Corporations

a. To identify whether Bravehearts is bound by the loan under common law

agency principles and the Corporations Act 2001, we first have to discuss
whether Erin is an agent of the company. The law has stated that
directors are agents of the company. Thus, Erin is taking the loan behalf of
the company, Bravehearts. Erin has obtained this authority from
constitution and Bravehearts is most likely bound by the loan under
agency principle. However, Bravehearts’ constitution has expressly limited
the director’s power (Erin’s) power to manage the company. Bravehearts’
constitution provides that the managing director has power to manage the
ordinary affairs of the company; however any contract for goods and
services exceeding $100,000 must be signed by other directors. This
shown that his power was expressly limited. However, the facts prove that
the bank grants the loan because of its long association with Erin. Whilst
Erin had no express authority, Erin has an implies actual authority due to a
course of past dealing (Hely-Hutchinson v Brayhead Ltd). Besides, Erin
may also have ostensible authority.
Furthermore, Erin may also have ostensible authority. Ostensible authority
exists where the agent appears to have authority. In Hely-Hutchinson v
Brayhead Ltd, the court has defined implied ostensible authority as “it
appears to others,” the court stated in the case Freeman and Lockyer v
Buckhurst Park Properties Ltd that an agent will have ostensible authority
if it can be shown
• Representation have been made to the third party
• That such representation was made by person who has actual
authority to manage the business in written, spoken or by conduct
to the third party regarding the agent’s authority.
• reasonably relies on the representation to her or his detriment

In the case, Erin has presented to the bank as the managing director of
the company with his conduct. In addition, a reasonable person would
believe that the managing directors of a company have actual
authority to manage the business. Because of its long association with
Erin, the bank relieved upon the fact that he has actual authority and
thus was induced by such representation to the contract which in turn
grants the loan.
 Based on the fact above, the court might probably hold that Erin has
ostensible authority and sequentially Bravehearts is bound by the loan
contract.

a. To decide whether Erin has breached her duties of care as a director, we

first have to identify whether she own a duty to the company. The law has
stated that directors own certain duties to the company.
Under business judgment rule in s 180(2), a director or other officer of a
corporation are not reliable if they
1. Make the judgment in good faith for a proper purpose; and
2. Do not have a material personal interest in the judgment and
3. Inform themselves about the judgment to the extent they reasonably
believe to be appropriate; and
4. Rationally believe that the judgment is in the best interests of the
corporation.
In the case, Erin has fulfilled all the requirements. She made the
judgment in good faith and do not have a material personal interest in
the subject matter of the judgment. Besides, she believe that her
judgment was reasonably appropriate and in the best interest of the
corporation.
Nonetheless, under corporation act 2001 180(1), company directors
and officers have a duty to exercise their power and discharge their
duties with the degree of care and diligence that a reasonable person
would exercise. She failed to conduct further research about the
market value for Maidenheaven which a reasonable person in her
position would do which consecutively causes the company to make
loss. Thus, she has breath a duty of care as a director under the
Corporation Act 2001.
Due to the breach of duty if care, the court may order Erin civil penalty.
The court may prohibit Erin from managing Bravehearts Ltd or may
order Erin to pay compensation to the company. It is unlikely that the
court order Erin criminal penalty as it is fairly clear that there is not
involved any recklessness or intentional dishonesty.

a. Section 588M of the corporation act provides that, if the company is

insolvent, the liquidator of a company may bring an action to recover a
company debt from the directors personally. This suggests in the case Erin
may be held personally liable for the $10 million loan under the
Corporation Act 2001(Cth) if Bravehearts Ltd is insolvent. As Erin has
brought the company into insolvent, she may result in both civil liability
and a civil penalty. Furthermore, if she dishonestly contravenes s 588G,
she may be liable for a fine of up to $ 220,000 or imprisonment for five
years or both.