Question 1: Alex is the managing director of Smart Engineering Pty ltd. Alex accepted a very large order, to the value of $100,000 for the company to supply steel cables to Shifty Sellers Pty Ltd. The order was placed by Max, the managing director of Shifty Sellers Pty Ltd. The order was delivered, on credit, to Shifty Sellers Pty Ltd which later failed to pay for the steel cables by the due date. It appears that Max was well known as a bad credit risk within the engineering industry, including by Alex. Shifty Sellers Pty Ltd went into liquidation without ever paying Smart Engineering Pty Ltd for the steel cables. Alex is furious because Max is often seen driving around in his Ferrari sports car which is garaged in the harbour side mansion owned by Max.
Meanwhile, Alex borrowed $500,000 from Eastpac Bank ltd on behalf of Smart Engineering Pty Ltd to fund the company's business expansion into China. The company had very low cash reserves at the time of taking up this bank loan and, due to the economic downturn in China, the company has made a loss for the past 6 months. Many expert commentators did warn that the Chinese economy is now slowing after the boom of the last decade.
Betty, who is the wife of Alex and also a director of Smart Engineering Pty Ltd, is happy to leave the management of the company entirely into the hands of Alex who, in her opinion, 'has a better business brain' and understands the Chinese market better than her. Besides, Alex speaks Mandarin and travels to China regularly for business. Betty signed the bank loan document in her capacity as company director despite having a sneaky feeling that Smart Engineering Pty Ltd has some difficulty paying its bills. Shortly thereafter, one of the cheques issued by Smart Engineering Pty Ltd to pay its electricity bill 'bounced' (ie. the cheque was retuned by the bank as unpaid). The company has fallen behind with its payment of taxes to the Australian Tax Office (ATO) and is seeking to come to some sort of payment arrangement with the ATO.
Betty, however, is very hopeful that Alex will turn the company's business around in another 12 months' time and make enormous profits. The reason she is hopeful is because Betty tells herself that China is a big market and that, in her view, everyone doing business in China makes a fortune there and that financial success in that large market is more or less guaranteed.
Within 6 months of obtaining the bank loan, due to the subsequent economic downturn in China, Smart Engineering Pty Ltd has made significant losses in China which has impacted negatively on its overall business and depleted all of its profits.
Advise on all 3 parts of this question fully, with reference to legal authority whether:
(a) Can Max be held liable for the unpaid debt of Shifty Seller Pty Ltd? Explain and discuss fully with reference to common law legal principles only and
(b) Can Betty be liable for repayment of the $500,000 loan to Eastpac Bank Ltd? Explain and discuss fully with reference to relevant provisions of the Corporations Act 2001 (Cth), as supported by relevant case law and
(c) If Betty has breached the Corporations Act 2001 (Cth), explain what the potential legal consequences are for her. Your answer must identify which statutory provision of the Act has been breached.