70417 Corporate Law Tutorial exercises Spring 2025 v1

70417 CORPORATE LAW - TUTORIAL EXERCISES – Spring 2025

Tutorial Objectives

Tutorial 1 objectives
After reviewing the required readings and podcasts for this Tutorial and working through the exercises below, students should be able to:

Outline the development of corporate law regulation in Australia
Understand the roles of key personnel within companies
Appreciate the perspectives of various stakeholders that may be impacted by a company’s activities
Appreciate the concepts of corporate culture and corporate social responsibility
Discuss the range of structures for conducting a business and the rationale for forming companies
Tutorial 2 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Outline the main types of companies under the Corporations Act
Explain the registration process and life cycle of companies
Discuss the concept of separate legal personality of companies and the exceptions to this principle
Tutorial 3 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Explain how a company may become liable in contract and tort and under legislation
Apply these principles to determine the liability of companies within corporate groups
Tutorial 4 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Understand the role of the corporate constitution (or replaceable rules) in setting out the internal rules for governing companies
Explain the process for amending a corporate constitution
Discuss how companies may enter into contracts both expressly and by the actions of their agents
Appreciate the statutory assumptions that may protect third parties dealing with companies
Tutorial 5 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Explain how decision-making powers are divided between directors and members
Outline the process for appointing and removing directors
Discuss the requirements under the Corporations Act relating to members meetings
Explain the rights of shareholders in relation to company meetings
Understand the process of financial reporting and the role of auditors
Tutorial 6 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Understand the rationale for the Australian financial services licensing regime
Identify and explain the consequences of financial market misconduct in Australia
Appreciate ASIC’s role in regulating companies, financial markets and financial services
Tutorial 7 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Understand the rationale for the regulation of corporate fundraising in Australia
Explain the process for preparing disclosure documents for corporate fundraising
Discuss the content requirements for disclosure documents
Discuss the potential consequences of, and liability for, defective disclosure documents
Tutorial 8 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Describe the concept of corporate governance
Appreciate the challenges of distinguishing the roles of directors and senior managers in large corporations
Identify situations where persons may be deemed to be shadow or de facto directors of companies
Explain the rationale for regulating the duties of directors
Tutorial 9 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Explain the duties of company directors and officers to apply appropriate care, skill and diligence
Discuss some of the processes that directors and officers may undertake to fulfil their duties of care and diligence
Outline the various defences that may be available to directors and officers including the business judgement rule, delegation and reliance
Explain the duty of directors to prevent insolvent trading and the potential consequences of failing to fulfil this duty
Tutorial 10 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Explain the obligations of directors and officers to act in good faith, for a proper purpose and in the best interests of their companies; and to avoid misusing corporate positions and/or information
Outline the potential consequences that may result from a failure to act in good faith, for a proper purpose and in the best interests of the corporation; and from misuse of corporate positions and/or information
Discuss how directors should manage situations that may involve conflicts of interest
Discuss the regime for regulating related party transactions
Understand how corporate control transactions are currently regulated in Australia
Tutorial 11 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Explain the various mechanisms for protecting the rights of minority shareholders
Outline the rights of members to bring actions on behalf of a company against persons that have caused loss to the company
Explain the rights of members to access company information
Discuss the process for conducting shareholder class actions against companies
Tutorial 12 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:
Explain the practical aspects involved in pursuing and defending criminal prosecutions for breaches of the Corporations Act 2001
Discuss how the civil penalties regime may operate in relation to potential contraventions of the Corporations Act 2001
Discuss the process for conducting representative actions against companies
Outline the potential civil actions that may be taken in response to breaches of directors duties

Tutorial 1: An introduction to Australian corporate law and contextual issues: Week commencing 28 July 2025

Tutorial 1 objectives
After reviewing the required readings and podcasts for this Tutorial and working through the exercises below, students should be able to:

Outline the development of corporate law regulation in Australia
Understand the roles of key personnel within companies
Appreciate the perspectives of various stakeholders that may be impacted by a company’s activities
Appreciate the concepts of corporate culture and corporate social responsibility
Discuss the range of structures for conducting a business and the rationale for forming companies
Preparation for this tutorial:
Reading – Bottomley et al Chapter 1
Podcast 1 – Development of Australian corporate law, contextual issues and business structures
Business case study scenario for Tutorial 1
Jack and Jill are two university students who are very enthusiastic about personal fitness. They start running group fitness classes for fee-paying participants incorporating challenging hill runs on Sydney’s northern beaches. Word spreads via social media and their classes become very popular. They register the business name Up the Hill Fitness with the Australian Securities and Investments Commission (ASIC). They purchase business cards, flyers, banners, caps and sports clothing with the logo of the business. Jill contributes most of the money for these items, and Jack takes care of marketing Up the Hill Fitness. They share proceeds from the fitness classes between themselves, but they have been too busy to put in place any written agreements as to how their business will be run.
How would you characterise the business structure that Jack and Jill are operating in this scenario?
- Partnership (UDC v Brian)
  - persons carrying on a business in common with a view of profit
  - not a project so not joint venture + no special expertise
  - Carrying on trade for the other + trust
- Shared profit, no separate entity
- Jack could be jill’s employer: sharing profits with an employee does not make the employee a partner – PA s 2(3)(b)
Why would it be advisable for Jack and Jill to formalise an agreement for Up the Hill Fitness?
- Yes: outline responsibilities, separation of liability and duties
  - protect individual interests
Jack and Jill approach you to draft an agreement for their business. Discuss some of the legal and commercial issues that they should consider.
- payment
- buyout
- responsibilities
- duties
- profit-sharing
- sale rights
- liabilities
- licensing
- breach results
- financial contributions
- scope of duties and liabilities
Who would be liable if a fee-paying client was injured at a hill running session lead by Jack? Assume that no insurance policies have been arranged for Up the Hill Fitness. What if Jack starts delivering extra personal training sessions for clients of Up the Hill Fitness for a much higher rate than the group sessions without telling Jill? Due to the growth of their business Jack and Jill start to engage other fitness trainers to take some of their group fitness classes. One day Mary who was leading a group fitness session at a public park on Sydney’s northern beaches and was playing loud motivational music. This annoyed some of the other members of the public in the park, who contact the local council. A local council ranger attends and issues an on-the spot fine to Mary for breach of a local council by-law which states: “A business shall not conduct group fitness training session in public parks of [the Council] without holding a permit issued by [the Council]. Penalty $1,000”. Who would be liable to pay this fine?
- Injury
  - Pre-existing? Breach of duty? Causation? Remoteness?
- Pricing classes
  - Authority, need to know if there’s equal authority in partnership (agreement or verbal formation of business)
- Martin
  - contractor vs employee vs agent
    What could happen if either Jack or Jill decided to discontinue with the business of Up the Hill Fitness? What business structures might be appropriate to facilitate business succession in such a scenario?

Over the next few weeks we will follow the development and growth of Up the Hill Fitness.

Can you think of examples of large companies that commenced as small “start-up” businesses such as Up the Hill Fitness?
- youtube, virgin, coke
How do you think that the roles of Jack and Jill might change of Up the Hill Fitness was to become a company, with people investing into the business?
- more structured internal
Can you think of examples of risks that might be involved with running a growing business such as Up the Hill Fitness, and how these might be managed?

Exercise [1.1] – Roles and functions of key entities in Australian corporations
What do you think are the roles and some common functions of:

Corporate lawyers in private practice
In-house lawyers in large companies
Directors of companies – both large and small
The Australian Securities and Investments Commission (ASIC)
- promoting a fair, transparent, and efficient financial system by regulating companies, financial markets, financial services organizations (including banks, insurers, and superannuation funds), and professionals. ASIC’s functions include registering and licensing entities, regulating markets and products, and enforcing laws through investigations, infringement notices, civil penalties, and prosecutions.
The Office of the Registrar of Indigenous Corporations (ORIC)?
- Stream of regulation for indigenous business that take corporate form

Exercise [1.2] – Responsibility for corporate conduct
Views Ltd is a multi-national media corporation. It has become apparent that journalists working for one newspaper owned by a company in the Views Ltd group have engaged in unethical and illegal behaviour in order to generate stories. To what extent should the directors of the corporation that owns the newspaper take responsibility for these actions? To what extent should the director of the overseas holding company take responsibility?

Willful blindness considerations
directors may not be in charge of operations
limited liability group, owned by views
director is overseas and likely just the recipient of profits
This scenario raises questions about “corporate culture”. What do you understand about the concept of “corporate culture”, and can you think of any recent examples of cases where concerns have been raised in the media about “corporate culture”?

Exercise [1.3] – Determining the best interests of a company and stakeholder perspectives
Alice has just joined the board of a large, ASX listed Australia airline which operates both internationally and domestically. Currently the airline’s fleet maintenance is carried out in Brisbane by a team of highly specialised aircraft engineers. The board has been advised that this maintenance could be performed at a lower cost outside Australia. It has been suggested that overseas engineers are less skilled than those in Brisbane. Experts advise that the difference in skill level is unlikely to cause any catastrophic accidents but that planes maintained overseas have a higher rate of delay and emergency diversion. Even taking account of the cost of such delays, the airline will be significantly more profitable if maintenance is done overseas. Pursuing this offshoring option would involve making redundant several thousand employees, most of whom would have little prospect of finding other equivalent employment in Australia. Such action may also put the airline’s lucrative government business travel account at risk if a political backlash occurs.
In preparing for her role as a director Alice has heard that directors have the duty to act in the best interests of their companies.

Alice has approached you for your opinion on whether it would be in the airline’s best interests to (a) approve the offshoring of the aircraft maintenance operations; or (b) to keep these based in Brisbane. In your opinion consider the perspectives of the various stakeholders that would be impacted by the board’s decision.

Is the pursuit of direct cost-cutting profit more important than the longterm reputation of the company that will affect reliability, political backlash, reputation, employment prospectives, cost contracts and such. The considerations only include the rate of delay and emergency diversions, not the reputational/political damage as well as economic employment damage.
Exercise [1.4] – The challenges of balancing competing commercial and ethical considerations
Joan South Seafood Ltd (JSS) is a rapidly growing Australian seafood company based in Tasmania that is listed on the ASX. Following a recent economic downturn in Tasmania JSS has become a major employer, and its seafood processing operations have aided the growth of several local businesses that supply goods to it. JSS has been provided with a number of development grants by the Tasmanian state government to expand its operations and train its workforce. Its consolidated revunue in the last financial year was 85 million Australian dollars and it appears that its turnover is going to increase.
In recent years JSS has also started to importing canned seafood products. JSS has set up a number of subsidiary companies in South Kamaria, a progressively developing democratic country to Australia’s north. The Australian federal government has awarded JSS with an international trade grant to assist in developing the capacity of the South Kamarian seafood industry, as it sees South Kamaria (with its rapidly growing economy) as a key trading partner and a valuable strategic ally against the totalitarian state of North Kamaria which borders South Kamaria.
North Kamaria is a brutal military dictatorship where forced labour and other human rights abuses are prevalent. Human rights groups have voiced strong public disapproval of Australian companies doing business with North Kamaria, with “naming and shaming” campaigns and consumer boycotts of the products of such companies.
As JSS’s seafood products are cheaper than those of its competitors, it has increased its market share. JSS has recently invested in fishing trawlers with longer ranges. Institutional investors (ie fund managers and superannuation funds) have also started to invest in JSS and the company has provided several briefings to these institutional investors on its business strategies.
Jacinta is the Company Secretary and General Counsel of JSS. As Company Secretary her role is to support JSS’s board of directors, and as General Counsel she provides legal advice to the board and senior management. As JSS is currently performing well financially Jacinta’s salary package is above those of her peers in comparable companies, and she has just taken out a mortgage for an expensive inner-city apartment with sweeping harbour views where she resides with her husband and three young children.
Robert is the CEO of Bloggs Superannuation, one of Australia’s leading superannuation funds. Bloggs has a strong commitment to ethical investment and continually monitors the companies in which it invests. A few months ago, Bloggs withdrew its investment from a leading Australian chain of convenience stores after a scandal involving the under-payment of workers surfaced in the media. Bloggs is currently one of the largest institutional investors in JSS. The board of JSS is keen to attract further investment from institutional investors as there is an upcoming state election in Tasmania, and the party predicted to win the election is looking to reduce the amount of state government expenditure on development grants (similar to the ones that JSS has received) if it wins office.

Late one evening whilst preparing the papers for an upcoming briefing of institutional investors by Simone, Jacinta discovers an email from Simone to several of JSS’s senior management team. In this email, Simone discusses a secret arrangement that JSS has with a South Kamarian-registered company which is controlled by close relatives of the North Kamarian President. Under this arrangement JSS has paid substantial sums to this South Kamarian-registered company, so that the seafood that JSS imports through its subsidiaries are stamped as “Made in South Kamaria” – whereas the seafood is actually prepared and packaged in a forced labour factory on the North Kamarian coast. The email also outlines how this arrangement has helped JSS keep its seafood importation costs below those of over its main competitors Jane East Seafoods Ltd and Jim North Fish Ltd, which also import fish from the region around South Kamaria.
The day after discovering the email from Simone, Jacinta receives an email from Robert to confirm arrangements for the institutional investor briefing which is scheduled for the following afternoon. In his email Robert also asks if there have been any major changes to JSS’s business strategy and outlook over since the last institutional investor briefing a month ago .

Jacinta is perplexed about what she should do in this situation, as the action she takes will have profound impacts on a range of stakeholders, and seeks your guidance.
Discuss the competing ethical and commercial factors that Jacinta should weigh up, taking account of the perspectives of the various stakeholders, in determining the best course of action in the above scenario.

Best business practices, economic viability of the company if revealed, legality of the move (probably not illegal just unethical), lose government grants and key investors

Ethics blowout, hiding it will be perceived worse than self-reporting, can spin it as self-audit of suppliers

no internal process for correction (auditing)

Exercise [1.5] – Current Australian corporate law issues
The COVID pandemic resulted in significant challenges for companies around the world. Can you think of some significant strategic decisions that directors of Australian companies had to consider during this time, and the various stakeholders whose interests would have been impacted by such decisions?

Concluding discussion points and lead-in to Tutorial 2 – Business structures, Registering a company and the corporate life cycle
Consider the discussion points from the business case study, and discuss the rationale and benefits for Jack and Jill to consider incorporating a company to conduct their business

In preparation for Tutorial 2, you will need to review and familiarise yourselves with the guidance on starting and registering companies on the following sources:

Review s 57A, which defines ‘corporations’, and s 9, which defines ‘companies’
The Australian Securities and Investments Commission (ASIC) - www.asic.gov.au – and follow the “For Business” link – which sets out guidance on the steps for starting, running and closing companies
The Office of the Registrar of Indigenous Corporations (ORIC) – www.oric.gov.au – and follow the links under “Start a corporation”. See also the ORIC guide titled “Get in on the Act” (February 2010) which is accessible on the ORIC website under “Resources” and then “Guides”

Tutorial 2: Managing companies I – Business structures, Registering a company and the corporate life cycle

Week commencing 4 August 2025
Tutorial 2 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Outline the main types of companies under the Corporations Act
Explain the registration process and life cycle of companies
Discuss the concept of separate legal personality of companies and the exceptions to this principle
Preparation for this tutorial:
Reading – Bottomley et al Chapters 3 and 4
Podcast 2 – Managing companies I – Formation, life cycle and corporate liability

Business case study scenario for Tutorial 2
Up the Hill Fitness continues to grow, and Jack and Jill begin to engage extra trainers to help run the fitness classes. Jack is keen on expanding the business and would like to eventually purchase land to develop a unique challenging hill running course – however Jill advises that they will need to raise a considerable amount of funds before this is possible. After speaking with some of their friends who are studying law, they decide to incorporate a company. They decide to name the company Up the Hill Fitness Pty Ltd, and that they will both be directors of the company.

What are some of the reasons for Jack and Jill to incorporate a company?
- Limited liability (s 516)
- Perpetual succession (s 119)
- Investment flexibility (e.g. share capital)
- Separate legal personality (Salomon principle)
  - sue and be sued
  - own property
How would they go about incorporating the company and registering it with the Australian Securities and Investments Commission (ASIC)?
- Corporations Act ss 117–119
  - Choose company name (must be available on ASIC; name rules: s 147(1), Corps Regs Sch 6)
  - May reserve name: s 152
  - Prepare internal rules (replaceable rules or constitution)
  - Obtain consents from directors and members
  - Lodge application with ASIC: s 117 must include:
    - Type of company
    - Name of company
    - Members and directors’ details
    - Registered office location
    - Share structure
- ASIC response:
  - Register the company: s 118
  - Issue Certificate of Registration (conclusive evidence): s 118
  - Company comes into existence at start of registration day: s 119
Review the ASIC website (www.asic.gov.au – and follow the “For Business” link). What guidance does ASIC provide in relation to starting, running and closing companies?
- If you run a company in Australia, you must register the company. You’ll have ongoing obligations including an annual review. Not every business is a company. If your business is a sole trader or partnership, this section doesn’t apply to you.
- Before registering a company, you should decide if it is the right business structure for you:
  - Sole trader? Partnership? Company? Trust?
- Other business structures such as sole traders, partnerships and trusts do not need to register as a company.
- Building blocks you need to register a company
  - Company name
  - Company address
  - Company rules or constitution
  - Share structure and shareholders
  - Officeholders (directors and secretaries)
- Company deregistration and winding up
  - Wind up a solvent company
  - Wind up an insolvent company
  - Voluntary deregistration of a company
  - When ASIC initiates a company’s deregistration
  - Reinstate a company after deregistration
  - Apply to ASIC to reinstate a company
  - Apply to a court to reinstate a company
What are the different types of companies? Which type would be most suitable for the current stage of Up the Hill Fitness?
- 3.1 Proprietary Companies (Pty Ltd)
  - Two subtypes:
    - Small
      - Limited by shares
    - Large
      - Unlimited with share capital
- 3.2 Public Companies (Ltd)
  - Types:
    - Limited by shares
    - Limited by guarantee
    - Unlimited with share capital
    - No liability companies (mining only – s 112(2))
    - Corporate Collective Investment Vehicles
- Small proprietary Company
  - Limited Liability
    - Principle: Shareholders not personally liable beyond unpaid capital
    - Justifications:
      - Encourages risk-taking and capital investment
    - Criticisms:
      - Can externalise risk onto creditors
      - Used to evade obligations in bad faith
In forming Up the Hill Fitness Pty Ltd, discuss some of the issues that Jack and Jill should discuss with each other regarding:
- The short-term, day to day operations of the company
  - Operations manager
  - Running costs
  - Safety and litigation prevention
  - The service itself
  - HR
- The longer-term issues for the company
  - Planning/permits
  - Development options
  - Funding/grants
  - Furthering longterm goals
  - Accounting
Companies may finance their activities through:
- Borrowing debt from creditors (eg banks); and/or
- Raising equity through issuing securities (most commonly in the form of shares – see s 92). What are the advantages and disadvantages of these two financing methods?
  - borrowing debt from creditors allows for more direct requests of money, specific known terms of repayment (but regardless of company performance), little risk to the running of the company. Secured loans may result in asset encumbrance or loss upon default.
  - Equity through securities causes little risk to longterm company safety (compared to creditors) but will require changes in company direction to address the business needs of stakeholders and less creative control. Payment is not dependent on company success, shares can be customized

Exercise [2.1] – The separate legal entity doctrine
Martha is a semi-retired secondary school teacher. Her daughter Alice (who is also a teacher) is looking to register a company that will provide private and group tutoring services to fee paying students. Alice explains to Martha that she plans for this company to rent a set of offices for the company to operate from, and that three of her friends have already agreed to become shareholders in the company. Alice asks Martha if she would also be interested in becoming a shareholder in this new company. However, as Martha has heard of similar companies failing in the past, she approaches you to explain her potential liability as a member of this proposed company. Advise Martha with reference to the applicable case law.

Salomon v A Salomon & Co Ltd [1897] AC 22
- Company is a separate legal person
- Members’ liability is limited to share capital
- Even one-man companies are distinct legal entities
- No fraud = no lifting the veil
- Creditors left unprotected if they rely solely on company assets
Limited to the value of the shares
Adams v Cape
Upholds corporate separateness even in group

Exercise [2.2] – Corporate groups
Corporate groups are a common feature of the modern business landscape, with larger ‘parent’ or ‘holding’ companies controlling smaller ‘subsidiary’ companies. What do you think are some of the reasons that larger companies incorporate smaller subsidiary companies? Can you think of any examples?

Alphabet, Amazon, Microsoft
Reasons
- to manage risk
- expand into new markets
- achieve tax advantages
- Subsidiaries allow for legal separation
- control supply chain

Smith, Stone & Knight Ltd v Birmingham (1939) 161 LT 371
Qintex Aust Finance v Schroders (1990) 3 ACSR 267

Exercise [2.3] Part 1 – Establishing a company
John Jhonas is a winegrower based in Orange in mid-western NSW. Due to the growth of his business is, John is planning to purchase a number of nearby properties to expand. John’s children Greg and Sue have recently relocated from Sydney back to Orange to help John run the business. Sue suggests that the family business should be in a form that would allow for expansion through raising capital and through enabling other winegrowers to buy into the business. Greg also suggests that a company structure would be a good option to consider, as he has heard that there may be tax advantages, and that companies may have a better borrowing capacity than businesses conducted as sole traderships or partnerships.
While John, Greg and Sue generally get along well they are all quite strong personalities and have on previous occasions had heated disagreements over family matters. Greg and Sue are in favour of naming the company “Jhonas Wines”, but John would like to name the company “ANZAC Wines” as his grandfather (who initially set up the winery many years ago) served in the First World War.
John approaches you for advice on the steps that would be involved in naming and registering the company as proposed above, and the on-going obligations once the company is registered.

Corporations Act ss 123, 153, 157(1)-(2)
might have to control the shares or set it constitutionally so that the name cannot change on a whim
- ‘Anzac’ Regulations 1921 (Cth) still provides that to use the word ‘Anzac’ (or any word resembling the word ‘Anzac’) in an official or corporate manner, you must get permission from the Minister for Veterans’ Affairs/ Corp act s 601DC
Public company due to scenario requirements of shares + taxation benefits, dependant on business size + More investments (listing on ASX)

Exercise [2.3] Part 2 – Parent and subsidiary companies
Assume that the company Jhonas Wines Pty Ltd (Jhonas) was incorporated and that it expanded through acquiring interests in other wine growing companies in the Orange region. One of the companies that Jhonas acquires an interest in is Yarralumla Wines Pty Ltd (Yarralumla) – with Jhonas acquiring 35 % of the shares in Yarralumla. The remaining 65 % of the shares of the shares in Yarralumla are owned by David (10%), Quentin (10%), Peter (10%) and Michael (35%). Jhonas is the proxy holder for Michael’s shares – which may be revoked by Michael providing written notice to Jhonas. Jhonas has agreed in writing to vote according to Michael’s wishes in relation to the proxy. The constitution of Yarralumla states that the company must have a minimum of three directors, and that Jhonas has the power to remove three of Yarralumla’s directors.
Discuss whether Yarralumla Wines Pty Ltd would be a subsidiary of Jhonas Wines Pty Ltd under s 46.

