Please answer the following questions using the Issues, Application of Law and Conclusion format. Explain your answer with references to relevant sections of the Corporations Act 2001 (Cth) and case law.

Q1.

Alan and Bill are the only shareholders and directors of Sailaway Pty Ltd (Sailaway) which distributes and sells yachting clothing and equipment. As well as a warehouse and attached shop, Sailaway owns a large block of waterfront land which it uses for storage. Alan is also the chairman and majority shareholder of Broadacres Pty Ltd (Broadacres) which buys rural land for subdivision into hobby farms. Broadacres needs to borrow $1.5 million to fund its latest purchase. It already has a large overdraft and has no unencumbered assets to use as security for another loan. Alan organised a loan of $1.5 million to Broadacres from ABC Finance Ltd (ABC Finance) on the basis that Sailaway would guarantee the loan by executing a mortgage over its waterfront land. Alan signed the mortgage documents as a director of Sailaway and forged Bill’s signature as the other signatory. Tom, the local manager of ABC Finance, had been involved in earlier dealings with Sailaway and knew that its business did not include real estate and property development. However, Tom was away at the time the documents and the transactions were organised by a relieving manager, a close friend of Tom, who did not ask any questions about Sailaway’s involvement.

Broadacres is now in financial difficulties and has defaulted on the loan from ABC Finance. ABC Finance is seeking to enforce its rights under the mortgage against Sailaway.

Advise Sailaway whether it is bound by the mortgage issued by ABC Finance.

Q2.

Conrad, Marcia and Roger seek advice from your firm, Prisy Financial Advisory Services. Conrad states that he does not want to be appointed a director or secretary. He suggests instead that his family company be appointed as a director; and the company should not have a company secretary;

Marcia is currently unavailable for meetings as she has five months still to serve for her last conviction for falsifying company accounts.

You have been asked to establish their new company (No-Tax Agents Pty Ltd). You advise them not to bother with their own constitution, but instead to rely on the replaceable rules in the Corporations Act.

• Advise who should be appointed as directors of their company in view of the above information.

Assume that Conrad’s family company subsequently goes into liquidation. The liquidator, in her report to ASIC, states that the secured creditors have been repaid in full, but the unsecured creditors will not receive more than 20 cents in the dollar. The liquidator does not find any evidence of wrongdoing on the part of Conrad or any of his fellow directors.

However, the ASIC’s records indicate that Conrad has, over the last nine months, had a similar track record with two other small, proprietary companies.

(b) What ramifications (if any) does the ASIC’s record have for Conrad?