Gibson, Business Law 11^th Edition

Chapter 13: Introduction to companies and incorporated associations

LO 13.1 Discuss the role of ASIC in the administration of company law

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following statements about ASIC is NOT true?
2. ASIC initiates civil and criminal action for breaches of the Corporations Act 2001 (Cth).
3. ASIC Monitors and promotes market integrity.
4. ASIC monitors compliance with accounting standards.
5. ASIC investigates breaches of Australian law that relates to a company.

Difficulty: Moderate

Topic: What is the role of ASIC in the administration of company law

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.1 Discuss the role of ASIC in the administration of company law.

True/False: Identify whether the statement is True or False.

1. The Directors Auditors and Liquidators Disciplinary board along with ASIC ensure that directors, auditors and liquidators maintain appropriate standards.
2. True
3. False

Difficulty: Moderate

Topic: What is the role of ASIC in the administration of company law

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.1 Discuss the role of ASIC in the administration of company law.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. What is a company?

Difficulty: Basic

Topic: What is the role of ASIC in the administration of company law

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.1 Discuss the role of ASIC in the administration of company law.

LO 13.2 Define the essential characteristics of a corporation and explain the concept of the veil of incorporation

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following statements about a company is true?
2. A company can own property and sue and be sued in its own name.
3. A company is separate from its owners and employees.
4. A company is an association of persons formed to finance a business.
5. All of the above.

Difficulty: Basic

Topic: Specific characteristics of a company

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.2 Define the essential characteristics of a corporation and explain the concept of the veil of incorporation.

1. The case of Salomon v Salomon & Co Ltd [1897] AC 22 is authority for the principal that:
2. the debts of a company are the debts of its shareholders.
3. a company is a legal entity separate from its shareholders.
4. debenture holders take precedence over unsecured creditors.
5. companies must have more than one director.

Difficulty: Basic

Topic: Specific characteristics of a company

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.2 Define the essential characteristics of a corporation and explain the concept of the veil of incorporation.

1. In relation to the decision in Industrial Equity Ltd v Blackburn [1977] HCA 59 which of the following statements is NOT correct?
2. Holding and subsidiary companies have separate legal obligations.
3. A holding company must pay tax on the dividends of a subsidiary.
4. A holding company can pay a dividend out of a subsidiary company’s profits.
5. A holding company is a separate legal entity from a subsidiary.

Difficulty: Moderate

Topic: Specific characteristics of a company

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.2 Define the essential characteristics of a corporation and explain the concept of the veil of incorporation.

True/False: Identify whether the statement is True or False.

1. With regards to its shareholders and employees, a company is a separate legal entity.
   1. True
   2. False

Difficulty: Basic

Topic: Specific characteristics of a company

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.2 Define the essential characteristics of a corporation and explain the concept of the veil of incorporation.

1. Limited liability is a key advantage of incorporation.
   1. True
   2. False

Difficulty: Basic

Topic: Specific characteristics of a company

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.2 Define the essential characteristics of a corporation and explain the concept of the veil of incorporation.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. What does the term ‘perpetual succession’ mean?

Difficulty: Basic

Topic: Specific characteristics of a company

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.2 Define the essential characteristics of a corporation and explain the concept of the veil of incorporation.

LO 13.3 Explain when a court will pierce the corporate veil

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. In what circumstances will a court ignore the separate legal entity principle and lift the corporate veil?
   1. If a company has been used to avoid a contractual obligation.
   2. If a company has been used by a director to breach a fiduciary duty.
   3. If a company has been used to commit a fraud.
   4. All of the above.

Difficulty: Moderate

Topic: When will a court pierce the corporate veil

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.3 Explain when a court will pierce the corporate veil

True/False: Identify whether the statement is True or False.

1. The term: ‘lifting the corporate veil’ refers to giving rights and obligations to persons who would otherwise be protected by the separate legal entity principle.
   1. True
   2. False

Difficulty: Basic

Topic: When will a court pierce the corporate veil

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.3 Explain when a court will pierce the corporate veil

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. What were the key facts in the case of Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1?

Difficulty: Moderate

Topic: When will a court pierce the corporate veil

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 13.3 Explain when a court will pierce the corporate veil

LO 13.4 Classify different types of companies

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. The letters ‘Ltd’ after the name of a company is a warning to creditors that:
   1. the liability of shareholders for the debts of the company is limited.
   2. the company is limited by guarantee.
   3. the shareholders have unlimited liability for the debts of the company.
   4. the shareholders have no liability for the debts of the company.

