A) Shoe-Laces Ltd is struggling financially. Sheldon and Ashley are two directors of Shoe-Laces Ltd. They have had several emergency meetings regarding the current financial situation of the company. Last week, Sheldon announced that he is tackling some health issues and has decided to take a leave of absence to attend a health retreat. In his absence, Ashley decides it would be a good idea to bring in a restructuring specialist and goes ahead with this. She also decides that the company needs to try and expand into other kinds of footwear. Ashley orders supplies for this, but the company is unable to pay for them. Finally, Ashley decides that further advertising is a good idea and hires a marketing expert. The company is not able to pay for the expert.

Mark is the CFO of Shoe-Laces Ltd. He oversees managing the company's day to day financial affairs. Although he saw that the financial outlook of the company did not look good, he has been distracted by his pet poodle, Brittlesnap, who has just given birth to eight puppies, and hasn't really been attending work or paying too much attention to the company's financial position. Sheldon, who was away, insists he knew little about the company's financial troubles and never read the financial report.

Please advise on the potential liability of Sheldon, Ashley and Mark if the company cannot pay its debts. (10 marks)

B) Mark has set up a company called Mark Pty Ltd. The company was set up to deal in sports equipment and has been very successful. Mark and his son Noel are the two directors of the company. Noel thinks it would be good to expand the business and add a sport events management arm to the company. To minimise risk, Mark Pty Ltd sets up a subsidiary called Noel Pty Ltd for the purpose of running these sporting events. Both Mark and Noel are the directors of Noel Pty Ltd. The initial uptake is great and Noel Pty Ltd make several contracts with local schools and community centres to run sporting events. However, the demand is more than their capacity and Noel Pty Ltd is unable to meet their obligations under these contracts. Several community centres including the Bandjup City Council would like to bring an action for breach of contract. Bandjup City Council has come to you seeking advice.

Noel Pty Ltd has no assets and therefore is unlikely to be able to meet any obligation should Bandjup City Council be awarded compensation. The council would like to know if it is possible to sue either Mark Pty Ltd (which has abundant assets) or Mark personally as the director of Noel Pty Ltd. (6 marks)

C) Would your answer be different if instead of forming Noel Pty Ltd, Mark Pty Ltd appointed Noel as an agent for the purpose of running these events? (4 marks)

Please us the IRAC method. (Issue, Rule, Application, Conclusion) Thank you.