(i) controls the composition of the first body’s board; or
- jhonas has the power to remove three of Yarralumla’s directors, with jhonas being the proxy owner of the final shareholder, effectively leaving one other board member left but under the owner’s control
(ii) is in a position to cast, or control the casting of, more than one‑half of the maximum number of votes that might be cast at a general meeting of the first body; or
- Jhonas would have 70% of the vote assuming Michael does not revoke, but still only has ⅖ of the general meeting body votes
(iii) holds more than one‑half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or
- Jhonas would have 70% of the vote assuming Michael does not revoke

Exercise [2.4] – Indigenous corporate structures
The Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (“the CATSI Act 2006”) which is administered by the ORIC sets out the legal framework for the incorporation and running of Aboriginal and Torres Strait Islander Corporations. Review the Office of the Registrar of Indigenous Corporations website, in particular About us and our work.

In comparison to the requirements that apply to companies registered under the Corporations Act 2001, what are some of the unique requirements for Aboriginal and Torres Strait Islander Corporations registered under the CATSI Act 2006?
Can you think of some examples of business purposes for which Aboriginal and Torres Strait Islander Corporations might be incorporated?

Exercise [2.5] - Companies limited by guarantee
A company limited by guarantee (CLBG) under the Corporations Act 2001 (Cth) is:

Not-for-profit by nature
Often formed for charitable, educational, professional, or community purposes
Members do not hold shares and do not receive dividends
✅ Members guarantee to contribute a nominal amount (e.g. 100) if the company is wound up.
❌ They do not have ownership or profit rights like shareholders in a for-profit company.
s 254SA
Could reduce membership fees
If the company has surplus funds, it can:
Reinvest in professional development programs
Improve member benefits (e.g. discounts on conferences, journal access)
Fund scholarships, awards, or research grants
Hire staff, expand reach, or upgrade systems

Concluding discussion points and lead-in to Tutorial 3 – Corporate liability
In Tutorial 3 we will be examining how a company may become liable in contract and tort and under legislation. Can you think of some ways in which Jhonas Wines Pty Ltd (which was discussed in Exercise [2.3] above) and the Eastern Australian Institute of Marketing Executives Ltd (which was discussed in Exercise [2.5] above) might become liable in contract and tort and under legislation?

Tutorial 3: Managing companies II – Corporate liability

Week commencing 11 August 2025
Tutorial 3 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Explain how a company may become liable in contract and tort and under legislation
Apply these principles to determine the liability of companies within corporate groups
Preparation for this tutorial:
Reading – Bottomley et al Chapters 3 and 4
Podcast 2 – Managing companies I – Formation, life cycle and corporate liability

Business case study scenario for Tutorial 3
Mary is a casual trainer with Up the Hill Fitness Pty Ltd. One day she is leading a group fitness session at a public park on Sydney’s northern beaches and is playing loud motivational music. This annoys some of the other members of the public in the park, who contact the local council. A local council ranger attends and issues an on-the spot fine to Mary for breach of a local council by-law which states: “A business shall not conduct group fitness training session in public parks of [the Council] without holding a permit issued by [the Council]. Penalty $1,000”. Would Up the Hill Fitness Pty Ltd be liable to pay this fine?

Casual agent who engaged in the conduct was tortfeasor an employee/agent acting within authority? (Vicarious liability principles; Walker v Wimborne).
Potentials
- Direct liability (Tesco)
- Vicarious Criminal Liability (Mousell Bros)
- Special Rule of Attribution (Meridian)
- Strict Liability
- Criminal Code Act 1995 (Cth)
Torts
- Step 1 – Was tortfeasor acting within scope of authority/employment? (Hollis v Vabu).
  - Yes → Company vicariously liable; both liable as concurrent tortfeasors.
- Step 2 – If attribution of state of mind needed:
  - special rule of attribution if statute-specific (Meridian), but not necessary here
Vicarious criminal liability
- Criminal – Who engaged in the conduct? (Lennard’s, Tesco, Meridian, Criminal Code (Cth) Pt 2.5).
- Step 1 – Is it State or Cth offence?
  - State offences → Apply common law attribution:
    - Directing mind and will (Tesco, Lennard’s).
      - Not applicable here, she is a casual employee
    - Vicarious liability (Mousell Brothers).
      - Likely applicable
- Step 2 – Does statute impose strict liability?
  - If yes → No fault element required; check defence provisions.
    - Yes
- Step 3 – Is a “special rule of attribution” needed?
  - If yes → Interpret statute’s purpose and policy (Meridian, ABC Learning).
    - No
Conclusion
- Up the Hill Fitness Pty Ltd likely vicariously liable for Mary’s conduct:
  - She was acting within the scope of her employment,
  - Offence is strict liability,
  - Common law + Mousell Bros approach supports attribution.
- Mary is also personally liable as the actual offender — concurrent liability
  Exercise [3.1] – Corporate criminal liability
  How has s 12.3(2) of the Criminal Code Act 1995 (Cth) improved upon the earlier common law “directing mind and will” concepts in the attribution of criminal liability to companies.
  Can you think of examples where Australian legislatures have modified the effect of the separate legal entity doctrine through creating means for holding directors personally liable for breaches of the law by their companies?
Introduced the concept of corporate culture
Environmental law, work health and safety law
Bases of Corporate Criminal Liability
- Direct liability (Tesco)
- Vicarious Criminal Liability (Mousell Bros)
- Special Rule of Attribution (Meridian)
- Strict Liability
- Criminal Code Act 1995 (Cth)

Exercise [3.2] – Corporate criminal liability
Renmark Insurance Ltd (“Renmark”) is a large ASX-listed company that provides a full range of insurance policies to both businesses and consumers throughout Australia. Renmark provides a range of incentives to its employees to sell insurance policies through quite assertive sales practices. In particular, Renmark’s sales representatives are coached by their managers to discourage consumers from reading the complete wordings of the policies they are considering for purchase, and instead assuring consumers with lines such as “Don’t worry, you’ll always be covered with Renmark”. However, in reality Renmark’s insurance policies have a number of exclusion clauses which are not highlighted prominently. Renmark’s state managers have been authorised by the board to reward high performing sales staff with salary bonuses. In response to a number of complaints from consumers, ASIC has undertaken a formal investigation and is preparing to initiate criminal proceedings against Renmark. One of the provisions that ASIC will be alleging Renmark has contravened is s 1041G of the Corporations Act 2001, which relevantly provides:
“A person must not, in the course of carrying on a financial services business in this jurisdiction, engage in dishonest conduct in relation to a financial product or financial service.
Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)).”
Discuss how ASIC might utilise s 12 of the Criminal Code Act 1995 (Cth) to establish the required fault elements of this offence in Renmark’s case.

s 12(3) Fault elements other than negligence
- (1) If intention, knowledge or recklessness is a fault element in relation to a physical element of an offence, that fault element must be attributed to a body corporate that expressly, tacitly or impliedly authorised or permitted the commission of the offence.
- (2) The means by which such an authorisation or permission may be established include:
  - (a) proving that the body corporate’s board of directors intentionally, knowingly or recklessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or
  - this is implied but not given on the facts
  - (b) proving that a high managerial agent of the body corporate intentionally, knowingly or recklessly engaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commission of the offence; or
  - this is debatable as the state managers are only empowered to reward high sales, and it does not indicate what level the managers that are coaching the dishonest conduct
  - (c) proving that a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non‑compliance with the relevant provision; or
  - a range of incentives for aggressive sales along with managerial coaching are indicia but not proof
  - (d) proving that the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision.
- (3) Paragraph (2)(b) does not apply if the body corporate proves that it exercised due diligence to prevent the conduct, or the authorisation or permission.
  - unlikely to occur on these facts
- (4) Factors relevant to the application of paragraph (2)(c) or (d) include:
- (a) whether authority to commit an offence of the same or a similar character had been given by a high managerial agent of the body corporate; and
  - indirect, no evidence of this
- (b) whether the employee, agent or officer of the body corporate who committed the offence believed on reasonable grounds, or entertained a reasonable expectation, that a high managerial agent of the body corporate would have authorised or permitted the commission of the offence.
  - absolutely reasonable on the facts
  Exercise [3.3] – Corporate criminal liability
  Keswick Paint Supplies Pty Ltd (“Keswick”) is a company that manufactures a range of paints and similar chemicals from its factory near a river in an Australian capital city. The directors of Keswick are Petra and Monica, who established the company several years ago. The company employs around 30 people and has in place procedures for controlling the risk of spillage of paints and other chemicals into the nearby river. These include procedures for shutting down the operations at the factory each night. Keswick requires each of its shift supervisors to sign an agreement stating that they understand the shut-down procedures.
  One Friday evening a new shift supervisor named Gareth forgot to turn off a switch to one of the factory’s paint producing machines, which resulted in paint leaking into the nearby river. The next Monday morning Keswick receives a fine from the state environmental protection authority for the discharge of paint into the nearby river. Suppose that the relevant legislation states “A person that allows the discharge of pollutants into any watercourse shall be liable for a penalty as prescribed”. Petra and Monica seek your advice on whether Keswick would be liable as a company for the fine from the state environmental protection authority.
Criminal – Who engaged in the conduct? (Lennard’s, Tesco, Meridian, Criminal Code (Cth) Pt 2.5).
Step 1 – Is it State or Cth offence? Unknown
- Cth offences → Apply Criminal Code Pt 2.5 (ss 12.1–12.4):
  - Board/high managerial agent conduct (s 12.3(2)(a)–(b)).
  - Corporate culture that encouraged non-compliance (s 12.3(2)(c)).
  - Failure to maintain compliance culture (s 12.3(2)(d)).
- State offences → Apply common law attribution:
  - Directing mind and will (Tesco, Lennard’s).
    - No, clear direction to read the shutdown procedure
  - Vicarious liability (Mousell Brothers).
    - Not acting per the procedures of the company, but was acting in the scope of employment, even if incorrectly
    - Gareth was performing his job duties (supervising and shutting down machinery) when the omission occurred — the fact he forgot to follow the procedure doesn’t remove it from the “course of employment”.
Step 2 – Does statute impose strict liability?
- If yes → No fault element required; check defence provisions.
  - Yes
Step 3 – Is a “special rule of attribution” needed?
- If yes → Interpret statute’s purpose and policy (Meridian, ABC Learning).
  - No
    Exercise [3.4] – Contractual liability of companies
    Aztec Pty Ltd (Aztec) manufactures industrial chemicals. The CEO of Aztec is Bill. The other four directors consist of the company’s Chief Financial Officer (Jane) and three independent non-executive directors. Bill has devised a plan to rapidly expand Aztec’s operations by buying up its competitors and grow market share. To put this plan into action Bill proposes to the board to purchase the Sydney plant of its main competitor in Sydney, ABC Chemicals. The board approves of the proposed purchase and Bill begins to negotiate with the ABC board on behalf of Aztec to acquire the asset. The negotiations continue over several weeks and finally result in the factory (and a long-term lease for the property where the factory is situated) being sold to another company with connections to Aztec (XCel Pty Ltd), with contracts signed on 1 July. Aztec did not acquire the assets in its own name for tax reasons and used one of Bill’s personal family companies XCel Pty Ltd to purchase the asset on behalf of Aztec. Bill is the only shareholder and director of XCel. Bill signed the contract in his capacity as sole director of XCel. The settlement date for the purchase occured on 1 September.
    Unfortunately for Aztec, one of their most popular chemicals has been found to be defective and has allegedly caused extensive damage to hundreds of their customers’ machines. Maurice Blackmon and Associates (a well-known plaintiff firm) has launched a class action against Aztec claiming 50 million. XCel has already paid a deposit of $1 million (with funds provided by a non-recourse loan from Aztec), but both XCel and Aztec are willing to forgo that rather than paying the full amount.
    ABC may sue XCel Pty Ltd for damages for breach of contract, but XCel has very few assets. Bill is however a wealthy man and Aztec has sufficient assets to meet a compensation payment to ABC. ABC would ideally like an order for specific performance rather than damages.
    Advise ABC whether it could obtain an order for specific performance or damages and against whom such an order could be made.
- To determine if a company is liable, ask:
  - Contract – Who entered the contract?
    - Company (s 127 Corporations Act) → bound.
    - Agent with actual/apparent authority → company bound, agent not liable.
    - No authority → company not bound unless ratified; agent may be liable.
    - Statutory assumptions (ss 128–129) may assist third parties.
- Bases of Corporate Criminal Liability
  - Direct liability (Tesco)
  - Vicarious Criminal Liability (Mousell Bros)
  - Special Rule of Attribution (Meridian)
  - Strict Liability (ABC Learning Center)
  - Criminal Code Act 1995 (Cth)
1. Contract Liability Flow
- Step 1 – Was it the company?
  - Executed under s 127 (common seal or 2 directors/secretary) or per constitution → Company bound.
    - Yes, Bill was the sole director of the company (s 127)
- Step 2 – Was it an agent?
  - Express / Implied / Apparent authority – Freeman & Lockyer v Buckhurst Park.
    - yes, xcel was an agent of Aztec
      - smith stone and knight
        
        Were profits treated as profits of the parent?
        
        N/A
        
        Were persons conducting business appointed by parent?
        
        Yes
        
        Was parent the “head and brain” of the business?
        
        Yes
        
        Did parent govern the business, decide what should be done and what capital should be used?
        
        Yes, sole director of company was director of recipient and was provided deposit by recipient
        
        Did parent make profits by its own skill and direction?
        
        Yes
        
        Was parent in effectual and constant control?
        
        Yes
  - Statutory assumptions protect outsiders (ss 128–129).
    - Bill as a director for both companies falls under statutory assumptions as representing both companies s 129
- Veil piercing in tort more readily considered than in contract, due to involuntary nature of victims (Briggs v James Hardie).
  Xcel - direct liability, compel specific performance or damages
  Bill - pierce the corporate veil for damages
  Aztec is a non-recourse financier and the recipient of the deal, but likely will go insolvent

Exercise [3.5] – Tort liability of companies
Norwood Investments Ltd (“Norwood”) is a public non-listed Australian company that for many years has invested in a range of businesses in the health and well-being industry. Norwood undertakes such investments both by establishing subsidiary companies and through acquiring existing companies. One of the companies that Norwood recently registered was Figtree Vitamins Pty Ltd (“Figtree”) which for around seven months has developed and marketed a range of vitamins for sale at pharmacies and health stores. Whilst Figtree’s vitamins have sold well, in recent months there have been claims in the media of possible side effects from some of these vitamins. Cedric is a customer who has consumed Figtree’s vitamins for a couple of months and he is beginning to experience the side effects reported in the media. He was about to contact Figtree’s office to inquire about seeking compensation for the side effects that he has experienced, but noticed the company is no longer in business. Cedric approaches you for advice on whether he should pursue a claim against Norwood as the parent company of Figtree.

Step 1 – Was tortfeasor acting within scope of authority/employment? (Hollis v Vabu).
- Yes → Company vicariously liable; both liable as concurrent tortfeasors.
Step 2 – If attribution of state of mind needed:
- Use Directing Mind and Will test (Tesco, Lennard’s) if necessary, but does not seem so on the facts
Step 3 – Parent company liability?
- General rule: separate legal entities (Salomon; s 124).
- Exception: veil piercing (Briggs v James Hardie).
  - Has a history of medical companies throguh subsidaries
  - Tort case
    - The potential only to exercise control over the subsidiary is insufficient to pierce the corporate veil.
    - But tort victims do not get to choose, so courts make the stretch for them

Concluding discussion points and lead-in to Tutorial 4 (Managing companies III - Internal rules and corporate authority)
Discussion point 1 - The exercises in this tutorial highlighted several ways in which companies can incur contractual, tort and/or statutory liabilities. In practice, how do you think companies might manage the risk of incurring such liabilities – particularly through the activities of agents that make representations and/or engage in certain dealings on behalf of companies?

Discussion point 2 - What do you think might happen if a representative of a company “went out on a limb” by exceeding the level of their authority?

Tutorial 4: Managing companies III - Internal rules and corporate authority: Week commencing 18 August 2025

Tutorial 4 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Understand the role of the corporate constitution (or replaceable rules) in setting out the internal rules for governing companies
Explain the process for amending a corporate constitution
Discuss how companies may enter into contracts both expressly and by the actions of their agents
Appreciate the statutory assumptions that may protect third parties dealing with companies
Preparation for this tutorial:
Reading: Bottomley et al Chapters 5 and 6
Podcast 3 Part I – Managing companies II – Corporate constitutions
Podcast 3 Part I - Managing companies II – Corporate authority and contracting
Note: This semester based on previous feedback we have added an extra tutorial. From Tutorial 3 and onwards the numberings of the podcasts will differ slightly from the numberings of the tutorials.

Business case study scenario for Tutorial 4
Up the Hill Fitness Pty Ltd continues to grow, with strong interest in their group hill running sessions. The business starts conducting team building activities involving hill runs. Jack and Jill decide to open an office for the company in Manly, and to recruit marketing and business administration staff. They appoint James as Managing Director, to be responsible on a daily basis for managing the company’s office and for marketing their business.

Suppose that James had written authority to place orders for stationary and office equipment for up to 40,000 (having paid a 30,000 is overdue for payment. Would Up the Hill Fitness Pty Ltd be liable for this amount?
Binding the Company in Contract
A. Direct Execution (s 127)?

No evidence contract signed by two directors or director + secretary → s 127 likely not applicable
B. Agent Execution (s 126)?
Yes, James signed on behalf of the company as Managing Director.
C. Actual Authority?
❌ No – his express authority was limited to $20,000.
D. Apparent Authority? (Freeman & Lockyer + s 129(3))
Let’s apply the 3-limb test:
Representation of authority?
→ Yes – James is Managing Director, a role which customarily includes making business purchases.
Representation made by someone with actual authority?
→ Yes – the company itself appointed James as MD (s 129(2)).
Reliance by third party?
→ Yes – supplier reasonably relied on his status.
s 129 (1) A person may assume that the company’s constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with.
company may assume unaware if constitution requires approval for purchases

s 129(3) supports this assumption unless the supplier knew of the $20,000 limit → no evidence of this.
E. Any knowledge or suspicion? (s 128(4))

Nothing in the facts to suggest the supplier had actual knowledge or suspicion of James’s limit.
Yes, Up the Hill Fitness Pty Ltd is liable for the $30,000 balance, because:
James lacked actual authority, but
He had apparent authority as Managing Director
The supplier is protected by s 129 assumptions
No exception under s 128(4) applies
After dealing with the issue concerning the stationary and office equipment, Jack and Jill recognise the need for clearly defined rules for Up the Hill Fitness Pty Ltd. They approach you to draft a constitution for the company.
Discuss some of the points that they should consider incorporating into the constitution.
What are the benefits of having a well-drafted constitution for Up the Hill Fitness Pty Ltd? What would happen if there was no constitution in place? See s 134 of the Corporations Act.
- Flexibility and internal control of company, limitations to replaceable rules
Review ss 135 and 141 of the Corporations Act which outline the Replaceable Rules, and the other provisions of the Corporations Act which are listed in s 141. After reviewing these provisions, suggest why most companies choose to formulate their own constitutions.
Exercise [4.1] – Corporate authority and contracting
Alpha Pty Ltd (Alpha) is a small company specializing in the production of platinum for medical laboratories.
Greg is Alpha’s sales manager and has recently managed to defraud both Alpha and one of its main suppliers Zulu Pty Ltd (Zulu) with the following scheme. Greg managed to persuade Zulu’s sales staff to provide platinum for “secret” experiments to be carried out by a scientist whose real name could not be revealed for security reasons. The secrecy required the platinum to be supplied outside Alpha’s normal order system. But in fact, the so-called scientist didn’t exist at all.
What really happened was that Greg received the platinum and sold it to one of his friends (who was unaware of Greg’s scheme) for a significant mark-up on the price. Greg paid the original price to Zulu and then kept the profits for himself. As Greg used Alpha’s order forms and paid for the platinum quite regularly, Zulu began to allow him increasing amounts of time before he had to pay for each batch of platinum. After this scheme continued for one year, one of Zulu’s account managers got suspicious and called Julie (Alpha’s regular purchasing agent) to ask about the scheme. When Julie found out that Greg was involved, she told Zulu to get in touch with Greg. Julie did not tell any of Alpha’s senior management about the inquiry from Zulu’s account manager. After continuing for one further year, Zulu became concerned about some late payments from Greg, and they called Alpha’s deputy director of finance, Bill. Bill told them to continue the regular transactions while he looked into it, but Bill never contacted Zulu to update them about his investigation. Three months later, Alpha uncovered the scheme, but Greg disappeared leaving $800,000 owing to Zulu on platinum orders. Alpha claimed that it never authorized any of the orders, and that it should therefore not be liable for the amount owing.

At what stage of the above process (if at all) should Alpha become liable for the debt owing to Zulu?