Difficulty: Moderate

Topic: What is the best corporate structure for my business

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.4 Classify different types of companies.

1. Which of the following is an advantage of using a company as a business structure?
   1. Shareholders have limited liability for the debts of the company.
   2. Reporting requirements are minimal.
   3. Directors have limited liability for the actions of the company.
   4. Low establishment cost and ongoing fees.

Difficulty: Basic

Topic: What is the best corporate structure for my business

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.4 Classify different types of companies.

1. Which of the following is a disadvantage of using a company as a business structure?
   1. The company can be sued.
   2. Perpetual succession.
   3. The establishment cost and ongoing fees.
   4. The rate of tax payable by the company on its profits.

Difficulty: Basic

Topic: What is the best corporate structure for my business

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.4 Classify different types of companies.

1. Which of the following types of company are required to have the letters ‘Ltd’ after their name, either alone or with other letters?
   1. No-liability companies.
   2. Companies limited by shares.
   3. Unlimited liability companies.
   4. Companies limited by guarantee.

Difficulty: Moderate

Topic: Classification by liability

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.4 Classify different types of companies.

1. Which type of company is the most appropriate for a non-profit sporting association to form?
   1. Public limited company.
   2. Non-profit associations can’t form corporations.
   3. Company limited by guarantee.
   4. No liability company.

Difficulty: Moderate

Topic: Classification by liability

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 13.4 Classify different types of companies.

1. What do the letters ‘NL’ after a company name mean?
   1. Company members have no limit on their liability.
   2. Liability of members is not limited.
   3. Company members have no liability.
   4. The number of members is not limited.

Difficulty: Basic

Topic: Classification by liability

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.4 Classify different types of companies.

True/False: Identify whether the statement is True or False.

1. A company cannot be established with only one member.
   1. True
   2. False

Difficulty: Basic

Topic: What is the best corporate structure for my business

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.4 Classify different types of companies.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. What protection does ‘limited liability’ afford shareholders?

Difficulty: Basic

Topic: What is the best corporate structure for my business

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.4 Classify different types of companies.

LO 13.5 Explain the difference between a proprietary and a public company

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. A large proprietary company is one that has:
   1. gross assets of more than $12.5 million at the end of the financial year.
   2. 50 or more full-time employees at the end of the financial year.
   3. a gross operating revenue of more than $25 million for the financial year.
   4. any two of the above.

Difficulty: Complex

Topic: Public and proprietary companies

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.5 Explain the difference between a proprietary and a public company

1. Which of the following types of company are able to invite the public to invest in shares?
   1. Large proprietary companies.
   2. Unlisted and listed public companies.
   3. Small proprietary companies.
   4. All of the above.

Difficulty: Moderate

Topic: Public and proprietary companies

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.5 Explain the difference between a proprietary and a public company.

1. A large proprietary company is one that has:
   1. gross assets of more than $12.5 million at the end of the financial year.
   2. 50 or more full-time employees at the end of the financial year.
   3. a gross operating revenue of more than $25 million for the financial year.
   4. any two of the above.

Difficulty: Complex

Topic: Public and proprietary companies

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.5 Explain the difference between a proprietary and a public company.

True/False: Identify whether the statement is True or False.

1. Large proprietary companies have to prepare and lodge audited accounts with ASIC bi-annually.
   1. True
   2. False

Difficulty: Basic

Topic: Public and proprietary companies

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.5 Explain the difference between a proprietary and a public company

1. A company limited by shares may be either a public or proprietary company.
   1. True
   2. False

Difficulty: Basic

Topic: Public and proprietary companies

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.5 Explain the difference between a proprietary and a public company.

1. A company cannot be established with only one member.
   1. True
   2. False

Difficulty: Basic

Topic: Public and proprietary companies

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.5 Explain the difference between a proprietary and a public company

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Outline the incorporation structure of a public company.

Difficulty: Basic

Topic: Public and proprietary companies

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.5 Explain the difference between a proprietary and a public company

LO 13.6 Explain the effects of incorporation and registration for a company

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Explain what is meant by the term ‘incorporation’.

