COMPANY LAW

HI5027 Company Law

HI5027 Company Law

Task A

Introduction

In the task A, a brief explanation regarding the role of the directors is discussed why the directors duty to prevent the insolvent trading exists. Whereas, the other important point discussed in this part is the circumstances and the consequences of the 'veil of incorporation' being lifted for the insolvent trading.

First of all, it is very important for the readers to understand both the terms, that is, the insolvent trading and the 'veil of incorporation'. The insolvent trading basically means that when a company does not able to pay its existing debts when they fall due, or in other words, the company does not have enough funds to pay off its expenses, than the term used for such company is insolvent trading. Similarly, the situation given in the scenario regarding the OHS solutions, the company facing the insolvent trading because it is not able to pay back the loan that it taken from the Trouble Shooters Pty. Ltd. That is the reason, the term insolvent trading used for the company. Whereas, the second term 'veil of incorporation' means that it is one of the purposes of incorporating the company is to separate an individual from the legal liability of the company. Therefore, the veil of incorporation, in this case, ensures that the company will always remain a separate legal entity and it does not have any concern with any of its directors or shareholders personal assets. Thus, the veil of incorporation protecting the personal assets of the owners and also preventing the investors from the law suits.

Discussion

One of the important attributes of any system of company governance is to provide the board of directors with the freedom to lead the company within a framework of effective accountability of directors and its shareholders. Through this spirit, the company seeks to establish a balance between freedom and flexibility to manage the company and the legitimate economic interests of their owners.

As per the given scenario, it is very important to consider that whether the directors act with malice or culpability. In this case it requires that all the directors jointly liable for the prejudice caused to the company and its shareholders for their wilful misconduct or guilty, as they will have to perform their duties with care and diligence with which they carry their own businesses.

An important thing that must be noted at this stage that the jurisprudence of the courts of the United States, also gives light on the scope and implications of directors' duties as trustees of the company. Under this special relationship, the directors have two main duties: to act with care and loyalty (Crs Warner Kugel, 2009, pp. 1-5).

American jurisprudence defines this duty as "the care that a reasonably prudent person would use in similar circumstances in the care of their own affairs." This concept is treated as ordinary negligence in UK legal system.

Company Law

Company law or corporate law, can be divided into two main ...