Assignment
Michael is one of the directors of P-Care Pty Ltd, that manufactures personal protective equipment. Lucy is the other director while Lance is the majority shareholder and has opted not to become a director. Lucy however did not submit a written acceptance of her role as director. Business in the last two years has been very good because of the global pandemic and P-Care wishes to expand the business globally. The company invests in new production machines and triples its capacity. However, as a result of restrictions put in place by the government, economic activity soon slows down significantly and despite the increased capacity, sales have reduced because most of P-Care's customers are either closed on account of the restrictions or have gone out of business. P-Care is in need of orders for the manufacture of the personal protective equipment, otherwise the company may soon face bankruptcy. It is common knowledge in the industry that P-Care is now facing financial difficulties due to its unplanned expansion of capacity.
MyCare Ltd runs a number of hospitals and care facilities and is looking to order 50000 hazmat suits for their nationwide operations. They have approached Michael with the order agreeing to pay $3 million and to take delivery of the suits within three months of the order being placed. Michael is excited as this will significantly improve the financial position of P-Care and help in avoiding insolvency. Jake is a director of MyCare and has become aware of P-Care's financial position. Two months after the contract is signed and P-Care has almost completed the manufacture of the hazmat suits, Jake contacts Michael and advises that he believes that they are paying too much for the suits and that unless P-Care reduces the price drastically, Jake's company will not go ahead with the purchase. Jake suggests a price of $2 million. As is customary for significant decisions, Michael speaks with Lucy and they consult Lance. Usually if Lance disagrees with a course of action proposed by Michael and Lucy, they will compromise to suit Lance. On this occasion Lance thinks they should go ahead and P-Care reluctantly agrees to the reduced price.
Michael is still very upset after delivery and believes that P-Care should sue MyCare Ltd and Jake for $1 million in damages for breach of contract. He believes that this amount is still owing to his company. Jake and MyCare Ltd maintain that the contract has been completed and no amount is owing either by Jake or MyCare. Michael however believes that the subsequent agreement to reduce the price of the suits is not valid and that the original agreement for $3 million is valid and has been breached. Michael comes to you for advice.
Meanwhile, while Lance is inspecting the company's accounts, he notices some accounting anomalies which suggest that Michael has been misappropriating funds from the company. Lance believes that the company has been insolvent for some time.
Task
1. With the aid of relevant provisions of the Corporations Act 2001 (Cth), advise Lance whether he would be liable if the directors are found to have breached the insolvent trading provisions.
2. With the aid of relevant provisions of the Corporations Act 2001 (Cth), explain whether Lucy can avoid liability as a director by arguing that she was not officially appointed due to the fact that she did not accept his position in writing.
3. With the aid of case law, explain how P-Care Pty Ltd may use the ground of common law unconscionable conduct to challenge the validity of the second and subsequent agreement for $2 million.
4. With the aid of relevant provisions of the Corporations Act 2001 (Cth), explain whether Michael can be held criminally liable if it is shown that he has been misappropriating funds from the company.