Difficulty: Basic

Topic: What is the effect of incorporation

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.6 Explain the effects of incorporation and registration for a company

1. What does the registration of a company entail?

Difficulty: Moderate

Topic: What is registration

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.6 Explain the effects of incorporation and registration for a company

LO 13.7 Discuss the internal management of a company

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following accurately describes ‘replaceable rules’?
   1. The rules governing the content of a prospectus.
   2. The internal management rules contained in the company’s constitution.
   3. Internal management rules contained in the Corporations Act 2001 (Cth).
   4. The rules governing the employment of company managers.

Difficulty: Complex

Topic: How is the internal management of a company governed

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.7 Discuss the internal management of a company

True/False: Identify whether the statement is True or False.

1. Company directors have the power to call meetings as long as they also pay the expenses of calling and holding a meeting for members with more than 50 percent of shares.
2. True
3. False

Difficulty: Complex

Topic: Meetings

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 13.7 Discuss the internal management of a company

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. What is meant by the term ‘quorum’?

Difficulty: Basic

Topic: Meetings

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.7 Discuss the internal management of a company

LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. In which of the following circumstances will a person be found NOT to be a director of a company?
   1. If they have been validly appointed but do not act as director.
   2. If they act as a director but have not been validly appointed.
   3. If they have not been validly appointed but the other directors follow their instructions.
   4. None of the above.

Difficulty: Complex

Topic: What does being a director involve

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

1. In which of the following situations will a director be found to have breached their duty to act in good faith?
   1. The director has put themselves in a situation where their duties to the company and their personal duties conflict.
   2. The director has agreed to vote in a certain way at future board meetings.
   3. The director has done something which no reasonable director could regard as being in the interests of the company.
   4. The director has exercised one of their powers primarily in order to gain some private advantage.

Difficulty: Moderate

Topic: Duties of a director

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

1. In which of the following situations will a director be found to have breached their duty to exercise discretion?
   1. The director has put themselves in a situation where their duties to the company and their personal duties conflict.
   2. The director has agreed to vote in a certain way at future board meetings.
   3. The director has done something which no reasonable director could regard as being in the interests of the company.
   4. The director has exercised one of their powers primarily in order to gain some private advantage.

Difficulty: Moderate

Topic: Duties of a director

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

1. In which of the following situations will a director have breached their duty to exercise their powers for a proper purpose?
   1. The director has put themselves in a situation where their duties to the company and their personal duties conflict.
   2. The director has agreed to vote in a certain way at future board meetings.
   3. The director has done something which no reasonable director could regard as being in the interests of the company.
   4. The director has exercised one of their powers primarily in order to gain some private advantage.

Difficulty: Moderate

Topic: Duties of a director

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

1. The decision in ASIC v Gallagher (1993) 11 ACLC 286 was that non-executive directors of a company:
   1. may rely on other directors providing them with important information.
   2. have a duty to inform themselves so that they can make independent judgments.
   3. must investigate all matters requiring their approval when they have been put upon enquiry.
   4. all of the above.

Difficulty: Moderate

Topic: Duties of a director

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

True/False: Identify whether the statement is True or False.

1. A non-executive director is a manager of a company who does not receive any remuneration.
   1. True
   2. False

Difficulty: Basic

Topic: Duties of a director

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

1. Which of the following is NOT one of the statutory duties of a director under the Corporations Act 2001 (Cth)?
   1. Act in good faith.
   2. Avoid insolvent trading.
   3. Disclose personal interests.
   4. None of the above.

Difficulty: Moderate

Topic: Statutory duties

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

1. The case of Morley v Statewide Tobacco Service Ltd (1992) ACLC 1233 is authority for the principle that:
   1. a director will not be liable for a breach of s 588G if they were unable to attend company meetings.
   2. a director’s liability under s 588G is determined by what they ought to have known about the company’s debts.
   3. a director’s liability under s 588G is determined by their actual knowledge of the company’s debts.
   4. a director will not be liable for a breach of s 588G if they acted in good faith.

Difficulty: Moderate

Topic: Statutory duties

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. What are the duties of company directors?

Difficulty: Basic

Topic: Duties of a director

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

Standard/Graduate Attribute AACSB: Application of knowledge

• contractual, i.e., the terms of their contract of service;

• equitable (fiduciary), i.e., to act in good faith and for a proper purpose, to exercise discretion and to avoid conflicts of interest; and

• tortious, i.e., they may be liable in negligence for breach of their duty of care.

