For all tasks the student is required to use the correct industry-specific terminology, satisfied all relevant legislation, industry standards and organisational requirements and indicated that they have accessed the required information sources.

A satisfactory response requires you to:

• Read and understand the Fashion First Case Study;
• Using the case study determine the affected parties;
• Take into consideration the responsibilities of all the directors in the case study;
• Undertake research to find common law issues involved in the case study;
• Undertake research to find corporations law issues involved in the case study;
• Undertake research to advise on liability under corporations law;
• Write a well-argued report providing the client with appropriate advice on the requested issues;
• Provide the client with relevant case law to support your advice.

Case Study: Fashion First Pty Ltd

Andrew, Brian, Colin, Diana and Elizabeth were the directors of Fashion First Pty Ltd. Fashion First Pty Ltd does not have a constitution and relies on the replaceable rules in the Corporations Act 2001 in making its decisions.

Fashion First Pty Ltd is a company engaged in the business of importing and supplying fashion accessories to the local market. Andrew is also the Managing Director.

The company has decided that, as the market was becoming more competitive, it needed to expand its business. It felt that with increased volumes of sales, it would be able to lower its prices and become more competitive. In order to do so it obtained a $4 million loan from ABC Bank Ltd. $3 million was used to buy more inventory and $1 million was used to buy a large new warehouse and showroom from development Interests Pty Ltd.

Colin was not at the meeting where these decisions were made, as he was in the hospital, recovering from a serious accident.

Elizabeth had not attended the meeting, as was her usual custom, but had signed the requisite documentation agreeing to the expansion of the business and the obtaining of the loan.

Diana had attended the meeting but said she did not know if she agreed with the proposal and abstained from voting.

Andrew and Brian both voted to go ahead with the expansion of the business and obtaining the loan.

About this time, Brian established contact with George who was setting up a new business as a retailer of fashion accessories. George was looking for reliable supplies but said he would not deal with Fashion First, as he did not like Andrew. Not wishing to miss out on such a lucrative business opportunity, Brian arranged to set up his own business as a fashion accessory wholesaler and a contract was entered into between George and Brian for the supply of fashion accessories.

Six months later, Brian resigned as a director of Fashion First Pty Ltd. At the same time, it was clear that Fashion First Pty Ltd has over-extended itself, was insolvent and could not pay the interest on its loans.

It also became clear that Brian was a major shareholder in Development Interests Pty Ltd and the other directors of Fashion First Pty Ltd had been unaware of this at the time of purchase of the warehouse and showroom. Furthermore, Brian had been approaching other established customers of Fashion First Pty Ltd and had secured orders for his own business.