PART ONE: John and Noni are the only directors of Cucina Nero Pty Ltd (Cucina) a company which produced pre- cooked Italian dishes such as lasagne and pasta to offices in Sydney. John is the head chef and Noni is the Manager. They employ 10 staff in their Leichhardt warehouse. Business has been steadily declining for six months (since January 2018) due to competition from food delivery services. Cucina are having trouble paying suppliers on time. Cucina has not paid superannuation for its staff for the last two pay cycles.

Trying to keep the company afloat John arranges for a $50,000 loan on behalf of the company from Fast Finance Pty Ltd in July 2018. The company must repay the loan on demand and interest on the loan is 12 per cent per month.

In August 2018, Cucina receives a statutory demand issued by Flour Power Ltd for the payment of outstanding debts.

PART ONE : Advise the directors on their current legal situation using references to the Corporations Act 2001 (Cth) and the general law.

FOLLOW THE HIRAC METHOD OF LEGAL PROBLEM SOLVING.

PART TWO: Since the company started, Cucina Nero Pty Ltd (Cucina) always employed an accountant. The companys financial records were kept on a computer, accessible to all directors, and maintained by the accountant each month. In September 2018, John and Noni decided to appoint a new director Linh. Linh previously worked as a consultant in the food industry and with his strong marketing skills, Linh was invited to become a non-executive director and chairperson of Cucina. Linh also has a strong background in operational management but has no experience in corporate financial management. Linh accepted the invitation because John and Noni were friends in need of help with business marketing and also because by all appearances the business was back on its feet after Christmas 2016 and thriving. Prior to accepting the appointment, Linh met with the other two directors at a formal board meeting. The minutes of the board meeting records that the companys accountant was also in attendance and that the only item discussed related to the general performance of food delivery services in New South Wales.

Within 12 months of Linhs appointment as a director, Cucina Nero Pty Ltd (Cucina) ceased trading in September 2019 with outstanding debts of $750,000. In December 2019 the company appointed a voluntary administrator who was appointed as the liquidator in February 2020. The liquidator, in taking legal action against all of the companys directors for insolvent trading, has successfully proved in court that the directors breached s 588G of the Corporations Act 2001 (Cth).

The evidence showed that Noni accepted her appointment as a director of Cucina Nero Pty Ltd (Cucina) at Johns request but was happy at all times to leave the management of the company to him. Each year Noni signed the companys annual returns declaring the company was solvent, but this document was not explained to her and she said: I have complete trust in my husband whom I love very dearly and therefore I would sign documents whenever asked.

PART TWO: With reference to the Corporations Act 2001 (Cth), relevant cases and the facts above, advise: (a) Linh and (b) Noni, as directors of Cucina, of their chances of success in avoiding personal liability and whether there are any defences. Follow the HIRAC method of legal problem solving.