Sandra and Bob are the directors and shareholders of a very small company which imports soft toys from China for sale to various retail outlets. The company has a small warehouse where it keeps its goods, and from which all products are distributed.

The company recently entered into a contract to supply a large chain with soft toys, and they accordingly ordered large amounts of goods from overseas. The company ordered four shipments of goods from a supplier and has paid a large deposit. Similarly, a shipping company which brings the goods into Australia is now waiting for payment.

After only one delivery to the retailing chain, a defect is discovered, the government puts a banning order on the sale of the toys, and the retailer cancels all further orders.

Where does the company stand in regard to their contract? What rules apply if it is terminated?