1. Directors are required by law to act in the best interests of the shareholders of the company. Do you think that directors should also have a duty to act in the best interests of employees, the community and/or the environment? Explain your answer.

Difficulty: Complex

Topic: Duties of a director

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 13.8 Discuss the duties and regulation of directors by legislation, common law and the replaceable rules

LO 13.9 Describe the procedures for the protection of shareholders

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. ASIC has the power to investigate suspected contraventions only if:
   1. Evidence of a suspected contravention has been received.
   2. There is reason to suspect that a contravention has occurred.
   3. The Companies Act has been breached.
   4. Shareholders suspect that a contravention has been breached.

Difficulty: Basic

Topic: Consequences of mismanagement-shareholders’ interests

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.9 Describe the procedures for the protection of shareholders.

True/False: Identify whether the statement is True or False.

1. In the event of an ASIC investigation of a corporation's affairs, the corporation may be required to produce its book for inspection.
   1. True
   2. False

Difficulty: Basic

Topic: Consequences of mismanagement-shareholders’ interests

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.9 Describe the procedures for the protection of shareholders.

1. ASIC has the power under the Corporations Act (s 14) to investigate breaches of the affairs of a corporation.
2. True
3. False

Difficulty: Basic

Topic: Consequences of mismanagement-shareholders’ interests

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.9 Describe the procedures for the protection of shareholders.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Why do you think only public and large proprietary companies need to disclose their financial and directors’ reports? Discuss.

Difficulty: Complex

Topic: Consequences of mismanagement-shareholders’ interests

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 13.9 Describe the procedures for the protection of shareholders.

LO 13.10 Explain the purpose of fundraising

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. A disclosure document inviting the public to buy shares is called:
   1. A prospectus.
   2. An advertisement.
   3. A public document.
   4. A debenture.

Difficulty: Basic

Topic: What is the purpose of fundraising

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.10 Explain the purpose of fundraising

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. What is a prospectus?

Difficulty: Basic

Topic: What is the purpose of fundraising

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.10 Explain the purpose of fundraising

Note that a proprietary company does not issue a prospectus because its shares are not offered to the public.

1. Why do you think ASIC does not review all disclosure documents received by companies? Do you think this is good practice and in the best interests of potential investors?

Difficulty: Complex

Topic: What is the purpose of fundraising

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 13.10 Explain the purpose of fundraising

LO 13.11 Explain how companies can raise capital to ‘grow’ their business

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. What is the term for the stated proportions into which the capital of a company is divided?
   1. A share.
   2. An interest.
   3. An allotment.
   4. An asset.

Difficulty: Basic

Topic: How do I raise company capital

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.11 Understand how companies raise capital to ‘grow’ their business.

1. ‘Allotment’ involves the business practice of:
   1. transferring shares from one member to another.
   2. inviting members of the public to subscribe for shares in a company.
   3. allocating shares to members of the public who have applied for them.
   4. none of the above.

Difficulty: Moderate

Topic: How do I raise company capital

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.11 Understand how companies raise capital to ‘grow’ their business.

1. Which of the following is NOT a requirement which must be satisfied before a company can buy back shares from its members?
   1. The share capital reduction must not materially prejudice the company’s ability to pay its creditors.
   2. The share capital reduction must be approved by shareholders.
   3. The share capital reduction must be approved by the court.
   4. The share capital reduction must be fair and reasonable to the company’s shareholders as a whole.

Difficulty: Moderate

Topic: How do I raise company capital

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.11 Understand how companies raise capital to ‘grow’ their business.

1. Which of the following statements accurately defines a ‘debenture’?
   1. The process by which a floating charge becomes a fixed charge.
   2. Security for a loan attached to all of the assets of the company.
   3. Security for a loan attached to specific assets such as land and buildings.
   4. A document whereby a company acknowledges a debt.

Difficulty: Moderate

Topic: How do I raise company capital

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.11 Understand how companies raise capital to ‘grow’ their business.

1. Which of the following statements about a debenture holder is NOT true?
   1. A debenture holder has the same rights as a shareholder of the company.
   2. A debenture holder is a secured creditor of the company.
   3. A debenture holder can sue the company for unpaid interest.
   4. A debenture holder can take action to have the company wound up.

Difficulty: Moderate

Topic: How do I raise company capital

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.11 Understand how companies raise capital to ‘grow’ their business.

True/False: Identify whether the statement is True or False.

