TLAW 402: Company Law - Corporations Act 2001- Law Assessment Answer

Subject Code: TLAW402

Law Assessment Answer

TASK: Shilpa and Sonal are the two shareholders and directors of Sonu Pty Ltd, a company with little assets that conducts a cosmetic jewellery store in Paramatta. Shilpa is the managing director, and looks after the company’s finances. Shilpa has an accounting degree from a Top educational institution. Sonal manages the admininstrative affairs of the business. Sonal is not very knowledgeable about finance but is a good sales person. Sonal has confidence in the ability of Shilpa to manage the financial affairs of the business. On 2 January 2019, Sonal received a telephone call from JewelCo, one of the company’s trade suppliers. JewelCo demanded payment for an overdue account. Sonal could not understand why the account was unpaid because Shilpa was normally quite good at paying the company’s accounts. On 14 January 2019 Sonal again receives a telephone call from JewelCo demanding payment. Sonal emails Shilpa about this, who replies that she has paid the account. What Shilpa has in fact done is to pay off JewelCo using the credit card of Sonu Pty Ltd which is now over its limit. Unknown to Sonal, Sonu Pty Ltd has been surviving on credit for all of 2018. Furthermore, Shilpa has failed to keep proper financial records since 1 October 2018. On 10 March 2019, Sonal tries to use her company credit card, but it is rejected by the ATM due to insufficient funds. Sonal tries to contact Shilpa but her whereabouts are unknown. By 15 March 2019, Sonal is now concerned about the financial affairs of Sonu Pty Ltd. On 20 March 2019, the bank contacts Sonal and informs her that all future payments made by Sonu Pty Ltd will no longer be honored by the bank. The reason is that the company has now gone over the limit of its overdraft facility and has also failed to pay to make any repayments to the bank over the past 3 months. Sonali, a company liquidator is appointed, on 8 April 2019, to wind up Sonu Pty Ltd. The liquidator needs to pay all outstanding debts of Sonu Pty Ltd which totals $275,000, but the company does not have enough assets nor money to make any repayment of debts. (a) Advise the liquidator whether she can sue Shilpa and Sonal to recover the debts owned by Sonu Pty Ltd. Important: Your answer must be given with reference to the law studied under the Corporations Act 2001 (Cth). Also, your answer must assess the chances of success by the liquidator and (b) If the liquidator has found that Shilpa and Sonal have acted in breach of the Corporations Act 2001 (Cth) and has reported the matter to ASIC, discuss what are the possible consequences for Shilp and Sonal. Your answer must make reference to the relevant law under the Corporations Act.

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