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Exam Feedback 2016
Corporate law (LLH305)
Queensland University of Technology
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LLH305 Sem 2, 2016 - Final Exam Feedback
Question 1
This question examined Alex’s rights as a member, including his standing to seek leave, the requirements of the leave application, and the causes of action both at general law and under the statute. The discussion as to whether leave would be granted was generally very well answered. One of the requirements to be established in order to be granted leave relates to the cause of action belonging to the company. The facts were sufficient to make out numerous breaches of the director’s duties to the company including the fiduciary duties owed by directors to act in good faith and in the best interests of the company, and the duty to avoid conflicts of interest. Torki had breached these duties by using the information provided to him to bring about the secret diversion of the investment opportunity to a third party. In this way the third party, a company owned and controlled by him, became the owner of the premises where the company carried on business. Remedies were available to the company for breach of the fiduciary duties and contravention of the corresponding statutory duties under the Corporations Act 2001 (Cth). Most students who identified that Alex would be granted to leave to stand in the shoes of the company to bring the derivative action identified that these remedies would be available to the company and not to Alex directly. Students who did very well in this question also discussed:
third party liability of Torki Enterprises Pty Ltd pursuant to the Corporations Act 2001 (Cth) and at general law. difficulties that might arise in the application for relief from liability. This involved a discussion of the bearing of a failure to disclose information on an assessment of whether the director has acted honestly and ought in all the circumstances of the case be excused wholly or partly from liability. the duty on Torki to disclose under s 191.
This question was marked flexibly and marks were available for minor issues.
Some students prioritised their arguments in a way that did not reflect the extent to which the argument was supportable by the facts. Long discussions of disclosure and oppression tended to deviate considerably from the facts at hand.
There were a number of common errors. Many students did not understand that they were advising a member and instead advised the company. Some did the opposite and wrote only about the statutory derivative action without discussing the causes of action available on the facts. The most common error was dealing with the key issues superficially without considering critical elements such as remedies, third party liability and the statutory duty to disclose.
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Question 2
This question examined aspects of the companies in financial distress module of the unit. Part A of the question required students to apply the law relating to the circumstances under which a dividend can be paid out. In particular there needed to be a focus on s254T. This section allows the payment of dividends, or alternatively restricts the payment of dividends to certain situations. Instead of simply requiring that dividends be paid out of profits s254T has other requirements. In addition to applying the elements in s254T students needed to advise that the board’s decision should also be informed by the director’s duty to prevent insolvent trading on payment of dividends. S588F and the relevant elements needed to be articulated in this answer. Also students needed to demonstrate an understanding that the payment of a dividend constituted the incurring of a debt: s588G(1A). In addressing part A many students only addressed insolvent trading considerations OR s254T considerations (rather than both).
Part B was generally very well answered, although some students focused on discussing indicators of insolvency only without reference to s95A, the cash-flow test or relevant case law. A large number of students also failed to refer to s459C(2).
With respect to Part C, a number of students failed to recognise that voluntary administration was the most suitable form of external administration based upon the facts presented. Others failed to explain why or to provide a description of all of the relevant aspects in Pt 5. This aspect of the question required students to examine the effects of voluntary administration. The lecture recordings and slides provided in the voluntary administration module that could have been drawn from to inform your answer here.
Question 3
Question 3 was generally reasonably done. This question was a simplified version of this year’s securities tutorial question. Some students misidentified the issues and wrote at length about the role and responsibilities of a liquidator. Those who correctly identified the issues and gave themselves enough time tended to do better.
In answering this question students needed to demonstrate an understanding that companies may grant a security interest for borrowings they make: s124 CA. A borrower may seek funds from more than one creditor and may also give security over the same property to more than one creditor. In this question we had a dispute over priority and students needed to explain that to enforce a security interest against a 3rd party generally the interest has to be “perfected” and that perfection will normally occur by registration of the security interest: s 21 PPSA. Generally priority will depend on the timing of the perfection but here given that we had a PMSI (s 14 PPSA) and an earlier perfected non-PMSI security interest students needed to carefully work through the nature of each of the three security interests to determine priority.
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Exam Feedback 2016
Course: Corporate law (LLH305)
University: Queensland University of Technology