No express authority
He has made a representation that he as an implied authority
s 126 (1) Implied authority (Freeman test)
- 1. Representation agent had authority (Holding out).
- 1. Representation made by someone with actual authority. Likely fails the test per company role
- 1. Outsider relied on representation to enter contract.
s 128-129: outsider protected by assumptions (indoor management)?
- under s 129(3), discuss apparent/ostensible authority: holding out/representation, Freeman & Lockyer; Crabtree-Vickers
- Check other subsection of s 129 if relevant, case law: Frenmast; carati
s 128(4): did an outsider know or suspect assumptions false?
- Eden Energy v Drivetrain on meaning of “Suspect”
- Cannot use assumptions as they are explicitly suspicious of assumptions
Zulu then contacts Bill (Deputy Director of Finance)
- Bill says: “Continue regular transactions while I look into it.”
- Bill has actual authority, and his statement could be seen as a new representation that Greg is still authorised.
Alpha is liable before Zulu’s questions directed to Alpha and after Bill provided authorization

Exercise [4.2] - Corporate authority and contracting
Bilgola Construction Ltd (Bilgola) has five directors and chaired by Bob Greenberg. Bob is also the majority shareholder of Bilgola’s parent corporation, and he has often signed contracts on behalf of Bilgola in the past without getting formal authorization from the board. However, Bilgola’s constitution states that two directors, or one director and the corporate secretary, are required to sign any contracts on behalf of the corporation, unless the board has passed a resolution authorizing a single person to sign on behalf of the corporation.
Besides being the majority shareholder of Bilgola’s parent corporation, Greenberg is also the controlling shareholder of another registered corporation, Greenberg Manufacturing Ltd (GML), which recently applied for finance to allow it to build a new factory. Ripoff Loans Ltd. (Ripoff), which was loaning the funds to GML, demanded more security for the loan, and Greenberg did not want to give a personal guarantee, even though he was very wealthy. He knew that Bilgola had plenty of assets, so he agreed to ask Bilgola to sign a guarantee agreement, guaranteeing Ripoff’s loan to GML.
However, when the guarantee documents were signed, Greenberg was not present, and instead Sally Smith, who was not an employee or director of Bilgola at all, signed “on behalf of Bilgola.” In fact, Ms. Smith was a finance manager for GML. Ripoff’s loan manager knew that normally corporations require at least two directors or officers to sign on behalf of the corporation unless the corporation has authorized one person to sign; but when this loan manager called Bilgola to ask whether Smith had been authorized to sign for the corporation, Greenberg’s personal assistant, who knew Greenberg’s unorthodox business practices well, told the loan manager that Greenberg had authorized Smith to sign on behalf of Bilgola. Greenberg was not available to confirm this, but the personal assistant was pretty sure that is what Greenberg would have said, and later Greenberg told the assistant that he had done the right thing.
Later, GML got into financial difficulty and defaulted on the loan payments to Ripoff. Relying on the guarantee, Ripoff applied to the court to seize Bilgola’s assets to satisfy the remaining balance on the loan. Bilgola argued that there was no binding contract as the guarantee documents were not properly authorized by the corporation.
Advise Ripoff on whether Bilgola will be bound by the guarantee documents.

Determine Authority
s 127 – Formal Execution
Requires contracts to be executed by two directors, or one director and a secretary, or a sole director/secretary for it to be binding without further proof.
Here:
❌ Not complied with — Sally Smith is not a director or secretary.
So, Ripoff cannot rely on s 127(1) to enforce the guarantee.
s 126 – Contracts Made Through an Agent
A company can enter a contract through an individual acting with express or implied authority.
Here:
Sally Smith is not an employee, officer, or director of Bilgola.
❌ No actual authority – Bilgola never gave her authority.
❌ No implied authority – Not a position within Bilgola, no prior course of dealings.
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 — Implied authority requires position + past conduct → not met.

2.5 Apparent Authority – Freeman & Lockyer v Buckhurst Park Properties
To bind Bilgola on the basis of apparent authority, Ripoff must prove:

A representation that Smith had authority
Representation made by someone with actual authority
Reliance by Ripoff
Apply the Apparent Authority Test:
🔹 (1) Representation of Authority
The loan manager did inquire and was told by Greenberg’s assistant that Smith was authorised.
But Smith herself did not hold out as having authority — someone else (the assistant) made the claim.
🔹 (2) Representation made by someone with actual authority?
Greenberg’s assistant is not an officer of Bilgola.
Even though the assistant believed Greenberg would approve, she had no authority to bind the company or make representations on its behalf.
❌ This fails the second limb of Freeman & Lockyer.
Crabtree-Vickers v Australian Direct Mail Advertising (1975) 133 CLR 72: the representation must come from someone with actual authority – not a receptionist or assistant.
🔹 (3) Reliance
Ripoff did rely on that statement, but they were already on notice that the signature did not follow standard company practice (2 signatures required).
They knew the contract had not been executed per the constitution.

s 129(3) – Statutory Assumptions
A person may assume that anyone held out as an officer or agent has authority to exercise the powers normally exercised by someone in that position.

Smith was not held out as an officer or director.
Ripoff knew that Sally Smith was not from Bilgola, but from GML.
So Ripoff cannot rely on s 129(3) to assume she had authority.

s 128(4) – Knowledge or Suspicion
A person cannot rely on statutory assumptions if they knew or suspected they were false.

Ripoff’s loan manager was already aware that a company usually requires 2 signatories or board resolution.
They called to confirm — indicating doubt, which points to suspicion.
They relied on a non-officer’s vague assurance — that’s risky and insufficient under s 128(4).
Eden Energy Ltd v Drivetrain Systems International [2012] FCA 235 – suspicion displaces the protection of statutory assumptions.
✅ Conclusion
❌ Bilgola Construction Ltd will likely NOT be bound by the guarantee, because:
It was not properly executed under s 127
Sally Smith had no actual or implied authority under s 126 - finance manager of a different company (GML)
There was no valid apparent authority, as the representation was not made by someone with actual authority (Freeman & Lockyer test not met)
Ripoff knew or suspected that the execution was irregular → cannot rely on statutory assumptions (s 128(4))

Exercise [4.3] - Class discussion of a relevant decision
In preparation for this tutorial, review Left Bank Investments Pty Ltd v Ngunya Jarjum Aboriginal Corporation [2020] NSWCA 144 and discuss the court’s findings on whether the corporation was bound by the conduct of its CEO in relation to the renewal of a lease for its business premises

Exercise [4.4] - Corporate constitutions
ProLux Vitamins Pty Ltd (ProLux) is a company that was incorporated in 1965 by Bill and Jill. For many years the company has successfully manufactured vitamins and sold these within Australia. In more recent years their children Gill and Phil have become involved in the business and are now shareholders of the company. The other shareholders of ProLux include Jan, Stan and Fran (who are all relatives of Bill and Jill). As Bill and Jill (who are the two directors of ProLux) are getting older, they are planning to hand over the directorship of the company to Gill in the coming six months.
The business of ProLux is growing, and Bill and Jill (in consultation with Gill and Phil) are discussing plans to export vitamins overseas. They have estimated that expansion into overseas markets would initially cost around $3 million. As they are not in favour of taking out bank loans, Bill and Jill would like to advertise in the local newspaper inviting the local community to participate in capital raising.
A clause in ProLux’s memorandum states that the objectives of the company are to (inter alia) “market and sell vitamins within Australia”.

Bill and Jill seek your advice on the following points:
[1] Would the objects clause in ProLux’s memorandum restrict its ability to export vitamins outside of Australia?
[2] Would ProLux in its present form be able to undertake the capital raising as proposed above?
[3] If ProLux would not be able to undertake the proposed capital raising in its present form, what changes to the company’s structure would be required? Also, what would be the process for effecting such changes?
[4] If ProLux went ahead and changed its structure to enable it to carry out the capital raising, what additional requirements would apply to the company? What do you think is the rationale for these additional requirements?
[5] Suppose that ProLux had several classes of shares and was proposing to change its share structure by cancelling certain of shares. What would the directors need to be mindful of when carrying out these changes?
[6] Concluding discussion point and lead-in to Tutorial 4 – Managing companies III - Corporate decision-making: Suppose that ProLux had several more members than the family members noted above. How do you think ProLux would need to go about seeking member approval of the proposed changes?

Tutorial 5: Managing companies IV - Corporate decision-making

Week commencing 25 August 2025
Tutorial 5 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Explain how decision-making powers are divided between directors and members
Outline the process for appointing and removing directors
Discuss the requirements under the Corporations Act relating to members meetings
Explain the rights of shareholders in relation to company meetings
Understand the process of financial reporting and the role of auditors
Preparation for this tutorial:
Reading: Bottomley et al Chapter 7
Podcast 4 Part I – Managing companies III – Company meetings
Podcast 4 Part II – Directors Financial reporting and the role of auditors

Business case study scenario for Tutorial 5
Due to the growth of its business, Up the Hill Fitness Pty Ltd is now employing around 50 fitness trainers and leading hill runs at various locations around Sydney. It has also purchased a property on Sydney’s northern beaches to develop a unique uphill obstacle course. The company’s growth is reported in the media and Jack is interviewed on a business television show about the plans for the future. Following this, Jack and Jill receive several inquiries from wealthy investors who are interested in investing in the company.

Why do people invest in companies? What are the main ways they can receive a return on their investments? Once their funds are invested, what (if any) degree of control do they have on the company’s management?
If Jack and Jill decided to accept these offers to invest in the Up the Hill Fitness Pty Ltd, what aspects of the company’s constitution should they review, and if necessary amend?

Jack and Jill decide to accept these offers to invest in Up the Hill Fitness Pty Ltd. Two of the investors, Ricardo and Gonzalo, request a seat on the board so that they can have a say in how the company is managed. Ricardo has experience in successfully managing start-up companies and currently manages a company developing aerial drones; and Gonzalo has worked for private equity firms which invest in start-up companies. Jack and Jill consider their request and agree it would be beneficial to have the benefit of their experience on the board. Ricardo and Gonzalo are appointed as directors of Up the Hill Fitness Pty Ltd. Another of their wealthy friends named Joshua has also offered to invest in the company – however he has no prior business experience or knowledge about the personal fitness industry. Joshua is quite taken aback when Jack and Jill decline his expression of interest to join the board, remarking that “Surely there can’t be too much involved in being a director – just coming along to a few board meetings now and then?!”

What are the roles and responsibilities of directors? How do their roles differ from those of the day-to-day management of the company?
What sort of skills and experience would be desirable for directors to bring to a company’s board? Would this explain why Jack and Jill accepted the offer from Ricardo and Gonzalo but not from Joshua?
What is the difference between executive and non-executive directors? In the above scenario would Ricardo and Gonzalo be executive or non-executive directors?

After reading up on the roles and responsibilities of company directors, Joshua abandons his wish to join the board, but still invests a considerable amount in the company. He also begins to contact Jack, Jill and James on a regular basis, suggesting new locations for the company to conduct hill runs, new marketing strategies and even a new logo for the company. He becomes perplexed when Jack, Jill and James eventually refuse to follow his suggestions, remarking “Surely that’s not right?! Since I’m a shareholder in this company I should have the final say in how things are run!”

Is Joshua’s view correct? Are there any provisions in the Corporations Act that would / would not support his viewpoint?
What are some reasons for separating the powers of shareholders (referred to as ‘members’ under the Corporations Act – see s 231) from those of directors?
- Directors have expertise in industry
- Personal Interests
- Accountability

With the continual growth of its business, Up the Hill Fitness Pty Ltd begins to receive expressions of interest from potential investors. Jack has plans to expand the business interstate and also after speaking with Emma one of his university friends studying software engineering, is keen on the idea of developing a revolutionary new treadmill machine program where runners wear a “virtual reality” helmet with special goggles which makes them appear to be running up a real hill. Emma shows Jack a computer simulation of her idea, and explains that once developed, the treadmill machine program could be licensed for a substantial fee to high end fitness centres. James is very keen on the idea and discusses it with Jill, James, Ricardo and Gonzalo. Gonzalo points out that Emma’s idea would require a considerable amount of capital, and that the company should look at listing on the Australian Securities Exchange (ASX) in the near future.

What does it mean when a company lists on a financial market such as the ASX? What are some other examples of financial markets around the world? Why do you think companies list on financial markets? What are some benefits and risks that companies may experience as a result of listing?
- Listing allows public to purchase shares of ownership and securities on these platforms in exchange for instant capital
- NASDAQ
- NYSE
- Everyone knows about company performance, shareholder pressure
- need 75% votes to pass special resolution

With the amount of legal issues that need to be dealt with as Up the Hill Fitness grows (including contracts with the fitness trainers, purchases and leases of land for the fitness sessions, insurance issues and compliance with applicable legislation), James has appointed Wendy as the company’s General Counsel, as none of the other directors have a legal background. The directors request Wendy to research the requirements for the company to list on ASX. Wendy reviews Part 2B.7 and advises that Up the Hill Fitness will need to convert from a proprietary company to a public company, which will involve passing a special resolution of the company’s members and then lodging an application with ASIC.

Review ss 9 and 249L. What do these provisions say about special resolutions?
Once Up the Hill Fitness becomes a public company, what additional requirements will apply under Part 2D.3, Part 2D.4 and Part 2D.5? See also s 113. Why do you think these requirements exist?

The board agrees to proceed with the process of changing from a proprietary to a public company, and instructs Max to convene a general meeting of the company’s members to approve the special resolution. At the meeting of Up the Hill Fitness’s members the special resolution is passed and Max lodges the necessary documentation with ASIC. The Company is now called Up the Hill Fitness Ltd.

Exercise [5.1] - Directors and members meetings
Bill, Mary and Alex are the directors and majority shareholders of Arlino Investments Ltd (“Arlino”) – a public company engaged in property investment. Bill, Mary and Alex collectively hold 60% of Arlino’s shares, with the remaining 40% being held by other members. Whilst Arlino’s property portfolio has for many years returned profits, over the last couple of months there has been a downturn in the property market. Bill, Mary and Alex have had lengthy discussions about whether to put one of the company’s properties on the market. Arlino’s constitution provides that the minimum quorum for a directors’ meeting is two, but also states that all directors must be given reasonable notice of a meeting.
Late one evening Bill and Mary had a discussion over dinner in a local restaurant near the company’s head office and they decided to proceed with the sale of the property they had been discussing over the last few weeks. Bill and Mary had sent Alex a text message just before the meeting to advise that they were going to discuss the proposed asset sale over dinner asking whether he wanted to join them. Alex said no, stating that he was too tired to attend.
The next morning Bill and Mary instruct Arlino’s solicitors to sell the property. No further discussion with Alex takes place as Bill and Mary believe that they have made a valid decision on behalf of the company at their meeting the previous night. However, when Alex finds out about the decision to sell the property he is furious and contacts Arlino’s solicitors telling them not to sell the property. Bill and Mary believe that Alex’s actions are harming Arlino so they pass a circulating members’ resolution to remove Alex from the board of directors.
How would you characterise the conduct of Bill and Mary according to the requirements of the Corporations Act?

Reasonable notice and just before the meeting are largely incompatible statements that already shed suspicion on the action
The reason stated for meeting was a discussion of an asset sale, not a determination of whether to sell that asset. Must be stated that it is a directors meeting if so
Special (75% of the votes)- special resolutions must be set out in the notice of meeting (s249L(1)(c))
The High Court in Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34 makes clear: shareholders can’t override directors’ decisions in management unless the constitution allows.
- So: as shareholders (even with 60%), Bill and Mary could not directly authorise the sale. They needed a valid directors’ resolution.
Alex was able to reply, so there’s permission to conduct the meeting, but still shaky
subsequent action is likely too far without another directors meeting, or at least presenting to the shareholders
s 203D/203E — removal of directors in a public company:
Directors cannot remove another director by circulating resolution.
Only members in general meeting can remove a director of a public company. Notice of meeting and special procedural protections (s 203D(2)–(5)) must be observed.
Thus, Bill and Mary’s “members’ resolution” is invalid.
Misuse of powers:
Their attempt to oust Alex this way suggests breach of s 181 (improper purpose: entrenching their control).

Exercise [5.2] – Members meetings and altering the corporate constitution
Maxim Ltd is an ASX-listed media company with major shareholders in Australia, Asia and North America. Maxim’s CEO George Gilligan has engaged the company in a prolonged period of aggressive expansion through acquisitions fuelled by debt, despite corporate debt markets being constrained due to the turmoil in financial markets worldwide. The cost of debt is going up and the acquisitions are starting to hurt profits. Some of the major institutional investors in Maxim are concerned about the company’s ability to continue servicing its debt obligations and have been petitioning Maxim’s board to rein-in the CEO’s aggressive behaviour with little effect. Meanwhile Maxim’s share price has halved in the past nine months.
A group of small but vocal investors (going under the name of the ‘Australian Shareholders Alliance’) decides to mount a campaign to remove both the CEO (George) and Chairman (Bill) from the board of directors. The group (comprising a diverse group of 60 shareholders) requisitions the company to convene an extraordinary members’ meeting to consider the following resolutions:

that CEO George Gilligan and Chairman Bill Boxwell are both incompetent and should be removed from office;
that the new CEO and Chairman should be chosen by corporate governance advisory firm ‘Institutional Shareholders Advisory’; and
that the company should take on no new debt for the next 12 months
In addition, the group wants the company to distribute an information booklet entitled “Bored Incompetence: a history of Maxim under George Gilligan”.
The board is not going to take this insubordination from shareholders and responds by calling a snap members’ meeting to be held 21 days later. The notice of meeting does not specify the proposed resolutions or contain the information booklet. The meeting is held at a conference centre in Hobart (which is unusual as normally the meetings are held in Sydney). The board undertakes this action to ensure that the attendance at the meeting is very low, and voting is done mainly by undirected proxies (controlled by the Chairman, as is usual for undirected proxy voting). At the meeting, the Chairman refuses to allow any of the members of the shareholder group to speak and the resolutions are defeated after the Chairman votes the undirected proxies. The Chairman then proposes, as a matter of special business (which was not detailed on the notice of meeting), an alteration of the company’s constitution in the following manner:
all future meetings that are requisitioned by members will require board prior approval and 6 months’ notice
the company will issue a new class of ‘super voting’ shares to the current board which will carry 3 votes per share
dividends will be suspended for the next 12 months to fund internal growth in the company.
The constitutional alteration was passed by a special majority of shareholders present and entitled to vote at the meeting. Investors (including the Australian Shareholders Alliance) are furious and want to challenge the outcome of the extraordinary members’ meeting and its constitutional alteration.
Part 1: You are a lawyer for the Australian Shareholders’ Alliance and have been asked to put together a brief outline of whether the board’s conduct in calling and conducting the members’ meeting, including the constitutional alteration, was valid: in other words, does the law permit the board to do these things.
s 249A
s 249R
- Venue
Clear, not misleading meeting info (s 249L) - missing booklet.
- Misleading = breach (s 1041H; ENT v Sunraysia).
s 249Q proper purpose; invalid resolutions may be ignored (NRMA v Parker, ACCR v CBA).
s 1322 - irregularities
s 232 - oppressive constitutional changes
Part 2: Would your answer be any different if you were the general counsel/company secretary for Maxim and the board asked you to advise on this as a planned course of action?
249O(5) - defamatory notice
directors have power to determine whether dividends are paid

Exercise [5.3] – An overview of financial reporting and the role of auditors
Purple Food Group Ltd (which is listed on the ASX) is the holding company for a range of popular fast food brands. It controls a large number of companies throughout Australia and operates on a franchise model.
Purple’s board and senior management is currently preparing for its upcoming Annual General Meeting
[1] Discuss the financial and other reports that the directors of Purple would need to present to members
[2] Discuss the steps that would be involved in preparing these reports
[3] For several years Purple has engaged the services of the major accounting firm Smith & Co as its auditor. What do you understand the role of auditors to be?
[4] Suppose that in the course of reviewing Purple’s accounts Smith & Co has become concerned that the accounts over-estimate the expected revenues from one of the company’s recently-acquired fast food businesses. As a result, Smith & Co are refusing to sign off on Purple’s accounts. Why do you think Smith & Co is adopting this course of action?

auditors can be sued as accessories to directors misconduct
[5] Suppose that Smith & Co have also identified several unexplained withdrawals of very significant amounts of cash at various ATMs by Purple’s CEO. When Smith & Co questioned the CEO about these withdrawals, he responded that these were “meal and entertainment expenses”. What course of action do you think that Smith & Co might need to consider in this scenario? What do you think would be the rationale for these requirements?
AVSBD E nFARzsgtxdhycfjvgk,bhl.nj/;mk,L>+:}|
[6] Concluding discussion point and lead-in to Tutorial 6 (ASIC’s role in regulating companies, financial markets and financial services) – If these cash withdrawals were found to be fraudulent, how do you think ASIC might respond to such suspected misconduct?

Preparation for Tutorial 6
In preparation for Tutorial 6 on ASIC’s role in regulating companies, financial markets and financial services, review the ASIC website under the “Regulatory Resources” section. In particular, download and review the following documents:

ASIC Information Sheet 151 ASIC’s Approach to Enforcement (issued September 2013)
ASIC Regulatory Guide 98 Licensing: Administrative action against financial services providers (issued 20 September 2018)
Robin Bowley ‘An analysis of challenges to ASIC’s s 920A banning orders against financial services providers in the AAT and the courts’ (2018) 36 Company and Securities Law Journal 307 – which may also be downloaded via the following link: https://papers.ssrn.com/Authid=1511463

Tutorial 6: ASIC’s role in regulating companies, financial services and markets

Week commencing 1 September 2025
Tutorial 6 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Understand the rationale for the Australian financial services licensing regime
Identify and explain the consequences of financial market misconduct in Australia
Appreciate ASIC’s role in regulating companies, financial markets and financial services
Discuss the factors that may guide the use of ASIC’s investigative and enforcement powers
Preparation for this tutorial:
Reading: Bottomley et al Chapter 17
Podcast 5 - ASIC’s role in regulating companies, financial services and markets

Business Case Study:
With Up the Hill Fitness Ltd now established as a public company, Jack and Jill decide to enrol in a course to learn about their duties as directors and there are no major developments for a few weeks. Instead the exercises for this tutorial are based on events concerning the hypothetical companies XYZ Bank Ltd and Balmain Mining Ltd.

Review the ASX website (www.asx.com.au) and conduct some searches on major companies that are listed. What information is available about these companies?
https://www.asx.com.au/markets/company/WOW

Exercise [6.1] - An overview of the Australian Financial Services (AFS) Licensing regime
XYZ Bank is a large international financial institution that is looking to set up operations in Australia. Once it has been granted the required licences and authorisations XYZ plans to undertake a full range of banking and financial services activities – including lending to consumers and businesses, investment banking and the provision of financial advice. It will also apply to be listed on the ASX. The directors of XYZ are aware that it will be required to hold an Australian Financial Services (AFS) Licence to conduct its proposed activities.

The directors of XYZ have approached you for advice on the arrangements it would need to have in place to hold an AFS Licence, and its ongoing obligations as an AFS Licensee. In preparing your advice, review s 912A which sets out the general obligations of AFS Licensees. After reviewing s 912A, consider the rationale for these requirements and how they might apply to XYZ Bank – including the various risk factors and conflicts that might be involved in the business that XYZ plans to conduct, and how these risks and conflicts might be managed.

