sample essay of BTX5090

the middle break is coming, but later than before. i still have an assignment due on today, but i haven't finished it yet.
melbourne royal show will be end at 28th september i think. but i think every's are the same...
few US TV shows come out now. TWO AND HALF MEN SEASON 8 or 9, THE BIG BANG THEORY SEASON 4. but no more 24. what a pity.
i cannot believe i watched the whole two seasons of 90210. this one is just like GOSSIP GIRL+DESPERATE HOUSEWIFE. i do not like GOSSIP GIRL...
anyway

last week, i know my BTX5090's result, a little disappointed. the teacher hands out the answers to each questions, but for the copyrights reason, i can not post it here. i post my assignment here. question 1, i got 24.5, question 5, i got 29.5
Question1

(a)

In this case, there are four facts should be considered: firstly, Kate was a director of a company limited by guarantee called Helping Kids Smile Again. Secondly, while director, Kate had access to confidential information regarding the client lists of organization and a database of doctors and medical staff who are sympathetic to complementary the therapies. Thirdly, a for-profit company, Goddess Products Pty Ltd, approached Kate and offered her a considerable salary increase, shares in Goddess Products Pty Ltd and the managing directorship if she would bring her skills, knowledge and the client and doctor database to Goddess Products. Then Kate did so, resigning from Helping Kids Smile Again and not disclosing the deal to anyone. Fourth, after Kate left, Helping Kids Smile Again suffered significant losses. Next, I will discuss these four facts, then give a recommendation for what legal actions should Helping Kids Smile Again take.

Kate was a director of a company limited by guarantee which governed by Common Law and Corporations Act 2001 Cth. The fiduciary duties of directors to:

- Act in good faith in the best interests of the company;

- Exercise their powers for proper purposes;

- Retain their discretionary powers; and

- Avoid undisclosed conflicts of interest

Directors also owe a duty of care to their company.

The fiduciary duties stem equitable principles developed through case law. The fiduciary duties are supplemented by various statutory duties contained in the Corporations Act. The most important of these duties are contained in Chapter 2D- ss 181-183 (Lipton & Herzberg, 2008, P283).

In this case, the clearest fact is that Kate use the information which she could get to make her own benefits (i.e. got a position at Goddess Products). And as Corporation Act Section 183-Use of information-civil obligations states: A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

(a) gain an advantage for themselves or someone else; or

(b) cause detriment to the corporation.

Clearly, Kate breached this rule, she used the information in an improper way, i.e. gain an advantage for herself and cause detriment to the corporation. The fiduciary and statutory duties regarding the misuse of information are an instance of the wider duty to act in good faith in the best interests of the company: Southern Real Estate Pty Ltd v Dellow [2003] SASC 318. A director who contravenes s 183 may in the same circumstances also contravene s 181(Lipton & Herzberg, 2008, P344). In Southern Real Estate Pty Ltd v Dellow case, Ms Dellow 's conduct in preparing the list of customers whilst a director of Southern Real Estate with the intention of using it once she had resigned as a director was a breach of her duty to act bona fide and in the best interests of the company. She was placing herself and Mr Arnold in the most advantageous position to erode the goodwill of the company. When she announced her resignation, Ms Dellow informed her co-directors that she had no intention of walking away with nothing. She suggested that she was entitled to some of the customers on the rent roll in lieu of any other entitlement. A meeting was held the following day. Ms Dellow informed her co-directors that she had already contacted some of the landlords. Kate almost did the same thing as Ms Dellow did in that case. Hence, according to Dellow case, Kate breached s 181 as well as s183.

Also, Kate breached Section 182- Use of position. Section 182 prohibits officers or employees of a corporation from improperly using their position to gain an advantage for themselves or for any other person or to cause detriment to the corporation. Section 182 is breached if officers or employees improperly use their position to gain an advantage for others (Lipton & Herzberg, 2008, P332). While Kate was a director of Helping Kids Smile Again, she had the right to access the companies database, and got the information of the client and doctor. Her activity was breaching the law, she should not use her position to gain an advantage for herself.

Ss 181- 183 are civil obligation under Corporation Act 2001, in this case, criminal liability may be imposed under s 184 if a director or other officer of a corporation is reckless or intentionally dishonest and fails to exercise their powers and discharge their duties in good faith in the best interests of the corporation or for a proper purpose (Lipton & Herzberg, 2008, P317). If more evidences show that Kate did these things on purpose, Kate may breach s 184.
Another fact is that Kate resigned from Helping Kids Smile Again and not disclosing the deal to anyone. But in fact, Section 191 (1) requires a director who has a material personal interest in a matter that relates to the affairs of the company to give notice of the interest to the other directors (Lipton & Herzberg, 2008, P349). Examples of such conflict of interest situations include where a director:

- Makes a personal profit that arises from their position;

- Diverts an opportunity from their company; or

- Misuses confidential company information (Lipton & Herzberg, 2008, P347).

