Reason and Justification

Question: Research then explain the reason and justification for the following sections of the corp act :- section 124; section 129(1) and section 588m(3). your analysis of each section is worth 5% .word limit -aprox 200 words per section. Answer: Reason and Justification Section 124 Section 124 deals with the legal capacity and powers vested in a company. (Austlii, 2016) It helps in clearly establishing the powers of the company in regards to what a company being a legal person can do. This section empowers the company to act as a legal person and thereby engage in various functions of the company. Further, this section helps in easing the functioning and management of the company. It reinstates the rule of separate legal entity by ensuring that the shares, debentures or other assets are issued solely in the name of the company and not in the name of its directors or members. In its second clause, it states that a company which is limited by guarantee cannot within its power issue shares. The main reason of this clause is to protect the shareholders from misuse of power by the directors. In the third clause, the section clarifies that even if the company is not acting as per its interest but within its legal capacity, then such acts would be considered legal and valid. This clause helps in expanding the scope and powers of the company to act within itself and decide for the matters that might fall beyond its peculiar interests. (Watterson, 2016) Section 129 (1) Section 129(1) deals with a particular assumption which may be made in regards to the constitution and replaceable rules of the company. It states that a person may assume that the company has complied with its constitution as well as the rules made under the Act. This section implements the statutory rule of indoor management or the doctrine of indoor management. (CCH, 2011) The justification of this section is to protect the outsiders from any malicious acts of the company. Since the section clearly provides that any person who contracts with the company or does business with the company may assume that such deal or the contract is in compliance with the constitution and the rules of the corporation act. Thereby this section seeks to safeguard the outsiders. (Tomasic et al., 2013) By this provision, such outsiders are protected in such a manner so that they are not bound to investigate into the internal management of the company. This section seeks to promote the interest of outsid ers contracting with the company. The reason of this section is to ensure implementation of statutory rule of indoor management within the workings of the company. Thereby imposing obligations on the company to abide by its constitution and any replaceable rules. (Krawitz, 2002) Section 588M (3) Section 588M (3) deals with the recovery of compensation for loss resulting from insolvent trading in relation to the creditor. (Austlii, 2016) It states that as provided under the Subdivision B, a creditor may recover from the debt due to him from the director of the company or an amount equal to loss or damage caused to him. The main objective of this provision is to safeguard the interest of the creditor against an insolvent trading by the director. With the implementation of this Act, even if a director being insolvent in his capacity enters into a trade and borrows any amount of money from the creditor, then the creditor has the right to recover the amount of money due to an amount equal to the damage caused as compensation from such director.(Hanrahan et al., 2016) This provision acts as a significant weapon towards the creditors who have been cheated by the director in any manner or in situations where the director pleads insolvency for non-payment of the debt due to the credi tor. The justification and reason for section is clear to safeguard and protect the interest of potential creditors and ensure that they are compensated for the loss caused to them. (Quinlan Zahra, 2009) References Austlii, 2016. Corporations Act 2001- Sect 124. Austlii, 2016. Corporations Act 2001- Sect 588M. CCH, 2011. Australian Corporations Securities Legislation. 2011th ed. Australia: McPherson's Printing Group. Hanrahan, Ramsay Stapledon, 2016. Commercial Applications of Company Law. 17th ed. CCH Publishers. Krawitz, A., 2002. Protecting Outsiders to Corporate Contracts in Australia. Murdoch University Electronic Journal of Law, 9(3), Quinlan, M. Zahra, C., 2009. Latest Development in Insolvent Trading. Tomasic, R., Bottomley, S. McQueen, R., 2013. Corporations Law in Australia. 2nd ed. Sydney: The Federation Press. Watterson, L., 2016. Pursuing profit productivity and philanthropy: The legal obligations facing corporate Australia.