Advise marco on the implications for the directors

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Reference no: EM133282428

Case: Marco, a qualified accountant who has experience in company rescues, has recently been appointed as Fraser Confectionery Ltd (FCL)'s Financial Controller. FCL was incorporated in 2000.

FCL has five directors, all of whom own shares in FCL. These five directors have all been appointed since 2010. The chief executive officer and managing director (CEO) is also an accountant with many years of business experience. Two of the other directors have little business experience and are mainly concerned with the development and manufacture of confectionery.

Despite having thrived until 2019, FCL has been struggling over the last two years with business revenue on a drastic decline, a situation not helped by the pandemic. Marco was appointed to advise the board and to try to assist FCL's recovery. Since joining FCL, Marco has noticed that most of the directors have been less engaged with the running of the company than he had expected. Attendance at board meetings, even since Marco joined, has been sporadic.

The CEO took a long vacation in the spring of 2021. This was despite a number of suppliers threatening legal proceedings for non-payment of invoices. Marco was also having difficulty tracking down financial information as records have not been updated for at least the past 6 months or longer. Records of board meetings over the last 18 months are almost non-existent, and some of the decision-making appears to have been delegated to inexperienced junior members of staff.

Question: Advise Marco on the implications for the directors for insolvent trading if FCL were to go into liquidation. Discuss also any possible sanctions that might be imposed in public enforcement proceedings by ASIC if insolvent trading can be established against FCL.

(Your answer should include case law and the provisions of the Corporations Act 2001 (Cth) (where relevant)).

Reference no: EM133282428

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