Volcano Pty Ltd (Volcano) operates three surfing stores in Queensland. On 8 August 2016, Gao was appointed to the position of managing director of Volcano for a period of two years. A return was lodged with ASIC indicating his appointment as a director on that date.Gao was not formally reappointed after 8 August 2018, but he has continued to act as managing director. The terms of Gao's appointment, which were set out in a contract between him and Volcano and were also in Volcano's constitution, included a restriction to the effect that he was not to commit the company to borrowing transactions in excess of $20,000. Any such transaction was to remain subject to the approval of the board of directors.

On 20 March 2019 Gao, purportedly acting on behalf of Volcano, signed a loan contract with Fanning Bank, pursuant to which the Bank agreed to lend the company $30,000 in order to establish a website for motorbike enthusiasts. The transaction was not referred to the Board.

The Bank was not aware of either:

• the contents of Gao's contract, or
• the company's constitution.

The Board has since discovered the loan contract and has stopped all repayments on the loan. The Bank has called in the loan and is suing Volcano for the principal together with all outstanding interest.

(a)What do you think the outcome of this case will be?

(b)Would the outcome of this case be different if:

• the loan was for the refurbishment of two of Volcano's surfing stores,
• the Bank had a copy of the company's constitution, or
• the bank was aware the board had not passed a resolution approving the transaction