General expectation: s 912A
- Obligations (s 912A CA):
  - Efficiently, honestly, fairly.
  - Manage conflicts (RG 181).
  - Maintain competence (RG 146).
  - Comply with law.
  - If breach suspected → ASIC may
- Have a Dispute resolution system
- Reference Checking and Information Sharing Protocol
- (a) do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and
- (aa) have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative; and
- take reasonable steps to ensure that its representatives comply with the financial services laws, except to the extent that:
- (i) those representatives are persons who carry on a business of providing goods or services to persons insured under insurance products in satisfaction of the liability of the insurers under those products; and
- (ii) the financial services laws relate to the provision of claims handling and settling services by those representatives; and
- (cb) comply with the law of each host economy for an Australian passport fund, if the licensee is:
- (i) the operator of the fund; or
- (ii) a person (other than a regulator) who has functions or duties in relation to the fund under the Passport Rules for this jurisdiction; and
- (cc) comply with the Reference Checking and Information Sharing Protocol; and
- (d) subject to subsection (4)—have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements; and
- (e) maintain the competence to provide those financial services; and
- (f) ensure that its representatives are adequately trained (including by complying with the CPD provisions), and are competent, to provide those financial services; and
- (g) if those financial services are provided to persons as retail clients:
- (i) have a dispute resolution system complying with subsection (2); and
- (ii) give ASIC the information specified in any instrument under subsection (2A); and
- (h) subject to subsection (5)—have adequate risk management systems; and
- (j) comply with any other obligations that are prescribed by regulations made for the purposes of this paragraph.

Exercise [6.2] – Identifying financial market misconduct
Balmain Mining Ltd is a small ASX listed company based in Perth. Balmain’s main activities are exploring for iron ore in the Pilbara region of Western Australia. Balmain is a thinly-traded stock, and since its listing its shares have traded at around 1.2m penalty.
- Artificially inflating the shareprice is worse than presenting a preliminary unconfirmed finding

The following day on 4 February, Stephanie was interviewed by a financial markets news program and remarked that “Balmain is on the cusp of a major iron ore discovery up in the Pilbara. Once developed, this mining site will be a great source of iron ore for many years to come”. Over the next few days, Balmain’s share price increases steadily to $10.
[2] Would Stephanie’s remarks be misleading or deceptive within the meaning of s 1041H of the Corporations Act? Why or why not?

(b) without limiting paragraph (a):
(i) issuing a financial product;
(ii) publishing a notice in relation to a financial product;
(iii) making, or making an evaluation of, an offer under a takeover bid or a recommendation relating to such an offer;
(iv) applying to become a standard employer - sponsor of a superannuation entity;
(v) permitting a person to become a standard employer - sponsor of a superannuation entity;
(vi) a trustee of a superannuation entity dealing with a beneficiary of that entity as such a beneficiary;
(vii) a trustee of a superannuation entity dealing with an employer - sponsor or an associate (within the meaning of the Superannuation Industry (Supervision) Act 1993 ) of an employer - sponsor, of that entity as such an employer - sponsor or associate;
(viii) applying, on behalf of an employee (within the meaning of the Retirement Savings Accounts Act 1997 ), for the employee to become the holder of an RSA;
(ix) an RSA provider dealing with an employer (within the meaning of the Retirement Savings Accounts Act 1997 ), or an associate (within the meaning of that Act) of an employer, who makes an application, on behalf of an employee (within the meaning of that Act) of the employer, for the employee to become the holder of an RSA, as such an employer;
(x) carrying on negotiations, or making arrangements, or doing any other act, preparatory to, or in any way related to, an activity covered by any of subparagraphs (i) to (ix).

At 3pm (Australian Eastern Standard Time) on Thursday 11 February Stephanie receives the final report on the drilling results from Rex, which confirms that the iron ore at the drilling site is of the required quality and able to be economically extracted.
[3] Would Balmain be required to disclose these final drilling results under ASX Listing Rule 3.1 and ss 674 / 674A? Why or why not?

Continuous Disclosure
- s 674; ASX Listing Rule 3.1: immediate disclosure of material info.
- Material = influence investor decisions (s 677).
- Exceptions: incomplete proposal, trade secrets, internal mgmt, still confidential (LR 3.1A).
- Cases:
  - Fortescue Metals (2011 FCAFC) – misleading → s 1041H.
  - Forrest v ASIC (2012 HCA) – not misleading → no contravention.
  - Newcrest Mining (2014 FCA) – analyst briefings → $1.2m penalty.
- could have had prepared draft
  Excited by this news, Stephanie arranges for a meeting of Balmain’s board to be convened for 6pm that evening to discuss the drafting of an ASX announcement about the iron ore discovery. The board meeting is followed by celebratory dinner the families and friends of the directors and senior management. At this dinner Adam (who is one of Balmain’s directors) texts one of his wealthy friends named Jacinta and relays the positive news about Balmain’s discovery. The following morning Jacinta makes several large purchases of Balmain shares. Following Jacinta’s purchases Balmain’s share price progressively rises throughout the trading day with significantly higher than usual trading volumes from 16.
  [4] Would either Adam or Jacinta be in breach of the insider trading prohibition under s 1043A of the Corporations Act in the above scenario?
s 1043A: prohibited conduct with inside info (s 1042A: not public + price sensitive).
Includes: trading, procuring, or tipping.
Cases: R v Rivkin (2003), R v Khoo (2013).
criminal requires intention, adam would likely fail this (Rivkin)
civil - adam maybe liable Khoo
On Monday 15 February at 9am Balmain sends announcement to the ASX detailing the iron ore discovery. Following the release of this announcement Balmain’s share price surges to $35.
On Tuesday 16 February the ASX sends an Aware Query to Balmain, which notes (i) Balmain’s announcement and (ii) the increase in the price and volume of Balmain’s shares since the previous Friday. The ASX Aware Query requests Balmain to confirm whether it has complied with ASX Listing Rule 3.1
[5] In light of your answer to discussion point [3] above, how do you think Balmain might respond? Do you think ASIC might commence a formal investigation into Balmain’s compliance with ASX Listing Rule 3.1 and s 674? Why or why not?
unless they can fit in delayed disclosure, they are subject to investigation
disclosure was too late, asic will likely investigate
[6] How do you think ASIC would go about investigating these instances of misconduct? What challenges do you think ASIC might encounter its investigations?

Exercise [6.3] – ASIC’s responses to suspected misconduct in the financial services industry
Assume that XYZ Bank now has an AFS Licence (which authorises it to provide a full range of banking and financial services throughout Australia) and that it is also now listed on the ASX. In the scenarios below, discuss the most likely enforcement action(s) that ASIC could take in response to the relevant misconduct.
[1] Through its compliance-monitoring programs, XYZ has identified that a number of its financial advisors in regional NSW were using an out-dated program to calculate the fees that clients should be paying for financial advice. XYZ has written to each affected client and has refunded them for the amounts they over-paid. XYZ has also upgraded its systems to prevent similar problems from re-occurring in the future, and has reported this matter to ASIC within the required timeframes.

[2] Peter is a financial advisor with XYZ Bank. After receiving several complaints from his clients, XYZ’s compliance team reviews Peter’s client advice files. From this review the compliance team finds that several years ago, Peter appears to have made unnecessary changes to his clients’ insurance arrangements – which could potentially leave these clients without adequate insurance coverage. The compliance team notices that Peter has received commissions from all of the changes he has recommended. XYZ has reported Peter’s conduct to ASIC.

[3] For the last few weeks the board of XYZ Bank has been reviewing the bank’s financial reports for the current financial year. There has been speculation in the financial news media that XYZ’s financial reports released to the ASX at the end of the last financial year may have been misleading through being overly optimistic about the bank’s profit forecasts, and that these reports may not have accurately reported XYZ’s potential liabilities for several investments overseas. ASIC has commenced an investigation into this matter.

[4] Pauline is a senior analyst with XYZ’s investment banking division, which manages large corporate transactions and deals. Pauline’s team is currently advising Blue Resources Ltd on its proposed takeover bid for Orange Mining Ltd. This takeover bid has not yet been announced to the ASX. XYZ’s compliance team has become aware that Pauline has been leaking information about this bid over the phone to her friend Jane, who is a stockbroker. XYZ’s compliance team has reported this matter to ASIC.

Misleading and deceptive conduct
- Misleading or Deceptive Conduct
  - s 1041H CA, ASIC Act s 12DA.
Pauline
- (c) Insider Trading
  - s 1043A: prohibited conduct with inside info (s 1042A: not public + price sensitive).
  - Includes: trading, procuring, or tipping.
  - Cases: R v Rivkin (2003), R v Khoo (2013).

Concluding discussion point and lead-in to Tutorial 7 (Corporate fundraising): Several of the recent key ASIC matters involved corporate fundraising activities that ended up as business failures, resulting in significant losses for investors. How do you think such the risk of such failures might have been lessened?

Preparation for Tutorial 7: Corporate fundraising
In preparation for Tutorial 7, review ASIC v Maxwell & Ors [2006] NSWSC 1052. This is the leading decision for illustrating ASIC’s response to contraventions of the Chapter 6D corporate fundraising provisions.
You will also need to review the two prospectuses that are posted on Canvas, as we will be reviewing these during Tutorial 7.

Tutorial 7 Corporate fundraising

Week commencing 8 September 2025
Tutorial 7 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Understand the rationale for the regulation of corporate fundraising in Australia
Explain the process for preparing disclosure documents for corporate fundraising
Discuss the content requirements for disclosure documents
Discuss the potential consequences of, and liability for, defective disclosure documents
Preparation for this tutorial:
Reading: Bottomley et al Chapter 9
Podcast 6 - Corporate fundraising
Note: This semester based on previous feedback we have added an extra tutorial. From Tutorial 3 and onwards the numberings of the podcasts will differ slightly from the numberings of the tutorials.

Business case study scenario for Tutorial 7
After a few months as a public company, the board of Up the Hill Fitness Ltd decide to apply to be listed on the ASX. The directors are keen to expand the company’s operations into Queensland and Victoria and have identified several properties to purchase for developing hill runs similar to those around Sydney. Jack also remains keen on developing Emma’s proposal for the new treadmill machine program where runners wear a “virtual reality” helmet with special goggles which makes them appear to be running up a real hill. Emma has now developed a prototype of this “virtual reality” helmet. The directors intend that the proceeds from Up the Hill Fitness Ltd’s listing will be used to finance these investments.

The directors request Wendy to brief them on the legal requirements and processes for the company to list on the ASX.
After researching the Corporations Act, and the websites of ASIC (http://asic.gov.au/regulatory-resources/fundraising/raising-funds-in-australia/) and the ASX (http://www2.asx.com.au/listings/ Wendy advises that the company will need to undertake an Initial Public Offering (IPO), also referred to as a “float”. She explains that Up the Hill Fitness Ltd will need to prepare a disclosure document (commonly referred to as a prospectus) providing detailed information about the company and how the funds raised through the IPO will be spent.

She also explains that this prospectus will need to be lodged with ASIC, and that because prospective investors will rely upon the prospectus in determining whether to invest, under Chapter 6D there are strict requirements about the information that must be included in disclosure documents, as well as provisions imposing liability on people involved in preparing disclosure documents for omissions and misleading statements.

The directors engage the following professional advisors to facilitate the IPO:

Bligh Bank, one of Australia’s leading investment banks, as corporate advisor for the IPO – which will involve managing the overall process and marketing the float to prospective investors;
XYZ Lawyers, to undertake legal due diligence on the company’s existing and anticipated legal liabilities. This includes conducting inquiries about the properties that Up the Hill plans to acquire in Queensland and Victoria to develop hill runs; and the legal issues involved in commercialising the “virtual reality” helmets; and
Purple Accountants – who will be responsible for carefully examining the financial information and projections contained in Up the Hill’s prospectus

Over the next few weeks numerous meetings are held between Up the Hill Fitness’ directors, senior management and the professional advisors to discuss the information to be included in the prospectus. At one of these meetings Kevin, an accountant with Purple Accountants says “I’ve been conducting some inquiries into the projected revenue from the “virtual reality” helmets, and I think the projected revenues of 1 million per year – and make clear these are an experimental technology”

Jack responds “No I think we should keep the revenue projection at $10 million. Emma is quite advanced in her trialling – way better than the “virtual reality” helmets in the US”. The other directors concur with Jack, and the prospectus is finalised and lodged with ASIC

What does the term “due diligence” mean?
- All reasonable inquiries made → belief on reasonable grounds that statements were not misleading.
- Meaning: A structured, documented investigation and verification process (legal/financial/technical) to ensure the disclosure meets s 710 and to support the due diligence defence.
  - Disclosure (s 710): Would a reasonable investor/adviser need the info to assess rights and financial position/prospects?
- “made all inquiries that were reasonable in the circumstances” – and after doing so, believed on reasonable grounds statements were not misleading / deceptive; or that there were no omissions about the matter
  - Misleading statements / omissions / new circumstances: s 728.
    - Offence if materially adverse: s 728(3).
    - Forward-looking statements require reasonable grounds: s 728(2)
- Civil liability to investors (loss or damage) — s 729:
  - Issuer/offeror, directors, underwriter, persons named with consent as having made statements, and persons “involved in” (s 79).
Assuming that Kevin’s concerns were valid, and that after Up the Hill listed, the development of the “virtual reality” helmets failed, causing Up the Hill Fitness’s share price to fall significantly. Discuss the potential liability of Up the Hill’s directors, senior management and the professional advisors under Chapter 6D.
- Purpose of Ch 6D (Corporations Act 2001 (Cth)): To protect investors by requiring disclosure of information needed to make an informed decision when companies raise capital via securities.
- Pyramid of responsible enforcement
What do you think Jack’s motives might be in seeking to play down Kevin’s concerns?
- encourage reasonable doubt regarding valuation self-reporting for due diligence report

Once Up the Hill is listed, the company’s share price increases and it becomes a regularly traded stock, which is traded by both individual investors (commonly referred to as “retail”, or “mum and dad” investors), as well as institutional investors such as banks, superannuation funds and other major investors.

The company uses the funds raised to develop the “virtual reality” helmet technology, and forms a subsidiary company, Up the Hill Virtual Helmets Pty Ltd for this purpose. The directors of this company are Emma, Jake and Sue.

Why do you think that companies form subsidiary companies?
- separate legal personality

Exercise [7.1] – Fundraising options for Australian companies
Knockem Out Pharma Ltd is a small cap company listed on the ASX. Its main business is the development and sale of painkilling sleeping pills whose powerful active ingredient comes from the venom of a common but deadly Australian snake. The company has had a lot of success with its first marketed drug, ZonkOut Fast, but a couple of multinational pharmaceutical firms are about to bring out their own competing drugs, and Knockem Out wants to make sure it stays ahead of the game, otherwise its profits may soon evaporate. It is developing a stronger drug, ZonkOut Extra Fast, with pills only half the size but twice the strength of the original version, and it wants to raise up to 5 million at its initial public offering (IPO) five years ago, and at that time it produced a full prospectus, but the company’s directors were shocked at the costs involved in the IPO and they would prefer to raise money without issuing a prospectus this time.
[1] Could Knockem Out Pharma raise the desired funds without a prospectus, and if so, what are its options under Chapter 6D of the Corporations Act?

Is there an “offer of securities”?
- “Securities” (shares, debentures, options/derivatives): s 92.
- If so, require prospectus or exemption below
  - Sophisticated investor: ≥2.5m / gross income >$250k for each of last 2 years: s 708(8).
  - Through AFS licensee (experience test): s 708(10) (licensee must be satisfied on reasonable grounds of the investor’s experience; written acknowledgement).
- ➡ If no exemption applies → must use a disclosure document (prospectus, short form, OIS, profile): s 709.
  - Offer Information Statement (≤$10m; fresh financials <6 months): s 709(4), s 715.
  - Profile statement (ASIC approval): s 721.
- 708aa
  - (1) A rights issue is an offer of a body’s securities for issue in respect of which the following conditions are met:
  - (a) the securities being offered for issue are in a particular class;
    - (i) the offer is made to every person who holds securities in that class to issue them, or their assignee, with the percentage of the securities to be issued that is the same as the percentage of the securities in that class that they hold before the offer; or

Assume that the company has now published a disclosure document giving information about its business to potential investors. After publication but before the deadline for investors to make offers to buy the company’s securities, Rod Reptilio, the company’s CEO, receives a preliminary report from his chief scientist giving initial results from clinical trials of ZonkOut Extra Fast on rats and monkeys. The rat trials were highly positive, but unfortunately, four of the five monkeys that were given the drug died from strokes. The report concluded that the drug still had good potential, but it will likely require at least another year to adjust the chemical formulation and test it on a new batch of monkeys before the company can even think about applying for human trials. The company’s disclosure document had stated: “The Company is currently conducting initial clinical trials for ZonkOut Extra Fast, and subject to successful results and adequate funding from this offer, will proceed to final stage clinical trials in the near future.”
[2] Rod believes that this wording is still accurate enough, but he has asked you (the company’s legal advisor) whether a revised disclosure document should be issued, and if so, how it might be worded to comply with the law without discouraging the investors. He also wants to know what the legal consequences would be if no revised disclosure were issued by the company.

clinical trials implies human trialing rather than pre-clinical trials on animals
Misleading / deceptive conduct
- in relation to financial products / services: s 1041H and s 12DA of ASIC Act 2001
s 734 – advertising offences.
Offer without current disclosure doc: s 727.
Misleading statements / omissions / new circumstances: s 728.
- Offence if materially adverse: s 728(3).
- Forward-looking statements require reasonable grounds: s 728(2)
Better wording: The Company is currently conducting initial pre-clinical trials for ZonkOut Extra Fast, and subject to successful results and adequate funding from this offer, will proceed to final stage clinical trials in the near future.

Exercise [7.2] – Review of prospectuses
You are a solicitor in small firm in a regional NSW town. Your clients are Mary and Michael who are a married couple both aged 40 with two children aged 15 and 12. Mary is a high school teacher and Michael is a project manager for an engineering company. Mary and Michael seek your advice about investing in either Beston Global Food Company Limited and Kina Securities Limited.
They have around 10,000 in two years to fix the roof of their house. They have some other money in the bank, so they are happy taking on some risk with their investment money in order to hopefully get a much higher return in the long term than they would with a bank term deposit. However, they are not sure what to look for in a company prospectus, and what legal rights they would have if the companies they invest in fail and their money is lost.
In this exercise, in small groups we will review the prospectuses posted on Canvas to consider how the companies disclose the following information – with each group focusing on specific issues as noted below:

The company’s current business and its track record;
The company’s business plans and how it plans to spend the funds that are raised;
The company’s governance arrangements - including the composition of its board and senior management;
How the prospectus discusses the various risks associated with the investment - and whether this disclosure is specific to the company;
The professional advisors engaged by the company for the fundraising (eg lawyers, accountants, investment bankers etc) and how they are remunerated; and
What rights would Mary and Michael have if they invest in one of these companies and it becomes insolvent in the first year with no money to distribute to shareholders?.

When reviewing the prospectuses, you should consider how clearly the information is presented from the perspective of a retail investor who may not commonly invest in securities.

Also, would you invest in either company? Why or why not?
It would also be interesting to review the trading performance of each company on the ASX and consider if it met its projected outcomes set out in the prospectus

Exercise [7.3] – Class discussion of a relevant decision and lead-in to Tutorial 8 Directors duties I – Historical development and overview of corporate governance
In preparation for this tutorial you were asked to review ASIC v Maxwell & Ors [2006] NSWSC 1052.

Discuss the various the contraventions of the Chapter 6D corporate fundraising provisions in that matter.
How were the investors adversely impacted by these breaches?
How do you think these breaches might have been prevented from occurring in the first place?

Note: The ASIC v Maxwell matter will be re-visited in Tutorial 8, with a focus on the breaches of Part 2D.1 of the Corporations Act.

Preparation for Tutorial 8: Directors duties I – Historical development and overview of corporate governance
In Tutorial 8 we will overview directors duties and the principles of corporate governance. In addition to reviewing the podcast, download and review the ASX Corporate Governance Principles and Recommendations (Fourth Edition, 2019), which provide guidelines on the roles of boards in the governance of ASX-listed companies, which can be accessed at the following link:
https://www.asx.com.au/regulation/corporate-governance-council.htm
Whilst these principles apply only to ASX-listed entities, they nevertheless provide useful guidance for other types of companies and organisations on developing effective corporate governance arrangements.

We will also be discussing the key conclusions in Chapter 4.1 “Corporate Governance and Culture” (pp. 324 – 334) of Volume 2 of the Report under section 143 of the Casino Control Act 1992 (NSW), chaired by the Hon Patricia Bergin SC into the suitability of Crown Resorts Ltd to hold a casino licence, which was tabled in the NSW Parliament in February 2021, which is accessible at:
https://www.parliament.nsw.gov.au/la/papers/Pages/tabled-paper-details.aspx?pk=79129
Whilst this inquiry considered the NSW legislation governing casinos which is not covered in this subject, the inquiry nevertheless made several observations about corporate governance and culture which are directly relevant to the points covered in Tutorial 8.

Tutorial 8: Directors duties I – Historical development and overview of corporate governance

Week commencing 15 September 2025
Tutorial 8 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Describe the concept of corporate governance
Appreciate the challenges of distinguishing the roles of directors and senior managers in large corporations
Identify situations where persons may be deemed to be shadow or de facto directors of companies
Explain the rationale for regulating the duties of directors
Preparation for this tutorial:
Reading: Bottomley et al Chapter 10
Podcast 7 – Historical development and overview of corporate governance
Note: This semester based on previous feedback we have added an extra tutorial. From Tutorial 3 and onwards the numberings of the podcasts will differ slightly from the numberings of the tutorials.

Exercise [8.1] – The role of boards in governing corporations
In 1984 the leading corporate governance writer Robert Tricker wrote that “If management is about running businesses, governance is about seeing that it is run properly. All companies need governing as well as managing”.
[1] In large companies, what do you think that the governing role of the board would entail?

[2] How do you think that the governing functions of the board of a major corporation would differ from the roles of the senior management?

[3] How do you think that companies can differentiate the roles of the board from those of senior management? What problems could occur if this differentiation was unclear?

[4] How might a board’s role might change as a company grows?

[5] What should be some of the considerations in determining the size and composition of a board? How do the ASX Corporate Governance Principles and Recommendations provide guidance on these issues? What recommendations are included in the Fourth Edition of the ASX Principles (2019) for achieving gender diversity in the composition of the board, senior executive team and workforce generally of listed entities?

[6] Discuss the key observations made by the Hon Patricia Bergin SC about the corporate governance arrangements and corporate culture within Crown Resorts Ltd in Chapter 4.1 of her report tabled in NSW Parliament in February 2021

[7] Can you think of any examples of situations where there might be divergent views on whether actions of directors were “for a proper purpose” and “in the best interests of the corporation” within the meaning of s 181?

Exercise [8.2] – The relationship between the board and management of corporations
Scenarios
Registered clubs (including for example Returned and Services League (RSL) clubs and other sporting clubs) are in many cases significant businesses which play a key role in local communities. Whilst in NSW registered clubs are subject to additional regulation (including for example the Registered Clubs Act 1976 (NSW) which is not examined in this subject), similar principles of corporate governance still apply to these organisations.

