OMMLAW2500 Commercial Law 11

Tutorial 11 in Week 12

St Francis Pty Ltd ('St Francis') has for some time been a successful family company

which manufactures coffins. Over the years, St Francis has often borrowed money

from Friendly Bank to fund expansions or other business projects.

Friendly Bank holds a circulating security interest over the assets of the company as

security for the loans currently made to St Francis. The perfected security is over

goodwill and book debts.

In 2019, the company suffered a downturn in profits, largely due to the increased

cost of employing staff to work in their business and imported items required for

their coffins which fluctuated

due to world currency prices.

St Francis currently owes Woodmills Ltd, its major supplier of wood, $15,000

which it is unable to pay. This amount has varied but has been around $15,000 for

the last 6 months. Nonetheless, the company continues to order wood from

Woodmills Ltd, since the directors hope the company will be able to trade out of its

problems and return to its previously healthy state.

Friendly Bank has now found out about the company's poor performance

and is very nervous about being repaid its loan.

Friendly Bank approaches you as a skilled businessperson to ask for your

advice on:

a)

What Friendly Bank can do to recover the money it has

loaned to St Francis?

b)

What duties face the directors of St Francis?

c)

What insolvency action can be taken by Woodmills Ltd?