Question

Question 17. [1 mark]

Choose the correct ending to the following statement:

A creditor has standing to sue for an injunction to prevent a contravention of the Corporations

Act 2001 under section 1324 of the same

a. under no circumstances.

b. if the creditor's interests are affected by the contravention.

c. if the contravention would be oppressive, unfairly prejudicial or unjustly detrimental

to the creditor's interests.

d. in respect of every contravention of the Corporations Act 2001.

Question 18. [1 mark]

Absent anything other than their appointment as a company's auditor, to whom does an

auditor owe a duty?

a. Individual shareholders

b. The directors

c. Banks to whom the auditors are told the report is being sent

d. Investors who buy shares on the strength of the report

Question 19. [1 mark]

The Sons ofGwalia decision

a. Equated all claims by shareholders with those of unsecured creditors.

b. Equated only some claims by shareholders with those of unsecured creditors

c. Deferred all claims by shareholders to those of unsecured creditors

d. Deferred only some claims by shareholders to those of unsecured creditors

Question 20. [1 mark]

Who administers a public company's internal affairs?

a. ASIC

b. APRA

c. ACCC

d. The company Secretary

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Answer 1

	Question No	Answer (Refer explanations below)
	17	Option b. if the creditor's interests are affected by the contravention.
	18	Option a-Individual shareholders
	19	Option a- Equated all claims by shareholders with those of unsecured creditors.
	20	Option d- Company Secretary

Question No. 17:

• Section 1324 of the Corporations Act 2001 (Australia) provides for
• circumstances when the Court may grant an injunction*- Circumstances include contravention** or attempt to contravene the act
• on the application made by ASIC or a person whose interests have been, are or would be affected by the conduct.
• *Injunction, in this context means restraining the defaulter from engaging in the conduct or requiring that person to do any act or thing, if necessary.
• **Contravention- It is a contravention of the act if it affects the interests of a creditor or member of a company (if the insolvency of the company is an element of the contravention).

Therefore, the answer is option b.

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Question 18

Though there are several (disputed) regarding auditor's duty, I have based my answer on the landmark judgement of Caparo Industries plc v Dickman and my general understanding of the corporate sector.

Applying the "privity" test as held in the landmark judgement of Caparo Industries plc v Dickman, Duty of care between an auditor and a third party exists when:

• the loss suffered is a reasonably foreseeable consequence of the defendant’s conduct;
• there is sufficient ‘proximity’ of relationship between the defendant and the pursuer, and
• it is 'fair, just and reasonable' to impose a liability on the defendant.

The auditor is appointed by the (current) shareholders and their report is addressed to the existing shareholders of the company.

Therefore, in my opinion, the right answer is option a- Individual shareholders.

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Question 19

• Sons of Gwalia Ltd vs. Margaretic is a infamous yet landmark decision of the High Court of Australia.
• In case of insolvency, the general rule is that creditors' (secured and unsecured) interest precede that of shareholders'.
• However this judgement gave shareholders of Sons of Gwalia Ltd. the same status as creditors in the company's insolvency. That is, the claims of these shareholders were not postponed until all non-shareholder creditors had been fully satisfied.

Therefore the right answer is option a.

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Question 20

Authority	Full form	Function
ASIC	Australian Securities and Investments Commission	Independent Australian Government body that regulates Australia's integrated corporate, markets, financial services and consumer credit
APRA	Australian Prudential Regulation Authority	Independent statutory authority that supervises the financial services sector in Australia including banking, insurance and superannuation and promotes financial system stability in Australia.
ACCC	Australian Competition and Consumer Commission	Statutory regulatory agency that promotes and regulates competition and fair trade in Australian markets to benefit consumers, businesses, and the community.
CS	Company Secretary	Company secretaries fall under the definition of ‘officer’ of a corporation (s 9 of the Corporations Act, 2001), so they have many of the same duties and obligations as directors. Managing public company's internal affairs is the crux of any officer of the company.

Therefore, option d is the right answer.