CORPORATIONS ACT

Corporations Act



Corporations Act

Introduction

Reference to the scenario I-Sparts Ltd, The limited company is an artificial legal "entity" with rights and obligations which are distinct from those of its shareholders and directors - this is commonly referred to as the "corporate veil". In practice, this means that a company's shareholders can carry on a business while restricting or "limiting" their liability to the extent of the paid up capital of the company. However, the complexity of modern commercial life has necessitated substantial reform in this area of the law. This reform has increased the risk of personal liability for persons concerned with a company, especially when it is insolvent.(Stephen Bottomley, 1995, p 58)

Thesis Statement

The competing rights of Trustme Ltd and the liquidator to the stock must remain with the Trustme Ltd.

Background of the case study

Sparts Ltd, which runs a spare parts supply business, issued $4 million in debentures pursuant to a prospectus, and gave as security a floating charge over its stock of spare parts.

The charge was created on 10 July, 2009. The trustee for debentures holders, the Trustme Ltd, forgot to check whether I-Sparts Ltd had registered the charge. In fact it had not been registered. Fishtight Financial Ltd had purchased $500,000 in debentures pursuant to the issue. The prospectus had contained a set of very favourable annual accounts prepared by

Sparts Ltd and audited by RS Kerr-Downs, the company's auditors. These accounts were completely inaccurate.

On 5 August, 2009 a liquidator was appointed to wind up I-Sparts Ltd. The liquidator claimed all the spare parts on behalf of the creditors. When Trustme Ltd learnt of the claim, it moved into action and registered the charge with the Australian Securities and Investment Commission (ASIC) on 1 September. A charge can be differentiated from a mortgage. In the case of a mortgage the borrower's (mortgagor's) title in the protected house is transferred to the lender (mortgagee). This transaction is subject to a retransfer of the title back to the mortgagor after the borrowed addition and interest have been repaid. The limits are enforced to protect the security of the lender (chargee). In business regulation “charge” has a very wide meaning and includes any security for repayment of a liability as well as other securities such as liens and pledges. Fixed charge is a ascribe adhered to a exact piece of property. The chargor cannot dispose of the item of property without the chargee's consent.Floating charge is an equitable charge on the assets for the time being of a going concern. It does not avert the business considering with any or all of its assets in the commonplace course of its enterprise. A floating charge only becomes fixed when it crystallises.Crystallisation recounts the penalties of any default in the acquiesced payments by the chargor or upon insolvency. The deed creating the ascribe may permit for the appointment of a obtainr who may go in to obtain the income and sell up the assets on behalf of the ...