Water Works Pty Ltd was incorporated in 2005. It has 25 fully paid shares at 51.00 each Mark and...

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Water Works Pty Ltd was incorporated in 2005. It has 25 fully paid shares at 51.00 each Mark and Sarah, the only directors, each hold 10 shares and there are 5 other shareholders.
Sarah is the managing director of Water Works Pty Ltd. Mark (Sarah's husband) is also a director of Water Works, However, as a non-executive director he leaves all the company matters to Sarah. Just before Water Works was incorporated in 2005 Sarah had received a lump sum payment from her former employer. Sarah decided to lend $25,000 to Water Works to assist with start up costs of the company. Sarah ensured the loan was secured by a floating charge over Water Works's property. In July last year Sarah, as managing director of Water Works, accepted a large order for water supply fittings from H2O Pty Ltd. The order was delivered to H2O but H2O failed to pay for the fittings. H2O was known within the industry as a bad credit risk, and Sarah had been aware of this. H2O Ply Ltd went into liquidation in December last year without ever paying Water Works for the water supply fittings. In January this year Sarah. as managing director of Water Works, arranged a $50,000 loan from Big Bank. I he loan was to fund the expansion of the company's business interstate and overseas. The expansion plans have not been revealed to shareholders. IF the expansion is successful the company will make enormous profits. Water Works had very low cash reserves at the time of obtaining the loan and had made a loss over the two most recent financial quarters. But Bank ensured the S50,000 loan was secured by a floating charge over Water Works' assets. When Big Bank registered its charge with ASIC (within the required period) there was no record of the floating charge securing Water Works' debt to Sarah. This was because Sarah had failed to register the charge taken in 2005.

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David · Accepted Answer

Water Works Pty Ltd is a proprietary company defined under section 45A of the 
Division 5A.  
Sarah and Mark only the directors in the company and they each holds 10 shares and 
there were other 5 shareholders. Sarah is a managing director of the company and Mark 
is a non-executive director and he leaves all the company’s matter to Sarah. Just before 
the incorporation, Sarah lent $25,000 to Water Works Pty Ltd to assist with start up 
costs of the company. Sarah ensured that the loan was secured by a floating over the 
Water Works property. 
The expenses incurred before the registration or incorporation of a company in starting 
up a company may be paid out of company’s assets.  
According to the Section 131-133, a contract entered before the incorporation can be 
rectified by the company after the registration. If it is not rectified by the company then, 
the person who entered into the contract would be personally liable.  
In July, Sarah entered into a contract of water supply fittings with H2O water Pty Ltd 
and the order was deliver to the H2O water Pty Ltd but H2O failed to pay for the fittings. 
H2O was known within the industry as a bad credit company and Sarah has become 
aware of this. H2O went into liquidation without ever paying Water Works Pty Ltd. Here 
Sarah is personally liable for this because, she was aware that H2O is a bad credit 
company but still she entered into a contract of water supply with H2O water Pty Ltd. 
According to Section-5, Sarah is failed to perform her duties and liabilities as a director 
of Water Pty Ltd. According to the corporation Act and other Laws;

Water Works Pty Ltd was incorporated in 2005. It has 25 fully paid shares at 51.00 each Mark and Sarah, the only directors, each hold 10 shares and there are 5 other shareholders. Sarah is the...

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