Table of Content
1. Part A
2.1 Veil of incorporations
2.2 Company Insolvency Trading
2. Part B
3.3 Company’s insolvent
3.4 Director’s breach duty
3.5 Duty of Care
3.6 Defenses and Consequences
3.7 Consequences and Penalties of breaching the duty
1.1 Veil of incorporation
According to the case, OHS Solutions Pty. Ltd. is a partnership company formed by three friends. They are Des who expert in occupational health and safety, Emma who has accounting degree and Satish who has an IT degree. In addition, Ying join as a director (non executive) and also as a director of Support Pty. Ltd. as a guarantor for a $50,000 loan from the Business Bank Ltd. to OHS Solutions. The definition of a company or a corporation is a legal entity created through the laws of its state of incorporation. Individual states have the power to promulgate laws relating to the creation, organization and dissolution of corporations. Public corporation laws require articles of incorporation to document the corporation's creation and to provide provisions regarding the management of internal affairs. Most state corporation statutes also operate under the assumption that each corporation will adopt bylaws to define the rights and obligations of officers, persons and groups within its structure. States also have registration laws requiring corporations that incorporate in other states to request permission to do in-state business. There has also been a significant component of Federal corporations law since Congress, which regulates how corporate securities are issued and sold. Federal securities law also governs requirements of fiduciary conduct such as requiring corporations to make full disclosures to shareholders and investors. The law treats a corporation as a legal person that has standing to sue and be sued, distinct from its stockholders. The legal independence of a corporation prevents shareholders from being personally liable for corporate debts. It also allows stockholders to sue the company through a derivative suit and makes ownership in the company’s shares easily transferable. The legal person status of corporations gives the business perpetual life, deaths of officials or stockholders do not alter the corporation's structure.1 Corporations are taxable entities that fall under a different scheme from individuals. Although corporations have a double tax problem both corporate profits and shareholder dividends are taxed company profits are taxed at a lower rate than the rates for individuals. Corporate law has important intersections with contracts and commercial transactions law. 1.2 Company insolvency trading
Since the principle of a separate legal personality was established, there have been numerous occasions where parties have argued that the persons behind the company should be sued in their personal capacity. As a result, the veil of incorporation is occurred. In this case, the directors are responsible to get a decision to prevent the company insolvent. As mentioned on Section 588G, the directors duty to prevent the company incurring debts. If the company incurred debts, directors should declare the dividends and paying the dividends. It also prevents the company insolvent.
In modern corporate structures, it is common for a company to have a number of subsidiaries. The separate legal personality principle applies to these subsidiaries, meaning the subsidiaries themselves are liable for their own conduct. OHS Solutions have four subsidiaries directors, Managing director, Finance director, Director (executive) and Director non-executive. Ying as director non-executive is the stakeholder for OHS Solutions as well as the guarantor for the loan from Business Bank. In loan transactions, where monies are being made available to a subsidiary, it is very common for a lender to insist on a parent company guarantee (and/or indemnity) as additional security...
References: 1. Legal Information Institute/Cornell University Law School http://www.law.cornell.edu/wex/
2. Justice Kim Santow, “The Codification of Directors’ Duties” (1999) 73 ALJ 336 at 342. See Walter Woon on Company Law (Tan Cheng Han ed) (Singapore: Sweet &
Maxwell, 3rd Ed, 2009) at para 8.107.
3. AWA Ltd v Daniels (1992) 7 ACSC 395 (Rogers CJ Comm Div). Approved in Vrisakis v Australian Securities Commission (1993) 9 WAR 390, 452 (Ipp J); Streeter v Western Areas Exploration Pty Ltd (No 2)  WASCA 17,  (Murphy JA).
4. AWA Ltd v Daniels (1992) 7 ACSC 759, 867.
5. Corporations Law, s 1317EA
6. Corporations Law, s 1317F
7. Corporations Law, s 1317FA(1)
8. Corporations Law s 1317H
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