John and his wife Mary are the directors and shareholders of Kakadu Tourism Services Pty Ltd (KTS), a company based in Darwin which owns several tour vehicles and operates a tourism business in Kakadu National Park. The company also owns the office building and the house where the directors live. The couple's marriage has broken down and they have separated and John has moved out of the house. Mary continues to live in the house and is not involved in the day to day operations of the company's business.
John purchased an $80,000 sports car for himself and paid for it through a finance lease in the name of Kakadu Tourism Services Pty Ltd. The car finance company requested a guarantee for the lease and John gave them a guarantee with a mortgage over the office building owned by KTS.
John recently borrowed $200,000 from the Easy Loan Bank without telling Mary. The loan was secured by a mortgage over the house owned by KTS and occupied by Mary. The mortgage was executed by John as director and his son Michael as company secretary. However, contrary to the company's constitution, board approval had not been obtained for the mortgage. At the time the mortgage was executed, John told the Easy Loan Bank manager that Mary had resigned as company secretary and that Michael had been appointed to the position. No documentation was lodged with ASIC to show that Mary was no longer the company secretary and that Michael had been appointed.
Mary has recently been made aware that John and Michael have not been at the business and was told by staff that they have left Darwin. The sports car and the $200,000 have also disappeared with them and they are rumoured to be somewhere in South America.
Mary has recently been made aware of the mortgages on the office and the house. She tells the car finance company that the car was a personal asset of John and the company should not have provided a mortgage for John's private car. She also tells the Bank that KTS was not bound by the mortgage as this was contrary to the company's constitution that required the board approval for any mortgage.
REQUIRED
- Explain whether the car finance company can argue that it has a valid mortgage over the office?
- Can Easy Loan Bank enforce its mortgage over the house and can it rely on the assumptions in s129 of the Corporations Act?