Australian Law of Business Association

Question 1

Harry, Joe and Moe have formed a partnership solicitor firm. Joe however had borrowed

money from Rich in the pretext of buying law books for the firm. Joe however uses the

money to travel to South Africa. Therefore, Joe first of all lied to Rich. Secondly, Joe had

taken the money on behalf of the partnership solicitor firm. Part 3 of the Partnership Act

1963 discusses the relations of partners to persons. Part 3(2) clearly states that any kind

of act by a partner which is related to the business of the firm, would be binding the firm

and the partners of the firm. Part 3, 2 (b) also states that the person who deals with the

partner must know that the partner is actually a part of the firm.

In case of Rich, he knew that Joe was a partner of the solicitor law firm. Moreover, the

Part 10 of the Partnership Act 1963 states that an act which is connected to the welfare of

a firm is binding to all the partners of the firm. Part10, 1(b) further states that if a person

acts in a way which shows the intention of binding the firm, the partners will be bound by

such as act. In case of Joe, he clearly stated to Rich that he was borrowing the money for

buying law books for the firm’s benefit. The case of Hirst v Etherington and Another

(1999) 1 was concerned with the partner’s authority to bind a firm for his acts. The

partner in question is Joe. Since there was no notice which clarified that the acts of Joe

would not bind the partners of the firm, Rich definitely would be liable for the

compensation from the partners of the firm. The Part 12 of the Partnership Act 1963 has

clearly stated this rule. Part 13 of the Partnership Act 1963 details the liability of a

partner in a partnership. Part 13 (1) states that each partner of a firm is responsible for the
1
Hirst v Etherington and Another, The Times, 21 July 1999 (Court Of Appeal)
obligations or the debts incurred. Therefore, since the borrowing of money by Joe is

definitely a debt for the firm, the partners Harry and Moe need to compensate the money

to Rich.

Rich has the option of bringing an action against Moe and Harry as partners of the firm.

Since it would be ideal for Rich to bring an action against the firm, and because Harry

and Moe are partners of the firm who are legally bound to pay the firm’s debts, Harry and

Moe would eventually need to jointly repay the money to Rich.

Question 2

The Australian Corporations Act 2001 is the body of law which would be applied to

solve this legal predicament. First of all, Anna has used unscrupulous means for

acquiring the $100,000 from the bank. Since she intends to use a portion of the money for

private purpose, stating that the purpose is for the shareholders of the company is a lie.

She has also apparently forged the signature of the co-director Vronsky, she is once

against liable to be sued by the bank. The Sect 588 FD of the Australian Corporations Act

2001 deals with the particular situation involving Anna and her borrowing of money

keeping the company as a guarantee.

The Sect 588 FD(1) states that the loan by a bank to a company would be deemed as

unfair if the interest is exorbitant and 2 (d) also mentions the worth given by the law on

the value of a security against the loan. In case of the money given to Anna, the security
or the guarantee was the company, without the consent of the co-director Vronsky. A

similar case regarding Corporations Act 2001 was that of Woolworths v Kelly (1991).2

The section 588FDA relates to the transactions which are related to the director. Part (1)

states that a company transaction is an unreasonable director-related transaction if the

payment or issue is made to the director of the company (1, b (i)).

Section 588FDA (c) further states a transaction would be regarded as unreasonable if a

reasonable person of the company wouldn’t have made such a transaction. This implies

that if Vronsky would have been given a choice of giving consent to such a transaction by

Anna of borrowing money, Vronsky (being a reasonable person) would probably not

have given consent. The 588FDA (c) (i)-(iv) also mentions the welfare of the company

and the detriments of the company in such a transaction. Corporations Act 2001 Sect 588

FE (2A) states that a transaction is voidable if the transaction is uncommercial (2A, i) or

if it is a director related transaction which is unreasonable (2A, iv). In case of Anna, the

borrowing of money is not a commercial transaction since part of the money would be

spent for personal requirements of Anna.

Additionally, Corporations Act 2001 Sect 191 states that it’s the duty of the director to

disclose the material personal interest for the transaction. The directors are obligated by

Sect 191(1) to notify the other directors about the purpose of a transaction. Anna didn’t

only hide the borrowing of money from Vronsky, she also forged the signature of

Vronsky. Corporations Act 2001 Sect 982D also states that the licensee must use a loan

2
NSW Attorney General, submission to Corporations and Markets Advisory Committee,
February 2006.
or money for the purpose as stated under section 982C. Since Anna didn’t intent to use

the money for the welfare of the company, she once again has violated another section of

the Corporations Act 2001. Hence, the bank definitely has the right to enforce a guarantee

against the company.