Case Study- In the matter of Central Management (NSW) Pty Ltd (in liquidation) ACN 139 989 852 [2017] NSWSC 1258.

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Question

Complete a law report case study of In the matter of Central Management (NSW) Pty Ltd (in liquidation) ACN 139 989 852 [2017] NSWSC 1258.

Prepare a 500 word case summary after identifying and analysing the following:

a. The major legal issues – area(s) of law in dispute

b. The background facts- there should only be brief discussion of this.

c. The relevant law relied on by the judge in making his/her decision- In particular, you should explain the legal principles which were applied by the court to the current facts. In addition, you should explain the wording of the relevant sections of the legislation the court relied on.

d. The actual decision and reasons for the decision of the court.

e. Brief Observations of the significance of this case for people in business. You may do additional research (consulting journal articles) for this part.

Answer :

LEGAL ISSUE:

Is the former director of the company liable for causing or failing to prevent the company repaying money to its detriments? Can the director be held liable for breach of duties? Whether the director is held liable for recoverable of payment of money owned? Can a person be considered as a de factor director of the company for mere involvement in running the business on day-to-day basis.

FACTS OF THE CASE:

Business assets of Central Hotel (Hotel) in Bundaberg were purchased by PPHI in April 2009. Mr. Henderson was the sole shareholder and director of this company. Further, Mr. Henderson was also the director of the Company. Company managed the Hotel and was also promised licence of the Hotel by Mr. Henderson and PPHI. Based on the obligations of the license agreement, Company made substantial payments to third-party loans to reduce the liability of PPHI and finance arrangements of the vendors used for purchase of the Hotel. This was considered as an unsecured loan which was repayable on demand. Mr. Smith the liquidator of the Company and the Company held that PPHI was liable to repay the amount it has paid to reduce PPHI liability, and that Mr. Henderson breached his duties as the director of the company.

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LAW:

Liability for payment of claims associated with third-party loan amount.
Breach of directors’ duty under §180 of the Corporation Act which requires the director to act with required diligence and care and not for their own interest.
§181 of the Act which requires the director of the company to act in good faith and for the best interest of the company.
§§ 182 and 183 of the Act where the Director should not use his position for self-benefit or benefit of others and should not be detriment to the corporation

CONCLUSION:

On priority basis the Court dealt with the repayment claim swiftly and settled that PPHI was liable to repay the amount to the Company sating that the act of the Company in paying amount satisfied the prerequisite of the loan agreement. Further, it can be noted that payment owned by PPHI in form of finance used for purchasing the Hotel cannot be termed as liabilities and losses incurred from business operation. Thus, it is held that PPHI and Mr. Henderson were liable to pay the unsecured loan.
Further, in allegation regarding breach of duties it can be held that Mr. Henderson’ conduct during the period he was designated as the director of the Company breached §§ 180,181, 182 and 183 of the Corporation Act. But from the acts of Mr, Henderson it can be noted that he did not act with due diligence and care nor for the benefits of the company and he tried to misuse his position as the partner of the company. Further, it held that Mr. Henderson cannot be termed as the de facto director of the Company as his role and involvement in management of the Company certainly gave rise to suspicion that he was trying to reduce the liability of the Company.

OBSERVATION:

From the above discussion it can be understood that Directors being the important part of any organization should not make decision impacting the working of the Organization but should act for the betterment of the company. Further, using prior Company position for the benefit of their current company is not an acceptable act. Director has to abide by his duties to the organization.

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