Clearly, Kate’s activity belongs to the third circumstance. Although how many directors are not stated in the question, according Section 201A (2), the company limited by guarantee must have three member on board (if there is only one director in the company, s 191 will not be applied). Hence, Kate also breached Section 191.

Last, after Kate left, because of her activity, Helping Kids Smile Again suffered significant losses. This may related to Section 588G, but few information contained in the question, so whether Kate had breached Section 588G is unclearly.
In conclusion, Kate as a director of Helping Kids Smile Again, she must act in good faith in the best interests of the organisation, and she also must act for a proper purpose, and never take advantage of her position as an office bearer or information she has gained in the role for personal advantage. Also when there is a conflict between her and the company, she should disclose it to the other directors (PilchConnect, 2008). Obviously, she failed to comply with these duties. According to the Corporation Act 2001 ss181-183 and s 191, Helping Kids Smile Again can sue Kate as she did not comply with the law. And Kate may suffer civil penalties under s 1317E. She can be punished according to 1317G (1). If the court finds out Kate did all these things on purpose, Kate will be judge under s 184.

(b)

In this part, it will discuss what may be different if Helping Kids Smile Again was incorporated as an association in Victoria.
The most obviously different is because of the different forms, it should comply with different laws. When an organization incorporated as company limited by guarantee, it should comply with Corporation Act 2001. But when it decides to incorporate as an association in Victoria, it must comply with Associations Incorporation Act 1981 (VIC) and Associations Incorporation Regulations 1998 (VIC) (PilchConnect, 2009)
In Associations Incorporation Act 1981 (VIC), there are also some similar clauses as ss 181-184 in Corporation Act 2001 which are related to this case.

In Associations Incorporation Act 1981 s29A, it states:

1) A member or former member of the committee of an incorporated association must not knowingly or recklessly make improper use of information acquired by virtue of his or her position in the incorporated association so as to gain, directly or indirectly, any pecuniary benefit or material advantage for himself or herself or any other person, or so as to cause a detriment to the incorporated association.

2) A member of the committee of an incorporated association must not knowingly or recklessly make improper use of his or her position in the incorporated association so as to gain, directly or indirectly, any pecuniary benefit or material advantage for himself or herself or any other person or so as to cause detriment to the incorporated association.
Apparently, Kate breached these provisions, she did not acted for maximum the benefits of the organization. In contrast, her activity caused a detriment to the incorporated association. But the words using in Associations Incorporation Act are not same as that in Corporation Act 2001. Associations Incorporation Act states the director must not “knowing or recklessly” make improper use of his or her position, if Kate can find some evidences to show she did these thing not on purpose, she may avoid penalty. Under Corporation Act, the term-“knowing and recklessly” is used to distinguish civil and criminal penalty.
Besides that, Kate did not disclosure of her self-interest. In s29B (1), it states that: a member of the committee of an incorporated association who has any direct or indirect pecuniary interest in a contract, or proposed contract, with the incorporated association- (a) must, as soon as he or she becomes aware of his or her interest, disclose the nature and extent of his or her interest to the committee; and (b) must disclose the nature and extent of his or her interest in the contract. According to this, Kate also breached this clause.

In conclusion, although under different laws, Helping Kids Smile Again still can sue Kate for breaching Associations Incorporated Act. At least, she breached s29B(1). And in the current situation, she also breached s29A unless more evidences she can find. Consequently, Kate will face some fines.

(c)

As what has happened to Helping Kids Smile Again, the management should consider how to management risks from now on. In this section, two parts are contained. First, it will discuss what risks involved in this case. Second, it will give some suggestions about risk management strategies.
First, in this case, three risks are involved. The first one is legal risk. Legal risk is risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations. For business, legal risk is mainly associated with the loss of financial benefit or reputation. In this case, because of Kate’s leaving, the some confidential information may leak to the third party (i.e. Goddess Products Pty Ltd). The staffs and the doctors who in the database will find this thing sooner or later, and that may lead to these people take legal action against Helping Kids Smile Again. For current, this will damage to the organization’s reputation as Helping Kids Smile Again is hard to win the lawsuit. For Helping Kids Smile Again, its priority mission is preventing the whole thing from becoming worse. The second risk is operation risk. When the staffs and doctors loss their confidence in Helping Kids Smile Again, the organization’s operation will be at risk due to lack of motivation among them. Then when all the things mentioned above happen, the organization will certainly suffer financial risk. Although the financial objects are not that important for not-for-profit organization compared with for-profit organization, it still needs money to maintain its operation.