Scenario A - Smithville RSL Club Ltd
Smithville RSL Club Ltd is a large registered club. The board of six directors (who are all retired) have a strong connection with the club and attend the club every day. The directors take a very hands-on role in advising the management on matters such as the hiring of staff, the daily menus, the engagement of contractors and the club’s entertainment program.
Angela is the CEO of Smithville RSL Club and is concerned that (unlike similar clubs), the board has not formulated a strategic plan for the next five years. Given that the directors (who are very traditional in their outlook) are unwilling to trial new ideas she is concerned that with competition from other clubs, cafes and hotels in the area Smithville RSL Club may very well lose its market share in the near future. She has raised these concerns at the several previous board meetings (which the directors like to hold each fortnight for around three hours to discuss the club’s operations), but the directors refuse to listen to these concerns.

What problems can you identify with the role of the board in this scenario?
- s 180(1): Care & diligence
- s 181: Good faith & proper purpose
- overstepping in management rather than governance
- lack of legitimate development strategies
If the board continued to follow its approach as outlined in this scenario - What could be the potential consequences for the club?
If the club suffered serious adverse consequences, do you think the directors might be found to be in breach of any of the provisions of Part 2D.1 of the Corporations Act 2001? If so, explain your reasoning.
What changes could improve the board’s effectiveness in the above scenario?

Scenario B - Smithville North Sports Club Ltd
Smithville North Sports Club Ltd is another large registered club. Recognising the need to ensure the on-going competitiveness of the club, the board of five directors (who are all busy professionals with full time jobs) has recently appointed Fred (a former property developer) as the club’s new CEO. The directors were impressed by Fred’s plans to diversify the club’s revenue streams by building a 20-storey apartment complex in one of the club’s car parks. As the club’s revenues from its other sources have come under pressure, Fred has recommended that the club should finance this new construction with a $2 billion bank loan. The board approved this decision after a short one-hour powerpoint presentation by Fred and a property developer named John (who is Fred’s cousin). Since his appointment as CEO a few months ago Fred has also scaled back several of the club’s sporting programs and retrenched s number of long-term staff members. The board have gone along with all of Fred’s recommendations.
Michael is a member of the Smithville North Sports Club and has expressed his concerns about the current direction of the club to its chairman Natalie. Natalie dismisses Michael’s concerns, remarking that “We have recruited Fred to turn this club around. Fred is an experienced property developer and business owner and we are happy to go ahead with his recommendations. If we got too hands-on we would end up facing the same challenges that Smithville RSL Club is experiencing”.

What problems can you identify with the role of the board in this scenario?
If the board continued to follow its approach as outlined in this scenario - What could be the potential consequences for the club?
If the club suffered serious adverse consequences, do you think the directors might be found to be in breach of any of the provisions of Part 2D.1 of the Corporations Act 2001? If so, explain your reasoning.
What changes could improve the board’s effectiveness in the above scenario?

Exercise [8.3] – Identifying shadow and de facto directors
Eastwater Investments Pty Ltd (Eastwater) is a Sydney-based company that facilitates investment in a range of residential property schemes. The directors of Eastwater are Ethan (who is based in Auckland), Susan (who lives on Christmas Island) and Peter (who is based in London). All three are friends of the wealthy property Bob Barton. As a result of previous business failures Bob has been bankrupt twice, although he discharged his second bankruptcy several years ago.
Fredrica (Bob’s step-daughter) is the manager of Eastwater’s head office in Burwood where she supervises the day to day operations of Eastwater’s business. Her role includes signing correspondence, and she also convenes monthly meetings of Eastwater’s directors via teleconference where she provides them with an update on the company’s investments.
At Eastwater’s Burwood office a team of business development managers work under the direction of Derek. They conduct seminars around Sydney to promote investment in Eastwater’s property schemes, which involve investors purchasing options to acquire land on unregistered plans for residential sub-divisions. Eastwater has promised these investors high returns on the basis of expected re-zoning and re-development of these plans. Once investors express their interest in Eastwater’s investment schemes, the business development managers arrange for the investors to be contacted by solicitors from Barton Property Lawyers to receive independent legal advice at no cost in relation to their property investments. Barton’s Principal is Lachlan (Bob’s son). If investors insist on using their own solicitors, the usual response of Eastwater’s business development managers has been to advise these investors that their names would be placed on a waiting list. However, in reality these clients were not contacted further by Eastwater. Bob provides regular coaching for Eastwater’s business development managers.
Peter (Bob’s nephew) manages the finance section of Eastwater. Once the investors place their initial deposits for the property schemes, a proportion of these initial funds would be paid out to other investors. Eastwater characterised these payments as “property investment returns”. The remainder of funds from investors were transferred into Eastwater’s main bank account, from which the (very generous) salaries of Eastwater’s staff were paid. Considerable sums were also paid into the Barton Family Trust. Few of the investors actually acquired interests in the property schemes as promised by Eastwater. Bob also reviews the finances of Eastwater on a regular basis.
Fiona is an investor in Eastwater’s property scheme. She has contacted Eastwater’s office several times to seek an update about her investment but has received no response. Through inquiries with her contacts in the property investment industry, she hears rumours that Eastwater may be at risk of insolvency due to the company’s default on a major bank loan. Fiona has heard that when companies become insolvent, the directors of the company may incur personal liability for the company’s debts. She seeks your advice as to which people in the above scenario might fall within the definition of “directors” of Eastwater

Directors
- 9AC - Meaning of director
- 9AC(1)(b) unless the contrary intention appears, a person who is not validly appointed as a director if:
  - (i) they act in the position of a director; or
    - Ethan
    - Susan
    - Peter
  - (ii) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation).
    - Bob
- s 249C (power to call meetings of a company’s members); and
  - Fredrica

Exercise [8.4] - Class discussion of a relevant decision
In preparation for this tutorial, review ASIC v Maxwell & Ors [2006] NSWSC 1052 (which was also discussed in Tutorial 7) and discuss the contraventions of the various provisions of Part 2D.1 of the Corporations Act.
How do you think these breaches might have been prevented from occurring in the first place?

Exercise [8.5] – Class discussion of a relevant inquiry
In recent decades there has been an increased by many investors and other stakeholders on the consideration of Environmental, Social and Governance factors by companies.
In May 2020 blasting operations by Rio Tinto Ltd destroyed an Aboriginal heritage site at Juukan Gorge in the Pilbara region of Western Australia which was of cultural significance for the Puutu Kunti Kurrama and Pinikura peoples. This incident prompted a parliamentary inquiry, which was highly critical of the processes within Rio Tinto that allowed this incident to occur. The final report of this inquiry is accessible here.
This incident also prompted significant media attention
Rio Tinto has since issued an apology for this incident, which is accessible at:
https://www.riotinto.com/news/inquiry-into-juukan-gorge
Discuss the key criticisms by the parliamentary committee on the processes within Rio Tinto that allowed this incident to occur.
Based on internet searches, discuss the reactions by institutional investors to this incident.
How do you think that incidents of this kind could be prevented in the future?

Conclusion and lead-in to Tutorial 9 Directors duties II – Duty of care, skill and diligence; Overview of corporate insolvency
Consider again Scenario B in Exercise [7.1] above. Suppose that Fred (the CEO of Smithville North Sports Club Ltd) received a substantial commission from his cousin John (the property developer) for arranging for John’s firm to be engaged to build the 20-storey apartment complex above the club’s car park, which the board approved this decision after a short 1-hour powerpoint presentation by Fred and John. Discuss potential contraventions of Part 2D.1 of the Corporations Act in this scenario. How do you think the risk of these contraventions could have been avoided?

Preparation for Tutorial 9: Directors duties II – Duty of care, skill and diligence; Overview of corporate insolvency
On the ASIC website, download ASIC Report 631 Corporate Governance Taskforce Report – Director and officer oversight of non-financial risk (October 2019) and review the executive summary of that report. One of the exercises in Tutorial 9 draws upon the key conclusions of that report.

Stuvac week beginning 22 September 2025

Tutorial 9: Directors duties II – Duty of care, skill and diligence; Overview of corporate insolvency

Week commencing 29 September 2025
Tutorial 9 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Explain the duties of company directors and officers to apply appropriate care, skill and diligence
Discuss some of the processes that directors and officers may undertake to fulfil their duties of care and diligence
Outline the various defences that may be available to directors and officers including the business judgement rule, delegation and reliance
Explain the duty of directors to prevent insolvent trading and the potential consequences of failing to fulfil this duty
Preparation for this tutorial:
Reading: Bottomley et al Chapter 11. Chapters 15 and 16 provide an overview of corporate insolvency processes.
Podcast 8 Part I - Duty of care, skill and diligence and preventing insolvent trading
Podcast 8 Part II - Overview of corporate insolvency processes

Exercise [9.1] – Directors duties under s 180 of the Corporations Act
Neddy is the CEO and Executive Chair of Acme Ltd, an ASX listed mining services company. Neddy has been involved in extensive negotiations with a large Chinese mining company (MetalRMB Inc, which is registered to operate in Australia) that is developing a substantial mine in a remote part of WA. Neddy has undertaken several trips to China to meet with senior executives and senior political figures. The executives of MetalRMB have exchanged ‘letters of intent’ with Neddy which contain the elements of a substantial service contract that will involve Acme taking a project management role in the development of the mine. This contract is potentially worth over $1 billion.
Neddy is excited about this development and emails the board at 2am Perth time:
‘Dear colleagues, I have signed a major contract this evening that will significantly increase revenues for the next 5 years. I will announce the details of this deal (project management of new mine for MetalRMB in WA over next 5 years, expected revenue increase of 30%) to the market tomorrow morning. If you have any concerns or comments please email or text asap.’
Neddy has always run Acme ‘his way’ and the board has been reasonably relaxed and let him get on with business as he has been spectacularly successful during the mining boom. Neddy receives no feedback from the board and so issues an ASX release announcing the contract, which sends a strong spike in Acme’s share price. The board members (not including Neddy) sell substantial portions of their shares in the company after the price increases. The ASX issues a query to Acme about the release after the Financial Times website questions whether the contract is binding. Two weeks later Acme releases a further release to the ASX stating that its contract is still being negotiated and may be significantly delayed or otherwise not proceed. This comes after MetalRMB management inform Neddy that they would prefer to use a more experienced global construction company for the lead project management role, although Acme can still be involved in a minor role.
You are a lawyer for ASIC and you have been asked to investigate this matter. Do you believe that Neddy and/or the other directors could be in breach of s 180(1)? Why/why not?

Ned is CEO and Executive Chair - s 9AC, 9AD likely pass
A director/officer must exercise powers/duties with the degree of care and diligence that a reasonable person would exercise if they:
- (a) were a director/officer of a corporation in the corporation’s circumstances; and
- (b) occupied the office held by, and had the same responsibilities as, the director/officer (s 180(1)).
Objective, contextual test (circumstances + role):
- ASIC v Rich (2009) 75 ACSR 1 (Austin J) — “circumstances” includes: listed status, size/nature of business, constitution, board composition, allocation of work between board/executives, group control.
  - loose control here
- s 180 - CEO - reasonable person in these circumstances and this office.
Did the director inform themselves, monitor finances/risks, and question anomalies (Daniels v Anderson; Centro; Shafron; Vines)?
Reliance: s 189 — reliance on information/advice from employees, professional advisers/experts, other directors/committee is reasonable if:
- the provider is reliable/competent, reliance in good faith, and the director made an independent assessment of the information.
- See ASIC v Adler [2002] NSWSC 171 [372]
In ASIC v Shafron (2012) 247 CLR 465, failure to act with care in making public disclosures was a breach, even where the director had partial legal/compliance responsibilities.
NO INDEPENDENT ASSESSMENT INDICATED
AWA - NEDs may rely more on management, but not blindly.
Application to the Other Directors (Non-Executive Directors)
3.1. The board is said to have allowed Neddy to “run things his way”, and no members objected to his 2am email.
3.2. In ASIC v Vines (2005) 23 ACLC 123, a director was held liable under s 180(1) for failing to properly assess the accuracy of financial information.
3.3. In Centro (ASIC v Healey (2011) 196 FCR 291), non-executive directors were liable for failing to notice misstatements in financial reports — their duty includes making independent assessments and not relying blindly on management.
3.4. Here:
The board had the opportunity to intervene or question the decision once informed, but failed to do so;
They also profited from the misleading release by selling shares after the spike — this suggests a failure to scrutinise the information or raise concerns.
Conclusion on Other Directors: While their breach is less clear-cut than Neddy’s, their passivity, failure to intervene, and personal gain from the announcement may amount to a breach of s 180(1), particularly when viewed through the lens of Centro and Vines.
Conclusion
Neddy has likely breached s 180(1) by acting without adequate care, failing to verify contractual finality, and making a market announcement that was premature and misleading.
The other directors may also have breached s 180(1) by failing to act with diligence, failing to question or stop Neddy’s conduct, and benefiting from the market reaction to a defective disclosure.
ASIC would be justified in investigating both Neddy and the board under s 180(1), with a strong case against Neddy and a potentially supportable case against the non-executive directors.

Exercise [9.2] – Directors duties under s 180 of the Corporations Act
Ace Constructions Ltd (Ace) is an ASX-listed company with a market capitalisation of around 5 billion. This is substantially more debt than Ace has previously carried and will put significant pressure on its profitability, particularly if there is a downturn in the construction industry. In addition, much of the debt will be raised from a syndicate of overseas banks, which creates a significant risk of movements in the foreign exchange rate. Despite advice from senior managers within the company that foreign exchange hedges (which protect companies that have borrowed in foreign currencies against movements in exchange rates) should be entered into, Emma decides that they are not necessary and too expensive. With the Australian dollar recently falling against the Euro, the cost of funding the takeover skyrockets and the company is left with huge losses.
To make matters worse, Ace has been experiencing cash flow problems for most of the year. Rick has kept this information hidden from his updates to the board and has also withheld this information from Emma to conceal the mounting losses. Whilst Ace has been able to service the repayment obligations, it has had to renegotiate with some major creditors. Rick starts cashing in his share options as he is fearful of the company’s financial future.
All of these problems become public knowledge when rising interest rates in Australia cause a slump in the construction industry and a major share price collapse for Ace. This collapse triggers a loan review clause in the company’s financing arrangements that requires some debts to be repaid within 90 days. This would be very difficult. This puts further negative pressure on the share price, culminating in an 85% drop in Ace’s share price.
There are fears that Ace’s solvency may be compromised and investors are furious that Rick and the management team could have been so reckless in mounting the takeover for so high a price and with so much debt during a time of tightening credit markets. Particular criticism has been levelled at Rick, as his remuneration includes a bonus payment of $2 million if the company’s national market share of large new construction projects exceeded 25% (which it did following the takeover of Multibuild). ASIC has made public statements that it is investigating Ace’s management team for possible breaches of directors’ duties.
Discuss the grounds upon which ASIC might commence legal proceedings against the various individuals noted above.

Daniels v Anderson

Identify Duty/Claim
1.1. Potential breaches:

s 180(1) – duty of care and diligence (all directors/officers).
s 588G – insolvent trading (if debts were incurred when insolvent).
1.2. Role & circumstances:
Ace is ASX-listed with ~$1bn market cap.
Rick: CEO (executive, high responsibility).
Emma: CFO (finance officer, professional accountant).
Max: Chair + committee member, former accounting partner (high financial literacy).
ASIC v Rich (2009): circumstances include size, listed status, structure, delegation, composition. → All three held senior offices with significant responsibilities in a large, listed, high-debt corporation.

Legal Standard
2.1. s 180(1): objective test – what a reasonable person with their responsibilities and in Ace’s circumstances would have done.
2.2. Business Judgment Rule (BJR) – s 180(2):

Only applies if decision = “business judgment” (s 180(3)).
Requires (a) good faith/proper purpose; (b) no material personal interest; (c) adequate information; (d) rational belief in best interests.
Likely not satisfied:
- Rick had bonus incentive = personal interest → fails (b).
- Board lacked independent advice → fails (c).

Apply to Facts (Care & Diligence)
3.1. Rick (CEO)

Failure to inform board: Concealed cash flow problems → breach (Daniels v Anderson – duty to inform).
Excessive debt without risk controls: Aggressive $5bn debt → reckless disregard of risk (ASIC v Cassimatis (2016) 336 ALR 209 – directors liable even where “strategic” decision harmed company).
Personal interest: $2m bonus tied to market share → conflicted judgment → undermines BJR defence.
Insider dealing: Cashed share options while concealing financial issues → could trigger s 1043A (insider trading), but under s 180 it shows lack of diligence.
Rick = Strongest case of breach under s 180(1).

3.2. Emma (CFO)

Failure to hedge foreign currency risk: Ignored clear advice of senior managers, rejected hedges → imprudent (ASIC v Vines – duty to manage risk and assess accuracy of financial information).
Overwhelmed by structure: Reliance on Rick without proper independent assessment (Centro; ASIC v Adler – s 189 reliance unreasonable without independent assessment).
Concealment by Rick: Mitigates slightly, but Emma failed to probe anomalies despite professional expertise.
Emma = Likely breach of s 180(1) for failing to exercise diligence expected of a CFO/accountant in complex financing.

3.3. Max (Chair & committee member)

Failed oversight: Relied heavily on Rick, no independent advice before approving takeover → unreasonable (Centro – duty to check financial information; Daniels – cannot rely blindly on management).
Financial expertise: As former accounting partner, expected to question debt/hedging structure more rigorously (ASIC v Healey – directors must apply their own knowledge/skills).
Committee role: As risk committee member, should have ensured risk controls (FX hedging) were in place.
Max = Likely breach of s 180(1) by failing to exercise diligence, especially given financial expertise and committee role.

Insolvent Trading (s 588G)
4.1. Elements:

Director/officer.
Company incurs debt (takeover financing).
Insolvent at time, or became insolvent by incurring debt (s 95A).
Reasonable grounds to suspect insolvency.
Failure to prevent debt (s 588G(2)).
4.2. Facts suggesting insolvency:
Ongoing cash flow problems;
Renegotiation with creditors;
Collapse in share price triggered loan review clauses → repayment obligations unlikely to be met.
4.3. Potential defences (s 588H):
Rick: unlikely (he concealed insolvency).
Emma: could argue reasonable reliance on Rick, but reliance unreasonable given her CFO role (AWA; Adler).
Max: defence weaker because of financial background – should have detected warning signs.
→ ASIC may pursue insolvent trading claims against Rick, Emma, and possibly Max.

Conclusion & Remedies
5.1. Rick: Strong breach of s 180(1) (reckless takeover, concealment of solvency issues, personal interest). Also potential insolvent trading (s 588G), insider trading (s 1043A).
5.2. Emma: Breach of s 180(1) (failure to hedge, poor oversight, unreasonable reliance). Possible s 588G liability.
5.3. Max: Breach of s 180(1) (failure to question risks/independence, reliance on Rick). Possible s 588G liability given his role and expertise.
Orders: ASIC may seek civil penalty orders (s 1317G), disqualification (s 206C), and compensation (s 1317H).
Relief (s 1317S): unlikely for Rick; possible (but not strong) for Emma and Max if they can show good faith + fairness.

Exercise [9.3] – Directors duties under s 180 of the Corporations Act
Northpac Banking Corporation Ltd (“Northpac”) is a major Australian bank that provides a full range of retail, business and institutional banking services throughout Australia. Northpac holds an Australian Financial Services (AFS) Licence issued by ASIC. Northpac’s CEO Ethan reports to the board of seven non-executive directors. Since his appointment two years ago Ethan has implemented several cost saving measures. These have included reducing the number of back office and compliance staff, and hiring more business development managers to sell the bank’s various financial products including investment loans, credit cards and life insurance policies. Northpac has increased its revenue from these financial products, which it has actively marketed to retirees and also those on low incomes. As a result of Northpac’s increased revenues, its share price has increased and it has been able to also increase its dividends to shareholders. Northpac’s board has rewarded Ethan and his senior management team with substantial bonuses. One day Zara (who is a non-executive director of Northpac) read in a newspaper that in response to a number of complaints about the mis-selling of financial products by Northpac, ASIC was planning to review the adequacy of compliance arrangements by Australian banks with responsible lending laws. Zara thinks to herself “I wonder what that will mean for me as a non-executive director? Surely as long as we are profitable ASIC won’t have any issues with my adherence to my director’s duties under s 180”? Zara seeks your advice as to the legal accuracy of her view. In preparing your advice you should also consider the requirements imposed on Northpac as an AFS Licensee under s 912A, which we covered in Tutorial 6.
Step 1: Identify Duty

Claim under s 180(1) (Corporations Act 2001 (Cth)).
Zara = NED (s 9AC, s 9AD).
Northpac = large, listed bank, AFS licensee → high compliance obligations (ASIC v Rich).
Step 2: Legal Standard
s 180(1): objective duty of care/diligence — reasonable NED of a large bank in these circumstances.
Business Judgment Rule (s 180(2)): not available — decisions about compliance and risk systems are not “business judgments” (Shafron, Centro).
Step 3: Apply to Facts
Duties of NEDs:
- Must inform themselves of material matters (Daniels v Anderson).
- Must monitor risk and compliance systems (Vines).
- Must not blindly rely on management (Centro; Adler).
Application:
- Ethan cut compliance staff, boosted product sales to vulnerable consumers.
- Complaints + ASIC inquiry suggest inadequate risk controls.
- Zara and the board passively relied on Ethan without independent scrutiny.
- Failure to maintain adequate compliance/risk frameworks may breach s 180(1).
Cassimatis v ASIC (2020): directors breached s 180(1) by failing to prevent financial advisers from giving unsuitable advice to vulnerable retail clients. → Strong analogy: Northpac’s directors allowed mis-selling to low-income retirees.
AFS Licence overlay (s 912A):
- s 912A(1)(a) → must act efficiently, honestly, fairly.
- s 912A(1)(c) → must comply with financial services law (responsible lending).
- s 912A(1)(h) → must maintain adequate risk management.
- Directors must ensure systems to comply with these duties → failure to do so = breach of s 180(1).
  Step 4: Conclusion
Zara’s view that profitability excuses her duties is legally inaccurate.
ASIC could allege breach of s 180(1) by the NEDs for:
- failing to maintain adequate compliance systems;
- failing to question Ethan’s risk-taking;
- failing to protect vulnerable consumers from mis-selling.
Possible orders: civil penalty (s 1317G), disqualification (s 206C), compensation (s 1317H).

