under section 124 of the Act. But the question is – the company has no way of applying its mind for it is reliant on the thought process of its directors, assert Baker & Riddick, (2013). It is the constitution of the company which gives the company all the powers and who drafts this constitution? That is the reason why the ability of a company in exercising its powers as a natural person and as a body corporate as detailed under section 124 of the Act can be constrained by the drafted constitution of the company. The interactions between members of the company and the company itself, says Baker & Riddick, (2013), are governed by the constitution of the company.

Under normal circumstances the constitution of a company vests all the powers of company’s affairs and management in the directors. In case the company’s constitution does not imply restrictions on the decisions of its directors, how will the company fulfil the conditions set by section 124 for its individualistic character? The powers, says Keown et al, (2012), vested with the directors are broad and authorise them to do everything necessary for carrying out the conduct of the company unless the company’s constitution decries through a general meeting of its members for curtailing a particular power from being used by the directors.

Corporations Act, 2001: Section 129 (1)

The milestone case of Royal British Bank v Turquand (1856) 6 El & Bl 327, rested on a very intricate side of the law – assumptions. It was, perhaps for the first time, that a court of law discussed the philosophical side of a legal word. What happens when an individual, dealing in good faith, with a company finds that the person assumed to be having power and authority to perform his duty is actually not authorised to have that power and authority according to the company’s constitution, argues Keown et al, (2012). The counterparty who has been misled does not have any doubt about the person who is representing the company in the capacity of an officer or agent of the company. It is assumed that he has been duly appointed and has the authority to exercise the powers as well as to perform the duties which are customarily expected to be performed by an officer of such stature as defined under section 129(3) of the Act, as per Mudra, (2014).

This has been also observed in some other instances when it was assumed that the company’s constitution was compliant with the statutes of the Corporations Act, especially section 129(1). Is it breach of law or of the company’s constitution or of both?

Even if it is concerned with both, the law can take its course as it has means to judge the felony of a person. How does the company make a judgment? Especially in those circumstances when the felony is embellished by one of its directors, who is controlling the mind of the company, asserts Mudra, (2014).

Corporations Act, 2001: Section 588m (3)

Section 588M (3) of Corporations Act, 2001 deals with Recovery of Compensation for Loss Resulting from Insolvent Trading. Now, as per this statute, and I Quote “the creditor may, under Subdivision B, and not otherwise, may recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage”, Unquote. A creditor, suffering a loss because a director of the company has contravened section 588G, is entitled under Section 588M of the Act, to recover his loss from that director. However, the law creates more loops for the creditors instead of offering him a solace because to justify his claim against the director for indulging in insolvent he must establish that the company is being wound up, as per Keown et al, (2012).

When a literal interpretation of Section 588M (1) (d) is made, it says that to be entitled for compensation, the creditor has to establish, that the company, which was considered as the vehicle for insolvent trading, is being wound up. On the face of it, it may appear that the requirement is made with an intention of referring to the company’s status at the time when the proceedings are commenced by the aggrieved creditor. But the situation is entirely the reverse of this. The decision of Barrett J in the case of International Greetings UK Ltd v Stansfield [2010] NSWSC 1357 justifiably set the precedent for future interpretation of the section and this is yet to be overruled by an amending legislation, assert Baker & Riddick, (2013).

List Of References

Baker, H.K. and Riddick, L.A. 2013, International Finance: A Survey. OUP USA, Oxford.

Keown, A.J., Martin, J.D., Petty, J.W. and Scott, D.F. 2012, Financial Management: Principles and Applications, 10^th ed. Pearson Education India, New Delhi.

Mudra, J. 2014, International Financial Management, 12^th ed. Cengage Learning, Stamford, CT.