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Sem 4 Assignment 2

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Assignment 2
Question 1 1. The maintenance of capital doctrine is developed to prohibit a company from reducing its share capital because a reduction in capital would reduce the pool of funds available to the company to pay its creditors. Section 254T provides that dividends are only payable out of profits. This provision ensures that capital is not return to shareholders in the form of dividend. The term “profit” is not defined in the Corporation Act. In Re Spanish Prospecting Co Ltd (1911), it was stated “profits” implies a comparison between the states of a business at 2 specific dates usually by an interval of a year which means the gain made by the business during the year. Section 259A prohibits a company directly acquiring its own …show more content…

Adler was a non-executive director of Adler Corporation Ltd. HIHC is controlled by Adler through Adler Corporation Ltd which is a substantial shareholder of HIH. After the loan, PEE became trustee of Australian Equities Unit Trust (AEUT) which was controlled by Adler Corporation Ltd. HIHC’s $10 million loan to PEE was then applied to HIHC’s subscription for $10 million worth of AEUT units. Adler was entitled to 10 per cent of the trust’s income even though the $10 million was contributed by HIH. It was held that Adler breached his duties as an officer of HIH and HIHC under s 181. The s 181 duty may be breached where the interests of the company are put at risk by contraventions of other statutory provisions such as those dealing with related party transactions (s 208) and the financial assistance prohibition (s 260A). A contravention does not require the director to gain a benefit from the conduct. It is sufficient to establish that the conduct was carried out in order to gain an advantage. In Stoke Limited’s case, Buggy has breached s 181 as he did not act in good faith and in the best interest of the company as he arranged $200,000 to transfer into his personal accounts and use it to provide unsecured loans to a small business owned and controlled by him. Although the documentation

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