Exercise [9.4] – Directors duties to prevent insolvent trading and an overview of corporate insolvency processes
Acme Toys Pty Ltd is a manufacturing company based in Penrith NSW. It has 30 employees and has traditionally been very profitable. However, in recent years competition from cheaper imported toys and a slowdown in retail sales has created a strain on the company’s finances. The directors have had to mortgage the company’s land, and were forced by Big Bank to grant additional security over the company’s remaining assets. As the company’s trading position worsens the payment of some bills is being delayed. Some bills are going unpaid altogether. Acme then receives a notice of amended assessment from the Australian Tax Office which states that the company owes $2 million as a result of allegedly incorrectly claimed tax deductions. Acme’s directors dispute this assessment and wish to appeal the ruling. The directors are hopeful that the coming Christmas trading period will generate sufficient revenues to pay all of its current and near-term bills. Furthermore, the directors have engaged the services of Big Four Accountants who are confident that the ATO’s assessment can be overturned on appeal.
[1] Advise the directors on their current legal situation. (Note: the ATO assessment creates an immediate obligation to pay despite the possibility of objection and appeal)

Insolvent = not solvent.
Debt does not include unliquidated damages (Box Valley Pty Ltd v Kidd [2006] NSWCA 26).
Continuing losses; overdue taxes; inability to raise finance; inaccurate financial records.
s 588G (insolvent trading)
- Director (s 9AC).
- Company incurs a debt.
- Company insolvent at time (s 95A).
- Reasonable grounds to suspect insolvency.
- Failure to prevent debt incurrence (s 588G(2))
Presumptions: s 588E (e.g., failure to keep proper books and records under s 286 can give rise to a presumption the company was insolvent during the period (s 588E(4))).
4.3. Defences (s 588H):
- (2) Reasonable expectation of solvency.
  - Hopeful for christmas season (mere hope that future profits will fix it is insufficient: Fryer v Powell (2001) 37 ACSR 589).
- (3) Reasonable reliance on competent person.
  - Reasonable reliance on a competent person for solvency info is fair given a big four accountant
- (4) Absence from management.
  - N/A
- (5) Took all reasonable steps to prevent
  - Unknown
COULD DO 588GA (Safe harbour): No liability under s 588G(2) for debts incurred while the director is developing and taking a course of action reasonably likely to lead to a better outcome for the company than immediate liquidation/administration. Preconditions include:
- Proper books and records kept (s 588GA(1)(b));
- Employee entitlements paid when due (s 588GA(4)(a));
- Tax reporting obligations met (s 588GA(4)(b));
- Taking appropriate advice and properly informing oneself (non-exhaustive factors in s 588GA(2)).
- Safe harbour ends if course of action ceases to be reasonably likely to lead to a better outcome (s 588GA(3)).
  [2] Suppose that Acme Toys failed to pay the $2 million debt to the ATO. Discuss the various corporate insolvency procedures that the following entities might pursue:
Acme Toys
- Voluntary Administration (Pt 5.3A):
  - Appointment of administrator (s 436A).
  - Moratorium/stay on proceedings (ss 440B–440D).
  - Outcome: Deed of Company Arrangement (DOCA), return to directors, or liquidation.
  - Best chance to restructure and avoid liquidation.
- Schemes of arrangement (s 411):
  - Court-approved compromise/arrangement with creditors.
  - Requires 75% in value + majority in number of creditors.
  - Complex, costly — more suitable for large corporations.
- Creditors’ Voluntary Liquidation (CVL) (Pt 5.5):
  - If directors/shareholders resolve company cannot continue.
  - Liquidator appointed to wind up, realise assets, distribute to creditors.
Big Bank Ltd
- Receivership:
  - Big Bank, holding security, may appoint a receiver/manager to realise secured assets (s 434A).
  - Receiver acts for secured creditor, not all creditors.
- Voluntary Administration:
  - May support VA to achieve restructure, potentially recovering more than in liquidation.
- Liquidation:
  - Can apply for winding up in insolvency (s 459P) if debts unpaid.
- Schemes of arrangement:
  - May participate if restructuring proposal is viable.
The ATO
- Creditor’s Statutory Demand (s 459E):
  - Can issue demand for $2m debt.
  - If not satisfied within 21 days → presumption of insolvency (s 459C).
- Winding Up in Insolvency (Pt 5.4):
  - Apply to court for order under s 459P.
- Participation in VA or DOCA:
  - ATO often significant creditor; can vote on DOCA proposal.
- Preferential status:
  - Some priority for certain tax debts under Div 6 of Pt 5.6.
    Conclusion
Directors’ position: There are strong grounds for ASIC to allege breach of s 588G if further debts are incurred while insolvent. Reliance on Big Four accountants may assist, but reliance must be genuinely independent and reasonable.
If $2m ATO debt unpaid:
- Acme may enter VA or liquidation.
- Big Bank may appoint a receiver or push for VA/liquidation.
- ATO may issue a statutory demand and pursue winding up.
Most likely scenario: VA initiated by directors to attempt restructure, but if unsuccessful, liquidation.
Exercise [9.5] – Indigenous corporations and Special administration
A unique form of external administration under the CATSI Act 2006 is special administration – see https://www.oric.gov.au/publications/catsi-fact-sheet/special-administrations-what-members-and-directors-should-know
Discuss the key features of special administration, including the similarities and differences to the external administration procedures under the Corporations Act 2001.
Although CATSI Act corporations sometimes become insolvent, there are numerous examples of highly successful indigenous-led corporations. Go to the ORIC website, and search under News for examples of such corporations. What types of businesses are they operating?

[9.6] – Conclusion and lead-in to Tutorial 10 - Directors duties III – Fiduciary duties of directors and officers; Overview of corporate finance and control transactions
In the scenario for Exercise [9.4], suppose that Julie (one of the directors of Acme Toys Pty Ltd) arranged for her cousin Alex (a business turnaround consultant) to advise the company on possible options for restructuring the business. Suppose also that:

Julie did not mention that Alex was her cousin
Alex recommended that Acme’s directors should take out a business finance loan to repay the ATO debt with North Finance Pty Ltd – a company in which both he and Julie had an interest
The interest rates on the business loan were above those of similar loans on the market
The board of Acme accepted Alex’s advice
Review s 181 of the Corporations Act and comment on how would you characterise Julie’s conduct in this scenario.

Tutorial 10: Directors duties III – Fiduciary duties of directors and officers; Overview of corporate finance and control transactions

Week commencing 6 October 2025
Tutorial 10 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Explain the obligations of directors and officers to act in good faith, for a proper purpose and in the best interests of their companies; and to avoid misusing corporate positions and/or information
Outline the potential consequences that may result from a failure to act in good faith, for a proper purpose and in the best interests of the corporation; and from misuse of corporate positions and/or information
Discuss how directors should manage situations that may involve conflicts of interest
Discuss the regime for regulating related party transactions
Understand how corporate control transactions are currently regulated in Australia
Preparation for this tutorial:
Reading: Bottomley et al Chapter 12. Chapter 8 provides an overview of corporate finance, and Chapter 18 provides an overview of corporate control transactions.
Podcast 9 - Good faith and proper purpose; Overview of corporate finance and control transactions

Exercise [10.1] - Class discussion of a relevant decision
In preparation for this tutorial, review Canterbury-Hurlstone Park RSL Club Ltd v Roberts [2008] NSWSC 845 and discuss the court’s findings in relation to contraventions of s 183 of the Corporations Act.

Exercise [10.2] – Directors and corporate opportunities
Adam was until recently the managing director of the Townsville-based company FNQ Telecoms Ltd. The main business of FNQ Telecoms is the sale and marketing of satellite phones to businesses around Far North Queensland and the surrounding Oceanic region. FNQ Telecoms recently received a contract to sell satellite phones to the Royal Papua New Guinea Constabulary. After that contract order was completed, FNQ Telecoms was hoping to get more such contracts, but they didn’t receive any more orders from the PNG government. A few months later, Adam resigned as managing director for reasons unrelated to the above contract and formed a new company which he controlled. One year later, Adam’s new company managed to secure another contract to supply more satellite phones to the PNG government. The contract was very profitable, and when the current managing director of FNQ Telecoms heard about it, he wanted to sue Adam to make him pay over any profits from the second contract to supply satellite phones, arguing that the profits rightfully belonged to FNQ Telecoms.
Part A: Do you think the court would order Adam to pay the profits to FNQ Telecoms? Explain your reasoning and any assumptions you are making.
Part A
Adam would probably have to hand over the profits. While managing director of FNQ Telecoms he gained knowledge of the PNG government’s satellite-phone needs. Using that information through his new company amounts to improper use of position and information under ss 182–183 Corporations Act 2001 (Cth), and a breach of his fiduciary duty not to exploit a corporate opportunity belonging to FNQ Telecoms (Regal (Hastings) v Gulliver; Warman v Dwyer). The duty in s 183 continues after resignation, and FNQ Telecoms had a reasonable expectation of further PNG work, so the court would likely order an account of profits or constructive trust over Adam’s gains.
No breach where opportunity offered in private capacity and fully disclosed/consented: Peso Silver Mines v Cropper (1968) 58 DLR (2d) 1;
Part B: What measures do you think companies would have in place to manage similar situations?

Companies manage such risks by requiring disclosure of conflicts (s 191), using confidentiality and restraint-of-trade clauses in executive contracts, keeping conflict-of-interest registers, and training directors on post-employment duties, gardening clause.

Exercise [10.3] - Directors duties under s 181 of the Corporations Act
Acme Ltd is an ASX listed agricultural company that supplies major supermarkets with fresh produce daily. Acme’s main competitor is Beta Ltd, which is controlled by the feisty New Zealand corporate tycoon Mick Doonan. Mick has been keen to take over Acme since he moved into the Australian domestic market 6 years ago and he formulates a plan to obtain a strategic stake in the company to contain his competitor and ultimately secure control via a hostile takeover. Mick convinces a number of institutional shareholders to sell their stakes to him slightly above market price, which gives him a 16% share of the company. This makes Mick the only foreign national shareholder in Acme with a shareholding over 5%.
Over the next 2 years Mick secures a position on the board of Acme and begins to cause trouble by secretly leaking information to the press in order to embarrass the company and keep the share price low. The company’s shares are currently trading at 1.80 in recent months. Mick also votes against every proposal put forward by the board at the members’ meetings and is generally disruptive and uncooperative.
Acme’s board is keen to remove Mick from the board and the share register so they devise a plan (codenamed “Project Rainbow”) to alter the company’s constitution to totally remove Mick from the company. They do not inform Mick of these plans and hold secret board meetings that exclude Mick.
Acme proposes to hold an extraordinary members’ meeting on 1 February 2023 to vote on the following resolutions:
Proposition 1 - That Acme’s constitution be amended so as to provide that any shareholder who is not, as of 1 January 2023, an Australian citizen or (if a corporation) whose main residence is not in Australia, must not own more than 5% of the issued ordinary shares in Acme Ltd. Any foreign shareholder holding in excess of 5% must sell their shares to the company at $2 per share.
Proposition 2 - If Proposition 1 is not carried, then Acme’s constitution will be amended by providing that any shares held by persons other than Australian citizens on 1 January 2023, will be stripped of their voting rights immediately.
Advise Mick on the potential breaches of directors’ duties that may have occurred in this situation. Your response should also include an assessment of Mick’s own conduct as a director of Acme.
2. Relevant Law
2.1 Statutory Duties

s 180(1): Care and diligence — objective test (ASIC v Rich (2009)).
s 181(1): Good faith in best interests of company and for a proper purpose (Harlowe’s Nominees v Woodside (1968); Howard Smith v Ampol (1974)).
s 182–183: Improper use of position or information to gain advantage or cause detriment (R v Byrnes & Hopwood (1995)).
s 184: Criminal liability if dishonest or reckless.
2.2 Proper Purpose Principle
Power to alter constitution or issue shares must be exercised for the company’s benefit, not to entrench control or disadvantage a rival (Ngurli v McCann (1953); Whitehouse v Carlton Hotel (1987)).
If the substantial purpose is to dilute or remove a particular shareholder, the action is improper even if formally within directors’ powers (Howard Smith (1974)).
2.3 Mick’s Duties
Directors must act honestly and in good faith (s 181) and not misuse position or information (ss 182–183).
Deliberately harming the company to lower share price is a clear breach (ASIC v Vizard (2005)).
Acme’s Board – Project Rainbow
Purpose: The dominant purpose is not commercial (e.g. national ownership policy) but to remove a troublesome rival and manipulate control of the company.
Improper purpose: Altering the constitution to eliminate a specific foreign shareholder breaches s 181(1)(b) (Howard Smith; Whitehouse).
Bad faith: Acting secretly, excluding Mick from meetings, and concealing the plan indicate lack of bona fides and potential breach of s 181(1)(a).
Process failure: Secret deliberations and failure to obtain independent advice → possible breach of s 180(1) (ASIC v Vines (2005)).
Remedies: ASIC or Mick could seek injunctions (s 1324) or declarations; civil penalties (s 1317E–G); invalidation of resolutions.
(b) Mick Doonan’s Conduct
Misuse of position/information: Leaking confidential company information to the press for personal advantage (depressing share price to facilitate takeover) breaches ss 182–183.
Bad faith: Acting to harm Acme rather than in its best interests contravenes s 181(1)(a).
Possible criminal liability: If leaks were dishonest or intended to deceive, s 184(2)–(3) could apply.
Also breach of loyalty/confidence: analogous to IDC v Cooley [1972] and ASIC v Vizard (2005).

Conclusion

Acme directors likely breached s 181 (improper purpose; lack of good faith) and s 180(1) (failure to act with care/diligence).
Mick breached ss 181, 182, 183, and possibly s 184, by misusing his position and confidential information to damage the company and advance his takeover ambitions. Could be criminal

Remedies

Civil penalties & disqualification: ss 1317E–G, s 206C (for both sides).
Injunctions / Declarations: s 1324 – to restrain Project Rainbow or further misuse.
Invalidation of resolutions: equitable relief if constitutional amendments carried out for improper purpose.

Both sides have breached their duties — Acme’s directors by acting for an improper control purpose, and Mick by misusing his position and information to damage the company.
Neither has acted “in good faith in the best interests of the corporation.”

Exercise [10.4] – Fiduciary obligations in practice
Arundel Supermarkets Ltd (“Arundel”) is a small but rapidly growing ASX-listed company whose business model is based on purchasing and then rebranding suburban supermarkets and general stores. Arundel’s CEO Arnold Smith (“Arnold”) has many years of experience in successfully managing supermarkets and other retail stores. He is a very hands-on business manager and frequently visits the stores that Arundel has acquired to make sure they are operating efficiently. Arnold makes it known that he is not a fan of formalities and since Arundel listed on the ASX three years ago he has bemoaned all of the extra legal requirements involved in running a listed company, commenting on several occasions that “the only winners from all these legal requirements are the lawyers”.
One of the efficiency measures that Arnold has decided to implement is to centralise the arrangements for delivering goods to Arundel’s stores and supermarkets throughout Australia. He provides the contact details arranges for three delivery contractors to his secretary Carly and asks her to obtain quotes for a three year contract to deliver goods to present to the board at its next meeting. Carly obtains the quotes from the three contactors which are (i) Eastern Deliveries Pty Ltd (9 million); and (iii) Northern Deliveries Pty Ltd (5.00 to $10.00. Market analysts covering the retail sector comment that the centralisation of Arundel’s delivery arrangements will help the company to become more efficient and profitable.
Carissa is an investigative journalist and after doing some background research in relation to Arundel and Northern Deliveries Pty Ltd becomes concerned about potential contraventions of the Corporations Act 2001. Carissa contacts one of the staff members she knows at ASIC and suggests that this matter may warrant further investigation. You are a graduate lawyer working with ASIC, and your manager has requested you to put together a brief memo outlining any breaches of the Corporations Act 2001 in this matter, and the potential consequences of these breaches. 🡪 13.25 Chapter 2E - Related party transactions

First of all, if it’s going to be a related party transaction, we need to confirm that Arnold is a director of the company, as the facts only state that he is the CEO. Related party transactions are only applicable to directors of public companies (and their related parties). But since the facts state that Arnold presented the three quotes to the directors at a board meeting, I think we can at least make an assumption that he may be one of the directors (but you should point out to the students that if he isn’t a director, the RTP rules will not apply).

Assuming Arnold is a director, I agree that this is a related party transaction because it is a financial benefit to an entity controlled by Arnold’s wife Isobel, so the entity fits within the definition of related party in s.228. However, because the Northern Deliveries Pty quote is significantly cheaper than the other two quotes, assuming that other aspects of the quotes are similar, this appears to be an “arms length transaction” (see s 210), which means that shareholder approval would not be necessary. So it is unlikely that ASIC would bring an action against Arnold for breaching the RTP rules. You might briefly discuss with students what an “arms length transaction” means.

(The other important point to emphasize is that related party transactions only apply to transactions engaged in by a public company (or an entity controlled by the public company). Maybe get the students to explain why Arundel is a public company.)

Despite this, Arnold may still be liable for breaching s 182 instead, as he may have improperly used his position as CEO to gain a benefit for his wife and her company. Note that s 182 applies to directors, officers and employees, so Arnold is definitely an officer even if we are not sure whether he is a director. It was “improper” because arguably Arnold had a material personal interest in the transaction (assuming that his wife’s benefit also benefits Arnold), and he apparently failed to disclose this interest to the board under s 191, and then failed to leave the board meeting when the other directors made the decision (under s 195). Bypassing the required approval processes in this way would be enough to show that Arnold’s behaviour was improper, by analogy to ASIC v Adler (where s 182 was also breached).

if he is a director (s 9AB or AC), he should have left the board meeting, if not, he should not have presented.
Chapter 2E Analysis (Public Companies)
3.1 Related Party (s 228; s 50AA)

If Arnold is a director of Arundel:
- His spouse (Isobel) is a related party (s 228(2),(3)); and any entity she controls (Northern Contracting; Northern Deliveries via s 50AA) is also a related party (s 228(4)).
If Arnold is not a director: Ch 2E may still capture the transaction if another relevant director’s relationship triggers s 228, or if an entity that controls Arundel is involved (not apparent).
- Action: Confirm Arnold’s board status and any other directors’ ties.
  3.2 Financial Benefit (s 229)
Entering a supply contract is a “financial benefit” (s 229(2),(3)).
3.3 Member Approval Requirement (s 208)
Public companies must obtain member approval before giving a financial benefit to a related party unless an exception applies.
3.4 Possible Exceptions
Arm’s length terms (s 210): Company must show the terms are arm’s length (commercially comparable).
- The $6m price (lowest) supports arm’s length, but not conclusive: need to assess scope, KPIs, service levels, risk allocation, termination, exclusivity, rebates, indexation etc.
Other exceptions (ss 211–216) appear inapplicable (e.g., reasonable remuneration; small amounts; indemnities).
3.5 Consequences (s 209)
Contravention is a civil penalty provision (s 209(2), s 1317E).
Transaction not automatically invalid (s 209(1)), but court may grant injunctions (s 1324) and compensation (s 1317H).
Involvement liability (s 79): Arnold and any director/adviser involved can be liable.
Authority: ASIC v Adler [2002] NSWSC 171 (non-arm’s length related-party benefit; multiple duty breaches; penalties & disqualification).
- Disclosure
  - s 191: directors must disclose material personal interests (standing notice s 192).
  - Material = more than remote or insubstantial; must relate to affairs of company (Grand Enterprises v Aurium (2009) 72 ACSR 75).
- 6.2 Public companies — abstention
  - s 195(1): director with material personal interest must not be present or vote (exceptions: s 195(2)–(4) approvals). Non-compliance can invalidate steps (Drillsearch v McKerlie [2009] NSWSC 517).
- Related party - s 208: member approval required for giving a financial benefit to a related party; definitions s 228, “financial benefit” s 229; exceptions ss 210–216; procedure ss 217–227; consequence s 209 (civil penalty; transaction not voided; s 1324 injunction available). General duties still apply (s 230).

Exercise [10.5] - Progression of a corporate control transaction
Many of the key earlier cases dealing with good faith and proper purposes resulted from disputes about corporate takeovers. Let’s now consider how such transactions are nowadays regulated in Australia.

The board of XYZ Bank (which was discussed in Tutorial 6) is keen to expand its business in Australia. They are planning to either merge with or acquire ABC Bank – a competitor bank that is also listed on the ASX. XYZ’s directors have requested you to brief them on how this business growth objective might be achieved through (i) a takeover bid under Chapter 6 of the Corporations Act, or (b) a Scheme of Arrangement under Part 5.2 of the Corporations Act. They would like your briefing to cover the following points:

The processes that would be involved with both options;
The documentation that would need to be prepared;
Whether ASIC would play a role in either process; and
How disputes might be resolved.

Revision exercise: Business case study scenario for Tutorials 9 and 10

The following scenario considers challenging business and legal issues that come up as the business of Up the Hill Fitness continues to grow. It raises issues discussed in Tutorial 9 – Directors duties II – Duty of care, skill and diligence and overview of corporate insolvency and Tutorial 10 - Directors duties III – Fiduciary duties of directors and officers.. It illustrates how the same scenario may raise different directors duties considerations simultaneously.

Up the Hill Fitness Ltd continues to trade well, and is now ready to finalise the purchase of land in Queensland and Victoria to develop the hill running tracks. James’ father has a land valuation business and offers to value the properties for a discount. James puts his proposal to the board for consideration.

Review Chapter 2E of the CA. Would this arrangement require approval by Up the Hill’s members? Why do these requirements exist? Why do you think they only apply to public (and not proprietary) companies?
Would your answer differ if the land valuation company was owned by James’ uncle, and the valuation was conducted in a negligent manner, thereby causing Up the Hill Fitness to pay in excess of the market value of the properties? See s 230 of the CA.

After Wendy informs the board of the requirements of Chapter 2E, the directors decline James’ offer. They request Max to find another valuation company to value the properties to be purchased in Queensland and Victoria. The board also inform Max that the company’s total budget for the land purchases is 20 million. Roger says “Hmm that sounds like a very generous figure – but then again you guys are trading very well at the moment. I’m sure my company can make some arrangements to suit that figure. Thanks very much for the information – you and I will have to have a celebration when it all gets finalised. Let me get back to you.”

Roger contacts two of his friends who own rural properties in Queensland and Victoria respectively, and they agree to accept offers of 10 million. Max thanks Roger, and prepares a report for the board’s consideration.

At the next board meeting, Jill questions the 20 million. I request that my objections be formally recorded in the minutes.” The board votes to pay the $20 million for the property purchases, and Max duly notes Jill’s objections in the minutes.

In the board meeting discussion noted above, what different motives do you think might be influencing Max and Jill? Which of these would be the more legally defensible position? Why?

