ASSIGNMENT 2 CASE STUDY Mr & Mrs Jones operate a popular Hardware store in Katherine through a company called Jones Hardware Pty Ltd. Mrs Jones is a director of the company and Mr Jones is also a director and secretary of the company. Mrs Jones attends BNZ Bank which has been the companys bank for the last 15 years. Mrs Jones completed a loan application to borrow $300,000 which states purpose the funds will be used for. In the application Mrs Jones advises that the funds will be used to expand their business into Western Australia and establish a new company. The shareholders and directors of the new company will be Mrs Jones and her friend. The relevant bank manager knows Mr & Mrs Jones well and has always met with them both. The bank manager is concerned with the loan applications however makes no further enquiries. The banker manager agrees with Mrs Jones to lend the money on the basis that the bank can take security over the companys major asset being a building from which the company operates. Mrs Jones lends the monies to a new company in which she is a director and shareholder in with her best friend. Mrs Jones intention is to establish the new company with her best friend and then leave her husband. Mrs Jones obtains the loan and mortgage documents from the bank. She affixes the common seal of the company and her best friend signs as secretary. The bank advances the money. Mrs Jones lends the monies to the new company. The new company establishes a business in Western Australia and then commences the process of approaching the largest clients of Jones Hardware Pty Ltd.

REQUIRED: Explain whether BNZ bank can enforce its mortgage over the building. Consider whether it can rely of the assumptions in s129 of the Corporations Act. and whether an exception to the assumption by way of s128(4) is applicable. Refer to case law to explain your conclusion. (Words 1,000 (15 marks)

Briefly discuss whether Mrs Jones has breached any director duties in establishing the new company and approaching clients. (Words 500 (7.5 marks)