Assignment Task
Question 1
Maxwell is the sole director and shareholder of Smart Enterprises Pty Ltd, a marketing company. Maxwell is an ‘ideas’ person and not very good at the practicalities of operating a business, such as keeping adequate financial records. Recently, the company has received letters from various creditors demanding payment and has also had a few cheques dishonoured by its bank. He approaches Siegfried, a newly qualified accountant for advice. Maxwell is advised by Siegfried that the company’s cash
flow position is in peril and that it needs to make a lot of money quickly to get out of its current difficulties.
Maxwell tenders for a big advertising contract. In anticipation of getting it, he enters into a contract to take advertising space on television for a substantial amount of money. When he is not awarded the tender, he is unable to pay the fee to the television station. Smart Enterprises Pty Ltd is placed into liquidation by the television station.
Advise the liquidator as to Maxwell’s personal liability, if any, for the debt to the television station.
Question 2
Steptoe Pty Ltd (‘Steptoe’) operates a small chain of retail shoe stores. James was appointed as managing director for a period of three years from 1 February 2018 to 1 February 2021. The company does not have its own constitution. An employment contract had been signed between Steptoe and James. One of the terms of the employment contract restricted James from borrowing more than $10,000 on behalf of the company.
James was not formally reappointed at the end of the three years, but he continued to carry out the duties of managing director. No new document of appointment was lodged with ASIC.
On 1 May 2021, James went to the Willis Bank and asked to borrow $3,000,000 on behalf of Steptoe. Willis Bank had been the main banker for Steptoe for the last 15 years. James told the bank that the money was needed to purchase an interest in a pine plantation which would give the company substantial tax benefits.
James signed the loan contract as managing director of Steptoe. The bank advanced the money by a cheque payment payable to Steptoe. James misappropriated this money by diverting it into a similarly named account at another bank. He is now believed to be living in Vanuatu or one of the island states in the south Pacific. Steptoe now seeks your advice as to whether they are bound by the loan contract with Willis Bank.
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