Person
Possible motive
Legal characterisation
Max (executive director/officer)

Expediency – wants the purchase completed quickly.
Personal loyalty/favouritism towards Roger (old friend).
Overconfidence in Roger’s integrity (trust rather than independent verification).
Indicates a failure to act with care and diligence (s 180(1)).
Possible use of position to advantage another (s 182) if he deliberately facilitated a sale at an inflated price for Roger’s benefit.
Poor governance process – no independent valuation, no arm’s-length testing.
Jill (non-executive director)
Concern for accuracy of valuations, market value and use of company funds.
Seeks further information/independent advice to protect company interest.
Acting in good faith in the best interests of the company (s 181).
Exercising care and diligence (s 180(1)).
Her request to have objections minuted also shows awareness of duty and protects her position (cf Daniels v Anderson; ASIC v Healey (Centro)).
Max: likely motivated by convenience and personal loyalty; potential breach of s 180(1) (care) and s 182 (improper use of position).
Jill: motivated by compliance and protection of company funds; consistent with s 180(1) and s 181(1) duties.
Legally defensible stance: Jill’s. She exercised independent judgment, questioned the adequacy of information, and ensured her dissent was recorded — textbook good governance.

Gonzalo has begun to lose interest in the company. Although he dials into board meetings via Skype from his home office, he does not read the board packs which are compiled by Max before each board meeting and usually spends board meetings going through his other emails and searching the internet.

The next day Up the Hill announces the agreement to purchase the two properties in Queensland and Victoria for $10 million each to the ASX. The market reacts negatively to this news, with investors querying the price for the purchases. One online news column published a few hours later is titled “Up the Hill Fitness overpays for new hill run properties”, and another is titled “Has Up the Hill Fitness been lead up the garden path?”. In response to this news the company’s share price plummets.

Henrietta, who has recently retired, is a shareholder of Up the Hill Fitness and has invested a substantial amount of her retirement savings in the company. She is dismayed at the fall in the share price and the suggestions that Up the Hill Fitness has overpaid for the properties. She seeks your advice about whether she should:
- Complain to ASIC, and is interested in how ASIC might respond to this matter; or
- Take her own legal action against the company

The share price of Up the Hill Fitness gradually recovers, but nowhere near the levels when it listed. This means that less money is available to fund the development of “virtual reality” helmets by Up the Hill Virtual Helmets Pty Ltd. The directors Emma, Jake and Sue meet and agree to take out a 20 million loan. Encouraged by this new funding, Up the Hill Virtual Helmets Pty Ltd acquires a new office with expensive furniture and computers and hires around 20 extra software product developers. Jake and Sue have no previous experience at managing companies and largely depend on and follow Emma’s advice about the running of the company.

A few months later Up the Hill Virtual Helmets Pty Ltd receives a letter from the lawyers acting for a US software developer, claiming the company is illegally using the US company’s computer programs. The US company obtains an injunction compelling Up the Hill Virtual Helmets Pty Ltd to recall all of the “virtual reality” helmets and to cease developing new ones.

As soon as Orange Bank hears this news, it demands immediate repayment of the $20 million loan. Emma responds that the company has insufficient funds to repay the loan. However she assures Orange Bank that the company can develop alternative “virtual reality” helmets. Orange Bank agrees to delay repayment of the loan by two months, but insists on weekly updates concerning the company’s activities. Emma assures Jake and Sue that the company will be able to carry on.

Emma terminates the employment of most of the software developers and quietly sells off most of the office equipment, transferring the proceeds to her husband’s trust company. At the end of the two month period the company is unable to repay the $20 million loan to Orange Bank. Orange Bank applies to have Up the Hill Virtual Helmets Pty Ltd placed into Voluntary Administration, with Magenta Insolvency Accountants appointed to investigate the company’s finances.

Review s 588G and s 588H of the CA. Do you think the directors of Up the Hill Virtual Helmets Pty Ltd have complied with these requirements in the above scenario? ASIC Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors provides useful guidance on measures that directors can take to prevent the risk of their companies trading whilst insolvent
What are the other forms of external administration for companies that become insolvent?

Tutorial 11: Members rights and remedies

Week commencing 13 October 2025
Tutorial 11 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Explain the various mechanisms for protecting the rights of minority shareholders
Outline the rights of members to bring actions on behalf of a company against persons that have caused loss to the company
Explain the rights of members to access company information
Discuss the process for conducting shareholder class actions against companies
Preparation for this tutorial:
Reading: Bottomley et al Chapter 14
Podcast 11 – Members rights and remedies

Business case study scenario for Tutorial 11
After conducting their investigations into Up the Hill Virtual Helmets Pty Ltd, Magenta Insolvency Accountants determine that the company should be liquidated, and that its remaining assets should be sold off to repay some of the $20 million loan to Orange Bank.

After advertising the assets of Up the Hill Virtual Helmets Pty Ltd, Magenta receives an offer from Malcolm, Julia, Kevin and Tony, a group of IT students. Orange Bank agrees to this asset sale.

Malcolm, Julia, Kevin and Tony intend to work collaboratively from their homes to develop and market gaming software to video arcade centres. They agree to incorporate a company called Kirribilli Software Development Pty Ltd. This company will have 100 shares with each share worth 750.00), Tony holding 20 shares (contributing 1,000.00) and Kevin holding 45 shares (contributing 5,000.00 of share capital.

They agree that Malcolm will be the company’s Director and Secretary, as he has the most time available to manage the business. Malcolm sets up and administers Kirribilli Software Development’s website, orders marketing materials and opens a bank account in Kirribilli Software Development’s name. He also organises the allocation of software development tasks to Julia, Kevin and Tony.

Malcolm, Tony, Julia and Kevin also agreed that the profits of Kirribilli Software Development will be divided according to their respective shareholdings after remunerating Malcolm for his role as Director and Secretary. However they recognise that profits will most likely not be made during the first year due to business start-up costs. They also agree that each share will carry one vote. These points are recorded in a short constitution drawn up rather hastily by Scott who is a first year law student, which they all sign.

Kirribilli Software Development’s business grows steadily. While Malcolm, Tony, Julia and Kevin don’t have formalised meetings, they remain in regular contact over phone via Zoom and usually discuss the conduct of Kirribilli Software Development’s business over dinner at least once a fortnight. However as time goes on, Kevin starts to fall out with Malcolm after he confronts him to discuss his concerns about the way he is managing Kirribilli Software Development. Kevin believes Malcolm is:

Ignoring his ideas for developing new software programs, but accepting the suggestions from Julia and Tony;
Allocating him the less interesting software development tasks
Being irresponsible with the style and content of Kirribilli Software Development’s marketing materials – which Malcolm purchases from his mother who runs a marketing business;
Keeping him “out of the loop” about the business of Kirribilli Software Development – for example Malcolm no longer invites him along to him to fortnightly dinner meetings with Tony and Julia, and Malcolm also refuses to let him participate in their regular Zoom meetings.

Kevin telephones Malcolm to discuss his concerns, but he hangs up on him and refuses to return his calls. Malcolm meets with Tony and Julia for dinner and mentions that Kirribilli Software Development is now starting to generate profits, with the business estimated to be worth around $10,000.00 He also explains “Kevin is starting to be a real pain these days – he keeps hassling me for information all the time – he acts like he’s running the business!” Malcolm then explains Kevin’s complaints. Tony replies “Sounds like he’s got no idea of how to run a business – I think we’d be better off without him.”

Malcolm, Tony and Julia agree that they should buy out Kevin’s share of Kirribilli Software Development through cancelling his shares and giving him back the $é$ 2,250.00 you paid when Kirribilli Software Development was incorporated.”

Kevin is outraged at this news, and seeks your advice on his options in this scenario. Review Chapter 2F of the Corporations Act and advise Kevin about his options
The majority of cases involving Chapter 2F of the Corporations Act have been based on disputes relating to “closely held” proprietary companies. Why do you think this is so?
Exercise [11.1] - Class discussion of a relevant decision
In preparation for this tutorial, review Cassegrain v Gerard Cassegrain & Co Pty Ltd and Anor [2008] NSWSC 976 and discuss the court’s conclusions in relation to ss 236 and 237 of the Corporations Act.
Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976 — ss 236–237 Derivative actions
- The plaintiff sought to bring proceedings on behalf of the company against another member.
- Barrett J held that leave under s 237 is required; the court must be satisfied it is in the company’s best interests and that the applicant is acting in good faith.
- The case confirms that derivative actions are tightly controlled to prevent personal disputes masquerading as company claims.
- Kevin could rely on this mechanism only if he can show that the wrongdoing (e.g., Malcolm’s self-dealing) injures the company itself rather than him personally.
1. Statutory Derivative Action (ss 236–242)
- 3.1 Purpose
  - Enables shareholder/officer to bring action on behalf of the company where company fails to act.
- 3.2 Who Can Apply (s 236)
  - Member, former member, officer, or former officer.
- 3.3 Leave Requirement (s 237(2))
  - Court must grant leave if satisfied that:
    - (a) Company will not itself bring proceedings;
    - (b) Applicant acts in good faith;
    - (c) Action is in company’s best interests;
    - (d) Serious question to be tried;
    - (e) 14 days’ notice to company has been given.
  - Rebuttable presumption (s 237(3)): if company decides not to litigate after proper consideration → presumed not in best interests.
- 3.4 Key Case – Swansson v Pratt (2002) 42 ACSR 313 (NSWSC)
  - Divorce dispute; ex-director misappropriated funds; Ms Swansson sought leave.
  - Held: failed on (b) good faith and (c) best interests — personal motive, not corporate interest.
- 3.5 Other Guidance
  - Ragless v IPA Holdings Pty Ltd: “serious question” requires identifying legal/equitable rights to be determined at trial.
- 3.6 Disadvantages
  - Two-stage process (leave + action).
  - Costly, uncertain, slow; damages benefit the company, not applicant.
- 3.7 Exam Formula – Derivative Action (ss 236–242)
  - 1. Identify applicant type (s 236(1)).
  - 1. Apply leave test (s 237(2)(a)–(e)).
  - 1. Assess good faith and best interests (key elements).
  - 1. State relief sought on behalf of company (e.g., recover funds from director).

Exercise [11.2] – Members rights and remedies I
Green Energy Investments Ltd (Green) is a public company that invests in clean energy research projects in Australia and New Zealand. Green has around 200 shareholders (who are mostly wealthy individuals or institutional investors) but is not listed on any financial market. The board of Green is comprised of Scott (the chair), Malcolm, Tony, Julia and Kevin.
At a recent board meeting Kevin (who is himself a wealthy investor in clean energy projects) proposed that Green enter into a joint venture (JV) with Orange Solar Panel Developments Pty Ltd (Orange) – a small company that is developing innovative solar panelling to be installed on the roofs of buildings. Orange was looking for a business partner with expertise in business management and strategic planning and was attracted to possibly working with Green to achieve these objectives.
After a lengthy presentation at this board meeting, the other directors of Green were not in favour of entering into the proposed JV with Orange on the grounds that Orange’s solar panelling was not yet fully developed and proven. However, they indicated the possibility of reconsidering a JV in the future once Orange’s new solar panelling was proven to be effective.
Following this meeting Kevin decides to incorporate a new company Lime Energy Investments Pty Ltd (Lime), which enters into a JV with Orange. Two months later Orange’s new solar panels are ready for marketing. These solar panels sell well and Orange becomes very profitable. Lime also gains considerably from its JV with Orange.
Margaret is a shareholder of Green. Through her contacts in the energy investments industry she learns of Lime’s entry into the JV with Orange. Together with a handful of other Green shareholders, Margaret meets with Scott and expresses her concerns that Kevin took on a valuable business opportunity that Green could have entered into. She requests that Green seek an account of the profits from Lime’s JV with Orange from Kevin. Scott explains to Margaret that whilst he understands her concerns, the board of Green is not minded taking any action against Kevin on account of his substantial stake in the company and his excellent range of connections in the energy investments sector for future business opportunities.
Frustrated with Scott’s unwillingness to act against Kevin, Margaret seeks your guidance on possible action(s) she may take against Kevin in relation to Lime’s JV with Orange.
She would also like you to advise on her rights as a member to access Green’s books and records of company information.

Facts

Green Energy Investments Ltd (Green): unlisted public company with 200 shareholders.
Director Kevin proposed Green enter a JV with Orange Solar Panel Developments Pty Ltd (Orange).
Board postponed the proposal until Orange’s panels were proven.
Kevin incorporated Lime Energy Investments Pty Ltd (Lime) and entered the same JV personally.
Orange and Lime later profited heavily.
Shareholder Margaret seeks advice:
- on action against Kevin;
- and on her right to access company records.

Issues

Did Kevin breach directors’ duties under the Corporations Act 2001 (Cth) and general law?
What remedies are available to Green or Margaret?
What access rights does Margaret have?

Relevant Law

Statutory duties:
- s 181 – act in good faith, for proper purpose;¹
- s 182 – no improper use of position;²
- s 183 – no improper use of information.³
Fiduciary duties: avoid conflicts and not profit from company opportunities.⁴
Derivative action: ss 236–237.⁵
Access to books: s 247A.⁶

Application

Corporate opportunity:
- Green only deferred the JV; opportunity remained “live.”
- Kevin used knowledge and contacts from Green to capture that opportunity through Lime.
- Breach of ss 181–3 and fiduciary duty (per Regal (Hastings) Ltd v Gulliver⁷).
- Unlike Queensland Mines Ltd v Hudson⁸, Green did not give informed consent.
Improper use of position/information: ASIC v Adler⁹ – similar conduct held to breach ss 182–3.
Result: Kevin must account to Green for profits or be subject to constructive trust.

Remedies

Equitable remedies: account of profits / constructive trust.¹⁰
Civil penalties: Pt 9.4B – pecuniary penalty or disqualification (ss 1317E–G, 206C).¹¹

Action by Margaret

Derivative action (ss 236–237):
- Standing as a member.
- Leave required; court must find:
  - good faith;
  - in best interests of Green;
  - serious question to be tried;
  - company given 14 days’ notice;
  - company not itself acting.¹²
- Cassegrain v Gerard Cassegrain & Co Pty Ltd¹³ – illustrates these criteria.
- Margaret’s motive (recovering misappropriated profits) = proper and bona fide.

Access to Information

s 247A: member may inspect company books for proper purpose.¹⁴
Re Makucha Developments Pty Ltd¹⁵ – examining potential derivative action = proper purpose.
Court can authorise lawyer/accountant to inspect (s 247A(3)).
Additional right: obtain members register under s 173 (limited use).

Conclusion

Kevin likely breached ss 181–3 and his fiduciary duties by diverting a corporate opportunity.
Margaret may:
- seek leave for derivative proceedings under ss 236–237 to recover profits for Green; and
- apply under s 247A to inspect Green’s records to prepare her claim.
Remedies uphold accountability and protect Green’s corporate interests.
Exercise [11.3] – Members rights and remedies II
Jeremy holds 10% of the shares in Westhaven Electrical Pty Ltd (Westhaven) which carries on business as franchisor of electrical repair businesses. David and his wife Susan between them hold 51% of the shares. Jeremy, David, Susan and Mary are Westhaven’s directors, with David being in day to day control of the company’s operations.
At the time of Westhaven’s incorporation two years ago, Jeremy, David, Susan and Mary invested considerable amounts into the company. They agreed that they would defer receiving dividends on their investments until the company became profitable.
Westhaven’s constitution gives David power to nominate a majority of the board. Personal relations between Jeremy and David have seriously deteriorated and Jeremy now resents David’s dominance of board proceedings. Specifically, Jeremy complains that:
board meetings have been conducted without regard to the views of directors other than David;
meetings of David and his board appointees are held before full directors’ meetings to formulate a position and strategy with respect to items arising at board meetings;
David arbitrarily restricts the speaking time available to Jeremy; and
David often calls a board meeting upon shorter notice than required by the constitution at a time when it was known to be inconvenient to Jeremy.
Jeremy is also frustrated by David’s decision to defer paying dividends, as Westhaven is now returning significant profits.
Jeremy’s patience runs out when David decides to sell a major asset of Westhaven to another company which is controlled by David’s wife. Jeremy wonders whether the sale price of this asset was below market value. Jeremy and David do not speak to each other save for absolutely necessary communications. Jeremy would like to terminate the relationship but is reluctant to sell his shares as the price would be low due to the sale of one of the company’s main asset. Advise Jeremy of his possible remedies.

Oppression remedy under Corporations Act 2001 (Cth) ss 232–233;
Directors’ duties under ss 180–183 (possible derivative action); and
Inspection rights under s 247A if he needs evidence
Jeremy could:

First apply under s 247A to gather evidence of the asset sale;
Then commence a derivative action to recover loss to the company; and/or
Alternatively or subsequently, pursue oppression proceedings seeking a buy-out at fair value, especially if personal relations are irretrievably broken.

Exercise [11.4] - Members rights and remedies II – Just and equitable winding up (s 461(1)(k)
Franklin Forestry Investment Ltd (“Franklin”) is a company based in Launceston that was established in early 2018. Franklin promotes investment in various forestry projects around Tasmania, and through its marketing efforts several hundred Tasmanians have become members of the company. Following a series of bushfires across the state in early 2018, representatives of Franklin have promoted the company’s innovative approach to bush and forest regeneration at various investment seminars and through media appearances. Franklin’s Managing Director Rodney claimed that when regenerated using the company’s innovative new organic fertilisers, the forests in which Franklin has invested will be profitable wood plantations. At the company’s first annual general meeting in mid-2018 Rodney gave a detailed powerpoint presentation in which he projected to members that their shares in the company would double in value over the next year once Franklin’s forest plantation outside Launceston was fully matured. Rodney also urged existing members to encourage their friends and families to become members of Franklin, and offered them 100 bonus shares for each new member they referred.
However almost 18 months later in early 2020 Franklin’s forest plantation outside Launceston still showed no signs of growth (despite Rodney’s projections). When contacted Rodney by concerned members Rodney assured them this lack of progress was due to poor weather.
Nora, who is a member of Franklin has heard through one of her friends that works at Franklin that instead of directing members’ funds towards the new forestry projects that Rodney has been promoting, the funds have instead been directed to paying the salaries and other expenses of Rodney and the other directors and management. Nora’s friend also told her that since Franklin was incorporated, no trees had actually been planted at the company’s plantation site.
Nora is outraged and seeks your urgent advice on the various remedies that she could seek

Tutorial 12: Corporate litigation

Week commencing 20 October 2025
Tutorial 12 objectives
After reviewing the required readings and podcasts for this tutorial and working through the exercises below, students should be able to:

Explain the practical aspects involved in pursuing and defending criminal prosecutions for breaches of the Corporations Act 2001
Discuss how the civil penalties regime may operate in relation to potential contraventions of the Corporations Act 2001
Discuss the process for conducting representative actions against companies
Outline the potential civil actions that may be taken in response to breaches of directors duties

Preparation for this tutorial:
Reading: Bottomley et al Chapter 14
Podcast 12: Corporate litigation

Exercise [12.1] – A recap on the various corporate litigation processes
In this final tutorial, we will consider how the various regulatory enforcement processes and civil remedies could apply in practice where breaches of the Corporations Act 2001 have been established.
As a class, we will discuss:

The processes and evidentiary requirements for criminal prosecutions;
- often hard to prove due to standard of brd
- Asic has to liaise with DPP
- corporate duty of care is almost never a criminal prosecution
In relation to civil penalties:
- Examples of how they are a significant part of the enforcement framework for other Commonwealth legislative regimes;
  - Rich v Asic length of director disqualification set out in Asic v Adler
  - Amount
    - s 1317G pecuniary penalty orders
    - Lee J in Getswift
- The various factors the court might consider in determining the length of s 206C disqualification orders and s 1317G pecuniary penalty orders;
The processes for pursuing representative proceedings against companies; and
The potential civil actions that may be taken in response to breaches of directors duties.

Exercise [12.2] – Potential litigation from breaches of the Corporations Act I
Peter is a Melbourne-based accountant with around 20 years’ experience in the hotel management business. Together with his wife Rita through a family trust he has for many years controlled a company called Curtin Hotel Consulting Pty Ltd (“Curtin”), which provides advice to hotel owners on managing their cash flows. In February 2015 Curtin entered into a “referral agreement” with an Adelaide-based hotel broker Grange Hotel Broking Pty Ltd (“Grange”) under which Grange would share equally with Curtin any sales commission that it received where the purchaser was introduced by Curtin. From his discussions with hotel owners around Adelaide, Grange identified ten hotels which the owners were interested in selling, and commenced negotiations for their acquisition.
To raise the funds to acquire these ten hotels, Peter spoke with several of his business contacts and reached an agreement to incorporate Hillside Hotels Group Ltd (“Hillside”) in January 2023, which had the objective of raising funds to acquire hotels and transform them into profitable businesses. Peter took on the role of CEO and managing director of Hillside and the board approved a generous salary package for him on the understanding that he would cease his control of Curtin. In April 2023 Hillside undertook an initial public offering (“IPO”) which raised 3 million to Hillside and to the hotel vendors for the commissions that were payable for the purchase of the relevant hotels. Pursuant to the earlier referral agreement, Curtin was to receive half of this sum (which was 1.3 million from Curtin to his family bank account.
In a recent visit to Adelaide the Chairman of Hillside, Dean, met with one of Grange’s hotel brokers, and was told about the referral agreement between Grange and Curtin. The hotel broker also showed Dean the documentation for Grange’s transfer of funds to Curtin. Upon returning to Hillside’s office Dean checked all of the minutes of the meetings for Hillside’s IPO and also the board minutes since the company’s incorporation, but he could not locate any records of Peter mentioning any other roles or interests in other companies.