1. A liquidator is the person appointed to carry out the winding-up of a company.
   1. True
   2. False

Difficulty: Basic

Topic: How do I raise company capital

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.11 Understand how companies raise capital to ‘grow’ their business.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Explain what ‘share capital’ is.

Difficulty: Basic

Topic: How do I raise company capital

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.11 Understand how companies raise capital to ‘grow’ their business.

LO 13.12 Define insolvency and explain the administrator role and the procedures for bankruptcy, liquidation and payment of debts

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. The advantage of putting a company into administration is that it:
   1. results in a better return for creditors.
   2. results in a better return for members on a winding up.
   3. provides a defence against an action for breach of s 588G.
   4. all of the above.

Difficulty: Moderate

Topic: What is corporate insolvency

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.12 Define insolvency and explain the administrator role and the procedures for bankruptcy, liquidation and payment of debts.

1. Which of the following is NOT one of the options for dealing with a company in financial difficulties?
   1. Bankruptcy.
   2. Administration.
   3. Liquidation.
   4. Receivership.

Difficulty: Basic

Topic: What is corporate insolvency

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.12 Define insolvency and explain the administrator role and the procedures for bankruptcy, liquidation and payment of debts.

True/False: Identify whether the statement is True or False.

1. The process of bringing a solvent company to an end is known as a creditor’s voluntary winding up.
   1. True
   2. False

Difficulty: Basic

Topic: What is corporate insolvency

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.12 Define insolvency and explain the administrator role and the procedures for bankruptcy, liquidation and payment of debts.

1. A director in breach of s 588G may be personally liable for the company’s debts.
   1. True
   2. False

Difficulty: Basic

Topic: What is corporate insolvency

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.12 Define insolvency and explain the administrator role and the procedures for bankruptcy, liquidation and payment of debts.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. In what circumstances will a director be personally liable for the debts of the company?

Difficulty: Complex

Topic: What is corporate insolvency

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 13.12 Define insolvency and explain the administrator role and the procedures for bankruptcy, liquidation and payment of debts.

LO 13.13 Identify and discuss the two main forms of association: the unincorporated and incorporated association

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following statements about unincorporated associations is NOT correct?
   1. The unincorporated association cannot be sued.
   2. The liability of members is limited to the amount of their subscription.
   3. The committee members are not personally liable to third parties in contract.
   4. The unincorporated association has no separate legal personality.

Difficulty: Moderate

Topic: What are unincorporated and incorporated associations

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.13 Identify and discuss the two main forms of association: the unincorporated and incorporated association.

1. An association of less than 20 people formed for trading purposes will be regulated by:
   1. the Associations Incorporation Act of the relevant state or territory.
   2. the Partnership Act of the relevant state or territory.
   3. the common law.
   4. the Corporations Act 2001 (Cth).

Difficulty: Moderate

Topic: What are unincorporated and incorporated associations

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.13 Identify and discuss the two main forms of association: the unincorporated and incorporated association.

1. Which of the following is NOT an advantage of incorporation for members of an association?
   1. The association can enter into contracts.
   2. The association is permitted to distribute its profits to members.
   3. The association can sue and be sued in its own name.
   4. The association has perpetual succession.

Difficulty: Moderate

Topic: What are unincorporated and incorporated associations

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.13 Identify and discuss the two main forms of association: the unincorporated and incorporated association.

True/False: Identify whether the statement is True or False.

1. An incorporated association will cease to exist if members do not renew their membership.
   1. True
   2. False

Difficulty: Basic

Topic: What are unincorporated and incorporated associations

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 13.13 Identify and discuss the two main forms of association: the unincorporated and incorporated association.

1. Committee members owe a fiduciary duty their incorporated association.
   1. True
   2. False

Difficulty: Basic

Topic: What are unincorporated and incorporated associations

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.13 Identify and discuss the two main forms of association: the unincorporated and incorporated association.

1. Committee members of an unincorporated association owe a fiduciary duty to the association.
   1. True
   2. False

Difficulty: Basic

Topic: What are unincorporated and incorporated associations

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 13.13 Identify and discuss the two main forms of association: the unincorporated and incorporated association.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Why do you think state and territory associations incorporation legislation differs and do you think this benefits the state or the corporation?

Difficulty: Complex

Topic: What are unincorporated and incorporated associations

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 13.13 Identify and discuss the two main forms of association: the unincorporated and incorporated association.