Second, generally, four steps are contained in risk management strategy.

1. Risk awareness, which constitute to recognition of risks exist in the organization. In this case, the new management should aware that there will be more risk after Kate left.

2. Assess the risk, which involved:

- Determining the issues to be resolved

- The understanding of the context to determine tolerable risk level

- Determine the likely impact on the business

- Draw a conclusion on each issue.

In this case, Helping Kids Smile Again should assess the three risks one by one.

3. Treat the risks. In this step, the risks can determined whether to be avoided, transferred, reduced or controlled by the management. In this case, the management should find some efficient ways to deal with the three types risks.

4. Monitoring. In this step:

- The manager measures the risks by comparing them to the tolerable level created at the stage of “Assess the risk”.

- A compliance audit is conduct to ensure that the procedures are being followed.

- The manager establishes the compliance planning with periodically cycles.

Risk management is not a one-off thing, so the monitoring step is very important for the organization included Helping Kids Smile Again.
Besides above four steps, there are also two ways to help the organization to reduce or avoid the risk. One way is enhancing corporation government. The organization can improve its internal control by doing that. The second way is educating the managements. Sometimes, laws are not enough to control the organization. In this case, Kate knew what she did was not right, but she still did that. So to educate the management run the business in a moral way is more important.
In conclusion, there are three types risks involved in this case- legal risk, operation risk and financial risk. And to prevent the whole situation from becoming worse, the management should consider how to management risk in an efficient and effective way. Generally, there are four steps contained in risk management. Also there are two ways can help the organization to reduce or avoid the risks- corporate government and moral education of management.

Question 5


(a)

Clean Up Our Environment Caulfield is an unincorporated group. This kind group is a group of members that have come together for a common purpose. Obviously, this kind of group is easy to found and not required to be registered and no reporting requirements. But it also has some pitfalls, in the next few paragraphs I will discuss two main risks entailed in being unincorporated.

First, unincorporated group have no legal personality separate from individual members. No separate legal entity means it has no legal identity of its own, separate and distinct from the individuals who formed or make up the group. Also, unincorporated group cannot “conduct business” in its own name, so it cannot sign documents and enter into contracts; buy, sell, own lease and rent property and other assets; borrow money; and sue and be sued by its own name. For example, if Clean Up Our Environment Caulfield want to hold an event, and it needs to sign a contract with another organization. “Clean Up Our Environment Caulfield” cannot be one party of the contract, because it is an unincorporated group. One member of ”Clean Up Our Environment Caulfield” must sign his or her own name on the contract. If there is a lawsuit between these two organizations, the member who signed in the contract will take all the risk.
Second, committee members may suffer potentially personally liable. For example, if the group needs money in a very short time, it may consider borrow some money from the bank. Because an unincorporated group cannot borrow money from bank, one member of the group may borrow money from bank by using his or her name. If one day the group does not exist, that member may need to pay the loan by him or herself. After association incorporated, it will help to protect the people involved in the group from being personally liable if anything goes wrong with the group. Generally, the second risk is because of the first risk.
In conclusion, although unincorporated group are easy to be founded, it has two main pitfalls will bring some risks to the group.


(b)

Clean Up Our Environment Caulfield’s main activities include: build awareness about the plight of the environment amongst the citizens of Caulfield; tree planting; lobby the local council for more environment initiatives; and attend allies. And they raise money through small membership fees and through events such as “band nights”, garage sales. Also they would like receive donations from public people or charge a fee for giving local households and businesses about how to conserve energy. According to their activities and the ways they get fund, I will find what clauses they should include their constitution in order to ensure that they gain the maximum taxation benefits and to attract funding.
First, according to ATO (2010), if the organization wants to get taxation benefit (i.e. tax concession), it should be a not-for-profit organization. So in the first step, it should examine whether Clean Up Our Environment Caulfield satisfies the requirements for not-for-profit organization. In ATO (2010) website, it states that: “A non-profit organization is one which is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organization is operating and when it winds up. Any profit made by the organization goes back into the operation of the organization to carry out its purposes and is not distributed to any of its members”. In the case, most activities of Clean Up Our Environment Caulfield cannot make profit, but it should notice that, they charge fee for providing advices to individual or business. During this process, they will make profit. But their profit will not benefit or distributed to any member. Although, Clean Up Our Environment Caulfield make some profit through their activities, they are still a not-for-profit organization. What is more, ATO (2010) requires an organization as non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people – both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organization’s non-profit character. The organization’s actions must be consistent with this requirement. So, in Clean Up Our Environment Caulfield’s constitution, it must include following clauses:

Non-profit clause

‘The assets and income of the organization shall be applied solely in furtherance of its above-mentioned objects and no portion shall be distributed directly or indirectly to the members of the organization except as bona fide compensation for services rendered or expenses incurred on behalf of the organization.’
Dissolution clause

‘In the event of the organization being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organization with similar purposes which is not carried on for the profit or gain of its individual members.’

Second, I will find what clauses should be included to attract funding. If it can be treated as “Charity”, it may easy to get fund (especially when the organization is a Deductible gift recipient/ DGR). In this case, Clean Up Our Environment Caulfield can be fall into the categories of charitable purpose under Pemsel: other purposes beneficial to the community. Because it is clear that the group would like to raise public awareness relation to environment issues. However, according to TR 2005/21, when an organization is involved political or lobbying activities, the organization cannot be treated as a charity. But the lobby of Clean Up Our Environment aim to require the local council for more environmental initiatives, thus it does not contain any political issues. So, this group can be treated as Charity. Next, I will analyze which type of charity should the group to be.

There are three types of charity organizations:

- Charitable institutions: organization or association established and operated to promote charitable purpose.

- Charitable funds: a fund established under a trust or will for charitable purposes.

- Public benevolent institutions and Health promotion charities: dominant purpose of direct relief of poverty, sickness, destitution or suffering and for the benefit of the public (ATO, 2010).

Among these three type, Clean Up Our Environment Caulfield is satisfies the definition of charity institution.

As discussed above, Clean Up Our Environment Caulfield is non-profit organization, and it can be treated as a charitable institution. Table 1 shows what tax concessions they can get when they are recognized as a charitable institution.

(table 1, found it at ATO website)
 
Form Table 1, it is clear that if Clean Up Our Environment Caulfield wants to get the maximum taxation benefits and to attract funding (i.e. Deductible gift recipient), it must follow the note 1 and note 6 of Table 1:


- Note 1: The entity must be endorsed by the Tax Office to access this concession – see Endorsement requirements for charities and income tax exempt funds.

- Note 6: The entity must be endorsed by the Tax Office as a deductible gift recipient to access this concession. The only organizations that do not need to be endorsed are those listed by name in the tax law, including prescribed private funds – see Deductible gift recipients (ATO, 2010).

According to note 1, Clean Up Our Environment Caulfield should have an ABN. According to note 6, to be entitled to DGR endorsement, the organization must:

- fall within a general DGR category as set out in the tax law

- have an Australian business number

- have an appropriate dissolution/revocation of endorsement clause(s)

- maintain a gift fund (if seeking endorsement for the operation of a fund, authority or institution), and

- be in Australia (with some exceptions) (ATO, 2010).

It is clear that, Clean Up Our Environment Caulfield is qualified as a DGR.

In conclusion, in order to maximum taxation benefits and to attract funding, in the constitution of Clean Up Our Environment Caulfield must contain following information:

-ABN/ Endorsement requirements for charities and income tax exempt funds

-Non-Profit Clause

- Dissolution Clause

- DGR organization

The first three clauses can make they gain the maximum taxation benefits, and last one can attract funding.



(c)

In part (a) it states the risk entailed in being unincorporated, and it finds the two main risks are actually put the members of the group into risk. So, it has better for the group to become incorporated. In this part, I will compare the main types of incorporated organization, and find out which one is the most suitable for Clean Up Our Environment Caulfield.

There are a range of incorporated legal structures which may be suitable for Victorian not-for-profit community groups. The 4 main options are:

- an incorporated association;

- a company limited by guarantee;

- a non-trading co-operative; and

- an indigenous corporation (PilchConnect, 2009)

Most commonly used for each one:

- Incorporated Association: it is likely that for locally focused not-for-profit community groups wanting to operate in Victoria, an incorporated association will be the best structure. Setting up an incorporated association can be easier and less expensive than setting up a company limited by guarantee. Small incorporated associations are not required by legislation to have audited accounts, and therefore may suit groups with limited funds and resources.

- Company limited by guarantee: it may be a suitable structure for not-for-profit organizations wanting to operate nationally or in more than one State or Territory and which have the resources to comply with the Act. Often larger not-for-profits, including those that only operate in one State, will use this structure. Some legislation requires this structure for certain types of organizations.