Part A: What breaches of the Corporations Act can you identify in this scenario?
Conflict of Interest & Duty (ss 182–183)

s 182(1): Peter used his position as managing director of Hillside to gain an advantage for Curtin and himself by facilitating the payment of $1.5 million from Grange.
s 183(1): He likely used confidential information from Hillside (e.g., hotel acquisition details, commissions, or negotiations) for Curtin’s benefit.
Failure to Disclose Material Personal Interest (s 191)
As a director, Peter was required to disclose his continuing financial interest in Curtin and the referral arrangement with Grange.
His omission to inform the board breaches s 191(1) and possibly s 195(1) (voting where a conflict exists).
Improper Use of Position (s 182(2)) and Funds (s 184(2))
By transferring $1.3 million to his family bank account, Peter used corporate opportunities and his position dishonestly to obtain a personal benefit — potentially triggering civil penalty (s 1317E) and even criminal liability under s 184(2) if dishonesty is proven.
Breach of Director’s Duty of Good Faith (s 181)
His conduct was not in good faith in the best interests of the company nor for a proper purpose.
The referral arrangement benefited him personally, not Hillside, breaching fiduciary obligations codified in s 181.
Possible Misleading or Deceptive Conduct (s 1041H)
If the IPO prospectus failed to disclose his ongoing interest in Curtin or the referral arrangement, it could constitute misleading or deceptive conduct under s 1041H and/or a breach of the Corporations Act’s continuous disclosure requirements (s 674).
Part B: If these breaches were proven, what legal processes would ASIC be likely to follow and why? Describe the steps involved in this process and the potential outcomes
Investigation Phase
ASIC would use its compulsory powers under ss 19–30 of the ASIC Act 2001 (Cth) to examine Peter, Grange, and Curtin’s records.
It would assess seriousness, public interest, and available evidence.
Determining Enforcement Pathway
Civil Penalty Proceedings (Part 9.4B): ASIC may commence civil proceedings for contraventions of ss 180–183.
Disqualification: Under s 206C, ASIC can seek an order disqualifying Peter from managing corporations.
Criminal Referral: If dishonesty is established, ASIC can refer the matter to the Commonwealth Director of Public Prosecutions (CDPP) for criminal prosecution (s 184).
Court Proceedings and Potential Outcomes
Civil Penalty: Pecuniary penalties up to 5,000 penalty units or $1.565 million (as per Dec 2024 ASIC update).
Compensation Orders (s 1317H): ASIC or Hillside may seek compensation for loss.
Criminal Penalties (s 184): If intent to deceive is proven, imprisonment up to 15 years under the Crimes Legislation Amendment (Combatting Corporate Crime) reforms.
Responsive Regulation Context
Consistent with Ayres & Braithwaite’s enforcement pyramid, ASIC escalates enforcement depending on severity—from enforceable undertakings to civil penalties to criminal prosecution.
related party transaction
Peter
curtin
Part C: If these breaches were proven, what legal processes might the company pursue against Peter?
Derivative Action (ss 236–237)
- Hillside may seek leave to bring proceedings on the company’s behalf for breach of director duties. The court would likely grant leave as:
  - There is a serious question to be tried;
  - It is in the company’s best interests; and
  - The company itself (via board control) is unlikely to act due to conflict.
Remedies
- s 1317H Compensation Order: For recovery of losses caused by breach.
- Equitable Claim: Breach of fiduciary duty — the company could seek an account of profits and constructive trust over the $1.3 million.
- Termination and Clawback: Board could terminate Peter and pursue contractual remedies for breach of employment duties.
Steps
- Internal board resolution / independent legal advice.
- Apply to court for leave (if derivative action).
- Seek orders for repayment, disqualification, and costs.
Possible Outcomes
- Disqualification from management (s 206C).
- Repayment of misappropriated funds + interest.
- Civil penalty or criminal conviction.
- Damage to corporate reputation and share value.
  Describe the steps involved in this process and the potential outcomes
  Summary Table
  Issue
  Relevant Sections
  Breach Type
  Potential Penalty
  Conflict of interest
  ss 191, 195
  Civil penalty
  Disqualification; pecuniary penalty
  Improper use of position
  s 182
  Civil/Criminal
  Up to 15 years if dishonest
  Failure of good faith
  s 181
  Civil penalty
  1.565M fine
  Dishonest use of funds
  s 184
  Criminal
  Imprisonment (max 15 years)
  Non-disclosure in IPO
  s 1041H
  Civil
  Compensation; injunctions

Exercise [12.3] – Potential litigation from breaches of the Corporations Act II
Orange Property Construction Ltd (Orange) is a large ASX-listed company with its head office in Sydney. Orange’s main business activities include building large multi-storey residential apartment complexes. Orange has been successful in this field for several years and it has managed the construction of residential towers in Sydney, Melbourne and Brisbane. As a result of its successes, Orange has recently become one of the top 50 ASX companies, with its shares being heavily traded by both institutional and retail investors.
Orange’s board is comprised of Sarah (the chair), Max, Erica and Greg (who are non-executive directors) and Sam (a civil engineer who is the CEO). Fred is Orange’s company secretary.
In March, Orange was finalising the construction of three large residential towers in the vicinity of Sydney’s Olympic Park at Homebush. Due to a shortage of construction labourers and engineers, Orange used a team of contractors to finalise the construction of these towers, as the project was starting to get behind schedule. This team of contractors were less experienced in property constructions than the usual contractors that Orange had used previously, and more experienced in working on road and light rail projects.
Two weeks before the towers were due to open Sam toured the construction sites with Derek (the overall project manager). Whilst walking through the basement of one of the towers, Sam notices some large cracks in one of the walls. He asks Derek about these cracks. Derek replies that there was a shortage of building materials and that the team of contractors had to source alternative building materials. Derek also explains that the cracks in the basement have only appeared in one of the towers and that they are not expected to be a safety issue.
At a meeting of Orange’s board the next day Sam informs the other directors that the towers are nearing completion and expects these to be opened for residents in the next few weeks. He also reports that a very high number of units have been already been sold “off the plan”. Sam also informs the board about the cracks that he noticed in the basement of one of the towers – but assures the board that there are no safety issues with the towers. The board is pleased with this news and approves an ASX announcement titled “Construction of three towers at Homebush nearing completion”. This news is received favourably by the market, with Orange’s share price rising from 24.00.
One week later, residents begin to move into Orange’s new towers at Homebush. One month later, one of the towers is evacuated as a precaution after residents report experiencing vibrations and shaking in one of the towers. Further investigations reveal a number of cracks in two of the towers. The relevant authorities order a full evacuation of all three towers.
Two weeks later a structural engineer reports that the three towers have serious structural defects and that they are unsafe for occupation. Sarah convenes an emergency meeting of Orange’s board. After reviewing the structural engineer’s report, the board concedes that extensive remediation work will be needed for the towers. Sam estimates that this will take up to a year, during which time the towers will not be able to be occupied. He also estimates that Orange will incur significant costs in compensating the residents and finding accommodation for them while the remediation works are completed. The board approves an ASX announcement outlining the above points. In response to this news, Orange’s share price plummets to $3.00. There are a number of reports in the media speculating that Orange “cut corners” in building the towers at Homebush.
Natasha is a shareholder of Orange and is outraged at this news. A number of her friends also bought shares in Orange and are also very upset with this news.

Part A: What breaches can you identify in this scenario?

Directors’ Duties (ss 180–184; Week 8–10)
Provision
Possible Breach
Explanation
s 180(1) – Care and diligence
✔️ Likely breached
The board (Sarah, Max, Erica, Greg) relied on Sam’s assurance without verifying or seeking expert confirmation about the safety of the towers despite clear red flags (cracks + use of inexperienced contractors).
Case: ASIC v Healey (Centro) — directors cannot delegate oversight of obvious issues.
s 180(2) – Business Judgment Rule
✖️ Unlikely defence
Decisions were based on incomplete information and lack of due inquiry. The directors were not “informed about the subject matter” → BJR unavailable.
s 181(1) – Good faith and proper purpose
✔️ Possibly breached
Issuing the ASX announcement suggesting successful completion despite known structural issues may not have been in the company’s best interests or for a proper purpose.
s 182–183 – Misuse of position/information
✖️ Unlikely
No evidence of personal advantage.
s 184(1) – Criminal dishonesty
✖️ Only if dishonesty proven
If evidence later shows deliberate concealment to inflate share price, this could escalate to criminal breach.
🟢 Summary:
The board and CEO (Sam) may have breached s 180(1) (care/diligence) and s 181(1) (good faith/proper purpose). Sam’s reassurance to the board could also expose him personally to a s 180(1) breach as a managing director who failed to verify safety.
2️⃣ Continuous Disclosure Obligations (ss 674, 674A; Week 6 & 12)
Provision
Breach
Explanation
s 674(2)
✔️ Yes
Orange is an ASX-listed disclosing entity. Once structural cracks were known and likely to materially affect share price, the company had a duty to disclose this information to the ASX. Failure to do so before issuing the “nearing completion” announcement was a continuous disclosure breach.
s 674A
✔️ Post-2021 fault element
Officers who are “involved” in the contravention (Sarah, Sam) may be personally liable if they knew or were reckless as to the non-disclosure.
s 1041H
✔️ Likely
The initial ASX statement could constitute misleading or deceptive conduct because it created an impression that the towers were structurally sound when they were not. Case: ASIC v Fortescue Metals Group Ltd (2012).

3️⃣ Corporate Governance and Market Conduct

ASX Listing Rule 3.1 – obligation to immediately disclose material information.
ASIC Act 2001 (Cth) s 12DA – misleading conduct in relation to financial services (parallel to s 1041H).
Part B: If these breaches were proven, what legal processes would ASIC be likely to follow and why? Describe the steps involved in this process and the potential outcomes
1️⃣ Investigation Phase
ASIC can initiate an inquiry under ASIC Act ss 13, 19 to compel production of board minutes, emails, engineering reports, and to examine directors under oath.
ASIC will assess:
- The seriousness of the misconduct.
- The extent of market harm (share price halved; investor losses).
- Whether there is public interest in deterrence (INFO 151 criteria).
  2️⃣ Enforcement Path (Enforcement Pyramid)
  Level
  Action
  Statutory Base
  Potential Case / Example
  Civil Penalty
  Declaration of contravention (s 1317E), pecuniary penalty (s 1317G), disqualification (s 206C), compensation (s 1317H)
  ASIC v Cassimatis (Storm Financial); ASIC v GetSwift (2023)

Administrative
Banning orders or enforceable undertakings (ASIC Act s 93AA)
For governance reforms or internal control failures

Criminal
Referral to CDPP under s 184 or s 674A (dishonesty / reckless disclosure)
ASIC v Vizard; R v Adler

3️⃣ Outcomes

Civil Penalties: Fines (up to 5,000 penalty units / $1.565m) and/or director disqualification.
Compensation Orders: Under s 1317H, for losses from breach of duty or disclosure.
Criminal Penalties: If deliberate deception, imprisonment up to 15 years.
Enforceable Undertakings: May require new compliance systems and governance reform.
Part C: If these breaches were proven, what legal processes might Natasha and the other shareholders pursue against Orange Property Construction Ltd.
1️⃣ Derivative Action (ss 236–237)
Who? Natasha (shareholder) may seek leave to bring proceedings on behalf of Orange against the directors for breach of duties (s 180–181).
Test:
- Good faith;
- Best interests of company;
- Serious question to be tried (Swansson v Pratt).
Outcome:
- Court may order directors to compensate Orange for losses (s 1317H).
- May result in board-level disqualification or removal.
  2️⃣ Oppression Remedy (ss 232–233)
If the collapse and governance failures amount to conduct unfairly prejudicial to shareholders, Natasha could allege oppression.
Remedies (s 233):
- Order regulating company affairs;
- Share buyout;
- Appointment of independent directors.
Case: Wayde v NSW Rugby League (1985).
3️⃣ Class Action / Investor Claim
Under s 1317HA and s 1041I, shareholders can sue for loss caused by continuous disclosure or misleading statements (Fortescue principle).
ASIC may support or parallel such a civil claim.
4️⃣ Procedural Steps
Obtain legal advice / lodge complaint with ASIC (may trigger ASIC action first).
File representative proceeding in the Federal Court (Pt IVA Federal Court of Australia Act 1976).
Prove contravention of s 674 and s 1041H → compensation for share-price loss.
5️⃣ Likely Outcomes
Derivative route: compensation to the company for directors’ negligence.
Oppression/class action route: direct compensation to shareholders for market loss.
Reputational outcome: governance overhaul and stricter disclosure controls.

Describe the steps involved in this process and the potential outcomes
Summary Table
Domain
Sections Breached
Who Acts
Remedy / Outcome
Week(s)
Director negligence / improper purpose
ss 180–181
ASIC / shareholders (derivative)
Civil penalties, disqualification, compensation (s 1317H)
8–10
Continuous disclosure
ss 674–674A
ASIC / investors (class action)
Civil penalties, damages
6, 12
Misleading conduct
s 1041H
ASIC / shareholders
Damages, injunction
6, 12
Shareholder oppression / derivative
ss 232–237
Shareholders (Natasha)
Buyout, regulation, or compensation
11
Criminal dishonesty (if deliberate concealment)
s 184
ASIC / CDPP
Imprisonment
10, 12

Exercise [12.4] - Liability for insolvent trading
Good Sport Pty Ltd (‘GS’) is a sporting goods company which operates stores in New South Wales and Victoria. GS is based in Melbourne. GS has four shops in NSW which operate from leased premises in major shopping centres owned by Land Lease Ltd (‘LL’). In Victoria, GS has two shops which operate out of properties owned by GS.
Brothers Luke and Steve Smith set up the company 20 years ago and they are both directors and shareholders of GS. Luke’s wife Mary is an accountant and has been the Chief Financial Officer (‘CFO’) of GS since it commenced trading. Steve’s daughter Jenny is a manager of some stores. Both Mary and Jenny receive a salary from the company and are full time employees. Luke is the CEO and Steve is Head of Marketing and they also receive a salary. At the end of each financial year, Luke and Steve pay themselves a director’s bonus of 250,000. The company then borrowed funds from Westbank to pay the debt and this was secured by a registered mortgage over the second Victorian property. Westbank advanced the loan funds by direct payment of $250,000 to Puta. In September 2024 the directors paid themselves the director’s bonus.
Advise the liquidator on any possible breaches by the directors.
Step 1 – Statutory Framework (Week 9)
Corporations Act 2001 (Cth)

s 95A – Definition of “solvent”: able to pay all debts as they become due and payable (cash-flow test, Sandell v Porter).
s 588G(1)–(2) – Directors’ duty to prevent insolvent trading.
s 588H – Defences to civil liability.
s 588GA – Safe-harbour protection for genuine restructuring efforts.
s 588M – Liquidator’s right to recover loss from directors.

Step 2 – Identify Insolvency

By May 2024, GS was failing to meet monthly supplier payments → indicator of cash-flow insolvency under s 95A (Sandell v Porter).
The August 2024 statutory demand confirms GS could not pay its debts as they became due.
Borrowing $250 000 from Westbank to pay one creditor (Puta) is a symptom of financial distress, not solvency.
Therefore, GS was insolvent or nearly insolvent from May 2024 onwards.

Step 3 – Breach of s 588G(2)
Elements to establish liability:
Requirement
Application to GS
Person is a director
Luke & Steve (✓) – formally appointed directors. Mary (CFO) may be deemed officer but not director.
Company incurs a debt
(a) Borrowing 100 000 bonuses in Sept 2024.
Company insolvent when debt incurred
Likely insolvent when bonuses paid. Borrowing to pay old debt = “robbing Peter to pay Paul”.
Director suspected or ought to have suspected insolvency
They knew of overdue supplier debts and statutory demand → constructive knowledge (objective test).
Failure to prevent debt
They authorised both the loan and the bonuses.
✅ Result: Luke and Steve have breached s 588G(2).
Mary (CFO) may face accessorial liability under s 79 if she aided the breach.

Step 4 – Possible Defences (s 588H)
Defence
Applies?
(a) Reasonable expectation of solvency
✖ No – statutory demand + repeated arrears negate any reasonable expectation.
(b) Reliance on competent person
✖ Mary (CFO) part of family group; no external accountant’s advice relied upon.
(c) Absence from management
✖ Both actively involved.
(d) Illness or other good reason
✖ Not applicable.
No s 588H defence likely succeeds.

Step 5 – Safe-Harbour (s 588GA)

Not available unless directors took steps to develop a course of action reasonably likely to lead to a better outcome for the company before incurring the debt, and ensured books, entitlements, and tax compliance.
Here, borrowing funds to pay an overdue creditor and then paying themselves bonuses is not a genuine restructuring plan.
→ s 588GA safe-harbour not available.
Step 6 – Consequences & Liquidator’s Rights
Provision
Outcome / Remedy
s 588M(2)
Liquidator may recover from Luke & Steve the loss suffered by creditors (1.565 m).
s 184(3)
If dishonesty proved, criminal offence → imprisonment (up to 15 yrs).

Step 7 – Summary Table
Director / Officer
Breach
Reason
Outcome
Luke (Smith)
s 588G(2)
Allowed borrowing + bonuses despite insolvency
Civil penalty + compensation liability
Steve (Smith)
s 588G(2)
Same
Same
Mary (CFO)
Possible accessorial liability (s 79)
Aided breach / prepared accounts
Possible accessory order
Jenny
None
Employee only
—

Law School Notes Repository

Explorer

70417 Corporate Law Tutorial exercises Spring 2025 v1

Tutorial Objectives

Tutorial 1: An introduction to Australian corporate law and contextual issues: Week commencing 28 July 2025

Corporate lawyers in private practice

In-house lawyers in large companies

Directors of companies – both large and small

Tutorial 2: Managing companies I – Business structures, Registering a company and the corporate life cycle

Tutorial 3: Managing companies II – Corporate liability

Criminal – Who engaged in the conduct? (Lennard’s, Tesco, Meridian, Criminal Code (Cth) Pt 2.5).

Tutorial 4: Managing companies III - Internal rules and corporate authority: Week commencing 18 August 2025

Discuss some of the points that they should consider incorporating into the constitution.

Tutorial 5: Managing companies IV - Corporate decision-making

Why do people invest in companies? What are the main ways they can receive a return on their investments? Once their funds are invested, what (if any) degree of control do they have on the company’s management?

If Jack and Jill decided to accept these offers to invest in the Up the Hill Fitness Pty Ltd, what aspects of the company’s constitution should they review, and if necessary amend?

What are the roles and responsibilities of directors? How do their roles differ from those of the day-to-day management of the company?

What sort of skills and experience would be desirable for directors to bring to a company’s board? Would this explain why Jack and Jill accepted the offer from Ricardo and Gonzalo but not from Joshua?

Is Joshua’s view correct? Are there any provisions in the Corporations Act that would / would not support his viewpoint?

s 249A

Tutorial 6: ASIC’s role in regulating companies, financial services and markets

Tutorial 7 Corporate fundraising

Tutorial 8: Directors duties I – Historical development and overview of corporate governance

[2] How do you think that the governing functions of the board of a major corporation would differ from the roles of the senior management?

[3] How do you think that companies can differentiate the roles of the board from those of senior management? What problems could occur if this differentiation was unclear?

[4] How might a board’s role might change as a company grows?

[6] Discuss the key observations made by the Hon Patricia Bergin SC about the corporate governance arrangements and corporate culture within Crown Resorts Ltd in Chapter 4.1 of her report tabled in NSW Parliament in February 2021

[7] Can you think of any examples of situations where there might be divergent views on whether actions of directors were “for a proper purpose” and “in the best interests of the corporation” within the meaning of s 181?

If the board continued to follow its approach as outlined in this scenario - What could be the potential consequences for the club?

If the club suffered serious adverse consequences, do you think the directors might be found to be in breach of any of the provisions of Part 2D.1 of the Corporations Act 2001? If so, explain your reasoning.

What changes could improve the board’s effectiveness in the above scenario?

Tutorial 9: Directors duties II – Duty of care, skill and diligence; Overview of corporate insolvency

Tutorial 10: Directors duties III – Fiduciary duties of directors and officers; Overview of corporate finance and control transactions

In the board meeting discussion noted above, what different motives do you think might be influencing Max and Jill? Which of these would be the more legally defensible position? Why?

Tutorial 11: Members rights and remedies

Tutorial 12: Corporate litigation

Graph View

Table of Contents

Backlinks

Law School Notes Repository

Explorer

70417 Corporate Law Tutorial exercises Spring 2025 v1

Tutorial Objectives

Tutorial 1: An introduction to Australian corporate law and contextual issues: Week commencing 28 July 2025

Corporate lawyers in private practice

In-house lawyers in large companies

Directors of companies – both large and small

Tutorial 2: Managing companies I – Business structures, Registering a company and the corporate life cycle

Tutorial 3: Managing companies II – Corporate liability

Criminal – Who engaged in the conduct? (Lennard’s, Tesco, Meridian, Criminal Code (Cth) Pt 2.5).

Tutorial 4: Managing companies III - Internal rules and corporate authority: Week commencing 18 August 2025

Discuss some of the points that they should consider incorporating into the constitution.

Tutorial 5: Managing companies IV - Corporate decision-making

Why do people invest in companies? What are the main ways they can receive a return on their investments? Once their funds are invested, what (if any) degree of control do they have on the company’s management?

If Jack and Jill decided to accept these offers to invest in the Up the Hill Fitness Pty Ltd, what aspects of the company’s constitution should they review, and if necessary amend?

What are the roles and responsibilities of directors? How do their roles differ from those of the day-to-day management of the company?

What sort of skills and experience would be desirable for directors to bring to a company’s board? Would this explain why Jack and Jill accepted the offer from Ricardo and Gonzalo but not from Joshua?

Is Joshua’s view correct? Are there any provisions in the Corporations Act that would / would not support his viewpoint?

s 249A

Tutorial 6: ASIC’s role in regulating companies, financial services and markets

Tutorial 7 Corporate fundraising

Tutorial 8: Directors duties I – Historical development and overview of corporate governance

[2] How do you think that the governing functions of the board of a major corporation would differ from the roles of the senior management?

[3] How do you think that companies can differentiate the roles of the board from those of senior management? What problems could occur if this differentiation was unclear?

[4] How might a board’s role might change as a company grows?

[6] Discuss the key observations made by the Hon Patricia Bergin SC about the corporate governance arrangements and corporate culture within Crown Resorts Ltd in Chapter 4.1 of her report tabled in NSW Parliament in February 2021

[7] Can you think of any examples of situations where there might be divergent views on whether actions of directors were “for a proper purpose” and “in the best interests of the corporation” within the meaning of s 181?

If the board continued to follow its approach as outlined in this scenario - What could be the potential consequences for the club?

If the club suffered serious adverse consequences, do you think the directors might be found to be in breach of any of the provisions of Part 2D.1 of the Corporations Act 2001? If so, explain your reasoning.

What changes could improve the board’s effectiveness in the above scenario?

Tutorial 9: Directors duties II – Duty of care, skill and diligence; Overview of corporate insolvency

Tutorial 10: Directors duties III – Fiduciary duties of directors and officers; Overview of corporate finance and control transactions

Authority: ASIC v Adler [2002] NSWSC 171 (non-arm’s length related-party benefit; multiple duty breaches; penalties & disqualification).

In the board meeting discussion noted above, what different motives do you think might be influencing Max and Jill? Which of these would be the more legally defensible position? Why?

Tutorial 11: Members rights and remedies

Tutorial 12: Corporate litigation

Graph View

Table of Contents

Backlinks