What types of corporate liability can Child Toys Pty Ltd be exposed to because of Betty’s actions?

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What would be your recommendations to them and why?


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Learning outcomes

a) Demonstrate a working knowledge and understanding of the principles of Australian company law within the context of the prescribed readings.

b) Identify and analyse relevant facts, problems and legal issues from a given scenario and develop an argument in response, discussing available options in the context of company law

c) Interpret company law legislation, to complete transactions based on that legislation and relevant case law, and to discuss the relevant transactions clearly in class.

d) Appreciate the role of compliance and the requirement that organisations and individuals must follow the laws that apply to their industry areas.


Question One:

Jack, Jill and Max are the owners of a very successful business selling trucks. They have been in business for only 12 months and have not organised a formal business structure. The business is growing rapidly and they want to update their business structure to a more appropriate structure. They seek the advice from you (a corporate adviser). You advise that they have a number of options all of which have advantages and disadvantages.

a)What would be your recommendations to them and why?


b)What factors would influence your advice? Be sure to discuss the legal liability of the participants in the business.


Question two:

Marty is the only director of Child Toys Supreme Pty Ltd (Child Toys) which makes and sells cheap children’s toys in Australia. The company has a salesperson, Betty. Betty has promised retailer customers that the toys have no harmful plastic chemicals in the toys and this is not true. The retailer customers lose sales when the truth comes out about the toys’ chemical elements. A child is seriously injured because of the harmful chemicals in the toys.

For the past five years Charles has been the Operations Manager for the company. Due to his senior position Charles knows the identity and requirements of the company’s major clients.

In March this year Charles decides to retire. As part of his employment contract with the company Charles has agreed not to compete against the company for two years.

In June this year Charles and his wife, May, decide to start a business selling children’s toys in competition with Child Toys Pty. Ltd. May forms a company to run this new business, Better Toys Pty. Ltd. May is the sole director and May and Charles are the sole shareholders in the new company. May and Charles approach customers of Child Toys Pty. Ltd offering to sell toys.

a)What types of corporate liability can Child Toys Pty Ltd be exposed to because of Betty’s actions?


b)How can Child Toys Pty Ltd take possible legal action against Charles because of his actions?


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