ACC520 Legal Regulation of Business Structures

Semester 2, 2018
Tutorial Questions – Week 7

Questions taken from Chapters:

 7. Corporate Liability: Tort, Crime and Contract
 8. Promoters: Duties and Liabilities

1. What is the significance of s 124 of the Corporations Act?

2. Explain the organic theory of attribution in determining corporate liability.

3. What is the difference between primary and secondary liability?

4. How do ostensible authority and actual authority differ? What effect does
this have on a corporation’s liability?

5. What is the aim of the indoor management rule and how does it operate?
Explain with reference to a relevant precedent.

6. What statutory protection exists under the Corporations Act for the
protection of innocent third parties contracting with the company? What
limitations, if any, are there to these assumptions?

7. Who, in law, is a promoter are what are their typical functions?

8. What duties does a promoter owe to the company at common law?

9. To whom must a promoter make disclosure?

10. Explain the meaning of a pre-registration contract.

11. What is the impact of ss131–133, Corporations Act on the common law?

12. When is a company bound to a pre-registration contract?

Chapter 7 Problem Question

Vanessa is a director of Smash Ltd and is in charge of the company’s production line
and related activities. One day, when the factory is operating at full capacity to fill an
urgent and lucrative order, the production line jams. Clot, a company employee, crawls
into the middle of the machinery and is eventually able to sort out the problem. He calls
out that he has rectified the problem and is coming out, whereupon Vanessa orders that

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the production line be immediately restarted (there is usually a short delay while the
machinery warms up). The supervisor, Simon, refuses to start the machinery until Clot
is fully out, but Vanessa reaches past him and presses the restart button, commenting
that ‘there’s plenty of time’. Unfortunately, Clot has stopped to admire the internal
workings of the machinery. The machinery starts up more quickly than usual because it
is still warm, and Clot becomes trapped inside. Pieces of Clot continue to be found in
and around the machinery for weeks thereafter.

Advise all parties on the implications of these facts, so far as relevant to

company law.

Chapter 8 Problem Question

Alicia, an astute property developer, employed Adam and Robin to form a company to
be called Batco Ltd and to make all the necessary arrangements regarding contracts to
be entered into by Batco Ltd. Alicia herself had no active role in the incorporation of
Batco Ltd; however, she became one of Batco Ltd’s three directors with Adam and
Robin. Immediately after incorporation, Batco Ltd bought a commercial development
site planned for a petrol station in Pitt Street, Sydney from Alicia for $900,000. The site
had been purchased earlier by Alicia for $700,000 less a discount of $20,000 for
allowing the vendor to remove some fixtures on the site. The actual price paid by Alicia
was therefore $680,000.

Alicia, on the sale of the petrol station site to Batco Ltd, disclosed the profit of $220,000
to the board of directors. In the prospectus issued by Batco Ltd to the public, it was
disclosed that the price Alicia had paid for the development site had been $700,000. No
further reference was made to the property transaction.

In the month prior to the sale of the property by Alicia to Batco Ltd, she was
informed by the Sydney town clerk that Pitt Street was to be converted into a pedestrian
mall and permanently closed to motor vehicle traffic. She was advised to immediately
apply to the Sydney City Council for consent to have the property rezoned for other
commercial purposes. Alicia did not do so, neither did she disclose this information to
Batco Ltd.

Advise, with reasons:

(a) Is Alicia a promoter?
(b) If she is a promoter, what legal duties does she owe to Batco Ltd?
(c) Is Alicia is entitled to retain her profit?
(d) What remedies Batco Ltd and its shareholders may have against her?

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