- Co-operative: it is generally set up for the mutual benefit of members. They can be suitable not-for-profit structure for providing community services to its members

- Indigenous Corporation: it is specifically designed to meet the needs of Aboriginal and Torres Strait Islander groups, and takes into account indigenous customs and traditions (Pilchconnect, 2009).

Obviously indigenous corporation is not suitable for Clean Up Our Environment Caulfield. Also, as this group will provide benefits to social but not individual member, co-operative is not suitable for this group. For the rest of types of legal structure, they both suitable for this group, so next, I will compare these two types and find which one is the most suitable one.

The company limited by guarantee has some advantages which incorporated association does not have. First one is no trade restraint. Company limited by guarantee can trade with others, but incorporated association cannot conduct significant “trading” activities. However, in this case, Clean Up Our Environment Caulfield has no significant trading activities. Second one is company limited by guarantee can carry on business in every state and territory with a single registration. But in this group, all the activities are in Victoria. So, it is clear that, although company limited by guarantee has two significant advantages, they are not relation to this case. What is more, incorporated association has one significant advantage- inexpensive, such as the annual fee is only $40.90 rather than $1,000 (Lang, 2010).

In conclusion, compared among the four types of legal structures, incorporated association is the most suitable for Clean Up Our Environment Caulfield.

(d)

In this part, two questions will be discussed, first one is discuss the board or committee structure, then discuss accountability.

First, there are three models of committee structure:

- Agency & Stewardship: boards and committees are put in place to provide overall leadership to the organization they govern in accordance with the constituent documents and mission statements. They are responsible for the stewardship of the organization by: setting goals and developing strategy direction and appointing senior management.

- Political/ democratic model: board members’ role is to represent the interests of one or more stakeholders in the organization or to resolve the differences between those interest groups. Anyone can put themselves forward for election to the board- no particular expertise required for board membership.

- Managerial view: the board is the apex of a management hierarchy. Board members should be selected on the basis of their expertise and contacts in order to add value to the organization’s decision-making processes.

Among these three kinds of board and committee structure, the most suitable for Clean Up Our Environment Caulfield may the first one- Agency & Stewardship. By using this one, the board can easy to govern the whole organization. As they hope to grow as large as 1000 members, 3-5 directors on board is enough for them.

Second, there are some advices to Clean Up Our Environment Caulfield:

1. Enhance corporate government. If there are some problems exist in the board, it will put the whole organization at risk. From Enron, WorldCom, ABC learning, we can see that all these big companies collapsed were because the management put their own interest over companies’. So, corporate government is very important for Clean Up Our Environment Caulfield.

2. Discourse statement and reports. Financial reports can be treated as a communication tool between organization and public/ external users. The organization can hire some professional accountants to charge the report issues in its accounting department. If the financial reports are audited by the external auditors, it will be better.

3. The organization should evaluate their performance both internal and external regularly. So, if there is a potential problem exists in the organization, it will be found earlier.

4. Improve self regulation. Constitution and code of conduct are necessary to be followed strictly. Code of conduct and Constitution are the rules to tell the directors and members what can they do and what they cannot do. If they do not follow these rules, the constitution and code of conduct are mean nothing.

References

A.D. Lang (2010) Pros and Cons of companies limited by guarantee versus incorporated associations

ATO, 2010, Is your organisation non-profit? - Tax basics for non-profit organisations

http://www.ato.gov.au/nonprofit/content.asp?doc=/content/33732.htm

ATO, 2010, Endorsement requirements for charities and income tax exempt funds Tax basics for non-profit organisations

http://www.ato.gov.au/nonprofit/content.asp?doc=/content/61173.htm

ATO, 2010, Fundraising - Tax basis for non-profit organizations

http://www.ato.gov.au/nonprofit/content.asp?doc=/content/33650.htm

ATO, 2010, Tax concessions - an overview - Tax basics for non-profit organisations

http://www.ato.gov.au/nonprofit/content.asp?doc=/content/33743.htm&mnu=454198&mfp=001/004

PilchConnect, 2009, Fact Sheet: Incorporated association or a company limited by guarantee?

PilchConnect, 2009, Fact Sheet: Which incorporated legal structure should we choose?

PilchConnect, 2008, Fact Sheet: Duties of committee of management members in Victorian incorporated associations

PilchConnect, 2008, Fact Sheet: Duties of directors of a company limited by guarantee

Lipton, P. & Herzberg, A ,2008, Understanding company law, 14th edn, Thomson