CASE:

Sue & John operate an accounting practice under a company structure. The company is called 'AA Accounting Pty Ltd'. Sue and John have also been married for 15 years. John is director of the company and Sue is also a director and secretary of the company. Micheal is the Chief Financial Officer for the company. Both Sue and John are equal shareholders in the company. Sue and Michael attend a meeting with an international Bookkeeping provider, who suggest they move into providing bookkeeping services and outsource these to international service providers. Sue and Michael discuss this with John who advised that he is not in favour of moving into this service. To establish the new business Sue and Michael determine they will need funding of approximately $450,000. John advises that AA Accounting Pty Ltd will not be funding this and he is not in agreeance with the proposal. Sue and Michael decided to establish a new company "AA Bookkeeping Pty Ltd" which they are both the only directors and shareholders. They then set about seeking the required funding from the bank. Sue approaches AA Accounting Pty Ltd's current banker Westside Banking for the funding. AA Accounting Pty Ltd has a long history with Westside Banking and on all occasions both Sue and John attend relevant meetings and jointly sign all documents. Westside Banking advises Sue best way to finance is for AA Accounting Pty Ltd to borrow the money and then Sue can transfer to AA Bookkeeping Pty Ltd. Westside Banking is aware that John is not a director or shareholder of AA Bookkeeping Pty Ltd and is also aware John is not in favour of the new company AA Bookkeeping Pty Ltd. Sue and Michael sign the documents on behalf of AA Accounting Pty Ltd and Westside Banking provides the funds but actually deposits the money into AA Bookkeeping Pty Ltd's bank account. Sue and Michael meet with an international service provider "I Help Ltd" who advises that they can provide a discount service if Sue and Michael agree to guarantee $250,000 worth of work in the first year. In addition to this I Help Ltd request that the company have been in business for more than 5 years. I Help Ltd is not aware of John or his role. Sue and Michael agree to the contract and to meet I Help Ltd's requirement they use AA Accounting Pty Ltd to sign the contract (signed by Sue and Michael). John discovers what has happened and makes it impossible for Sue and Michael to continue. Michael resigns as employee of AA Accounting Pty Ltd and as director of AA Bookkeeping Pty Ltd. Westside Banking is requesting AA Accounting Pty Ltd repay the loan funds.

I Help Ltd is seeking to enforce the contract against AA Accounting Pty Ltd and has stated it will claim damages of $250,000 for no performance. John has advised both parties that AA Accounting Pty Ltd did not enter into either contract and will not be held responsible.

REQUIRED:

1) Explain whether Westside Banking can enforce the loan against AA Accounting Pty Ltd. Focus should be on 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 (10 marks)

2) Explain whether I Help Ltd can enforce the contract against AA Accounting Pty Ltd. Focus should be on 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 (10 marks)

Important: Your answer must use the IRAC structure and refer to the relevant case law.