Company Law for Journal of Business Ethics- myassignmenthelp.com

Question: Discuss about theCompany Law for Journal of Business Ethics. Answer: Issue Sambal Pty Ltd has a company constitution which limits its debt liability to $10 million. The directors of the company already have an outstanding loan of $10 million from a bank and it takes a further loan of $2 million from a bank (ABC bank). This loan received director sanction and the approval of the board. The company now denies the validity of the loan as it was beyond the powers conferred under the constitution of the company. The issue here is to determine if the loan would be deemed to be valid and if the company would be compelled to repay the loan with interest. Rule Corporations functioning within the jurisdiction of Australia are governed by the provisions of the Corporations Act, 2001 though common law duties developed though judicial pronouncements (Lee Fargher, 2013). The Corporations Act, 2001 at Section 125 states that the constitution of a company may limit its powers by setting certain restrictions and defining the objects of the company. A companys constitution regulates its everyday functioning and sets rules for the interaction between individuals of the company and interactions of the company with third-parties. Section 125 (1) of the act sets out that use of power by a company cannot be deemed invalid solely because it contravenes the regulations of the companys constitution (Ferran Ho, 2014). Furthermore, Section 125 (2) of the act lays down that an act beyond the defined objects of the company would not be deemed invalid solely because it contravenes the objects of the act. Application In the given set of circumstances the company Sambal Pty Ltd has a constitution which restricted its debt limit to $10 million. The loan for $2 million taken from ABC bank was sanctioned by two directors and approved by the board and thus in taking the loan the company was exercising its lawfully valid powers. Thus, in exercising their powers by sanctioning the loan for $2 million the company was acting beyond the restriction limit prescribed by the constitution of the company. Following the provisions of Section 125 (1) of the Corporations Act, 2001 it may be inferred that the loan sanctioned by the company would not be invalid merely because it went beyond the powers conferred by the constitution of the company. Conclusion Thus, Sambal Pty Ltd would not be entitled to claim that the loan was invalid merely because the loan contravenes the constitution of the company. ABC bank would have the option of recovering the loan with interest as the loan was a valid contract following the provisions of Section 125 of the Act. Reference List: Ferran, E., Ho, L. C. (2014).Principles of corporate finance law. Oxford University Press. Lee, G., Fargher, N. (2013). Companies use of whistle-blowing to detect fraud: An examination of corporate whistle-blowing policies.Journal of business ethics,114(2), 283-295.