Marco, a qualified accountant who has experience in company rescues, has recently been appointed as Fraser Confectionery Ltd (FCL)'s Financial Controller. FCL was incorporated in 2000.

FCL has five directors, all of whom own shares in FCL. These five directors have all been appointed since 2010. The chief executive officer and managing director (CEO) is also an accountant with many years of business experience. Two of the other directors have little business experience and are mainly concerned with the development and manufacture of confectionery.

Despite having thrived until 2019, FCL has been struggling over the last two years with business revenue on a drastic decline, a situation not helped by the pandemic. Marco was appointed to advise the board and to try to assist FCL's recovery. Since joining FCL, Marco has noticed that most of the directors have been less engaged with the running of the company than he had expected. Attendance at board meetings, even since Marco joined, has been sporadic.

The CEO took a long vacation in the spring of 2021. This was despite a number of suppliers threatening legal proceedings for non-payment of invoices. Marco was also having difficulty tracking down financial information as records have not been updated for at least the past 6 months or longer. Records of board meetings over the last 18 months are almost non-existent, and some of the decision-making appears to have been delegated to inexperienced junior members of staff.

Advise Marco on the implications for the directors for insolvent trading if FCL were to go into liquidation. Discuss also any possible sanctions that might be imposed in public enforcement proceedings by ASIC if insolvent trading can be established against FCL.

(Your answer should include case law and the provisions of the Corporations Act 2001 (Cth) (where relevant)).

?Refer to the answer method of the given sample?

Sample Question Peter is the owner of an exclusive dress shop called "La Parisienne'. He wishes to travel overseas to buy some new fashions for his shop, so he leaves his daughter, Amanda, in charge of the shop. During Peter's three-week absence, Amanda decides to hire a new sales assistant for the shop. Amanda also buys someimitation Christian Lacroix gowns, which are labelled as genuine gowns, to sell in the shop.Advise Peter whether he is liable to pay the wages of the new shop assistant. Plan of Approach Identify the Issues. Think: - Why wouldhe have to pay the wages to a new shop assistant [SA]? Answer: contract of employment. But he did not enter into the agreement with the new SA, his daughter did, therefore, why isn't she, his daughter, liable??? Aha! He leaves Amanda in charge to act on his behalf: Agency! So what part of agency? There is no question of formation, so AUTHORITY! There are no clues as to what is her actual authority, so therefore focus on ostensibly or apparent authority! Therefore, the issue is: - Would Amanda's ostensibly authority as the Acting Manager of the Store indude hiring employees?" Is it significant that it is his daughter, i.e. could be under 18 -let's assume NOT, but it is his daughter. Identify the Relevant Rules and Cases. 1. Ostensiblyauthority is dependent upon a representation by those with ACTUAL authority (in this case Peter) that their agent has a certain level of authority, which is necessary in a manner of speaking, for the agent to performtheir task, employment etc. This representation can be as simple as a job title: - 'Acting manager. How do the Courts determine the level of authority? Trade custom will be very important. So what level of authority do other acting managers in a retail clothing store have, and does it extend to hiring new staff? Think about it, how else will the Court be able to determine this? 2. In situations where the actual authority is limited, or arguably when it is undear [our example] then if, I stress if, ostensibly authority is greater than actual authority, then the courts have shown that the Principal [Peter] will be bound by the actions of their agent. 3. I will assume his daughter is over the age of 18, but it is also his daughter, so the domestic presumption is relevant here, i.e. is there an intention to be bound? Here the rule is basically that in situations where the relationship between the parties has a domestic or social nature, then there is a presumption that the parties, because of the nature of their relationship do not intend to take one another to court, if the agreement is breached. This can be rebutted if the circumstances showed a commercial flavour or if the seriousness of the consequences 4. Cases. a. ANZ Bank Lid v Ateliers; Freeman and Lockyerv Buckhurst Park Properties; Hely-Hutchinson v Brayhead Lid. b. Freeman and Lockyer v Buckhurst Park Properties; Hely Hutchinson v Brayhead Lid. c. Balfour v Balfour; Roufos v Brewster; Todd v Nichol; Wakeling v Ripley. Sample Answer In order to determine whether Peter is responsible for the new shop assistant's wages will depend upon resolution of whether Amanda is acting within her authority as an agent of Peter. There is also a secondary issue, namely that the contract of employment between Peter and Amanda is affected by Amanda being Peter's daughter. Dealing with the latter first, whilst there is a presumption that when an agreement takes place in a domestic situation, namely between father and daughter, that there is no intention to be bound, this can be rebutted. (Balfour v Balfour) The presumption will be rebutted if the overall circumstances have a commercial flavour (Roufos v Brewster). Here the agreement relates to maintaining Peter's business and this would indeed rebut the presumption. Therefore, a valid agency agreement has been created. The first issue could be summarised as: 'Would Amanda's ostensibly authority as the Acting Manager of the Store indude hiring employees?' This is because the facts do not indicate the level of actual authority. Ostensibly authority is dependent upon a representation by Peter, who has actual authority, that Amanda has a certain level of authority, which is necessary in a manner of speaking, for the agent to perform their task, employment etc. (ANZ Bank Ltd v Ateliers) Secondly, where the actual authority is limited, then if the ostensibly authority is greater than actual authority, the courts have shown that the Principal [Peter] will be bound by the actions of their agent. (Freeman and Lockyerv Buckhurst Park Properties; HelyHutchinson v Brayhead Lid). From the facts it is clear that an acting manager should have enough authority to maintain the daily operations of the respective business, and so trade custom will be very important. I.e. what level of authority do other acting managers in a retail clothing store have, and does it extend to hiring new staff? This is undear from the facts presented, but it is argued here that hiring new staff is not of the same nature as other decisions, more strategic such as extensive renovations costing larger sums of money or entering into a partnership. It is also true that Amanda's decision is not of the same nature as say replenishing stock, which clearly would be within ostensibly authority of an acting manager. It is submitted here, that if the volume of business was such as to require a new sales staff then a manager would hire new staff, and this would be within their ostensibly authority. It is further submitted here that an acting manager's authority would be the equivalent, if only slightly inferior to that of a full-time manager, and thus it would include hiring a new sales assistant. Therefore, Peter is responsible for the new sales staff's wages