Legal Advices to Board of Directors of a Company that Faces Financial Difficulties


Assume you have been asked to give advice to some directors on the board of a company that has been experiencing years of financial difficulties. The business has been failing for some time and on a regular basis the board has been reviewing its strategies in order to stay afloat. On a number of occasions the solvency of the company has been questionable but on these events the company has managed to refinance its operations with the bank, its major creditor. The bank has always held security over the whole of the assets of the company and has wanted to try and allow the company to keep going if it can to give it the best opportunity to recover the debts if possible. The bank has recently come to the view that the company may be failing for other reasons. It has lost confidence in the chairperson of the board and suspects he may be embezzling funds. It has reported its suspicions to ASIC.

You as a professional accountant are asked to write a formal letter to generally advise on the following issues based on the knowledge you learned in this course:

(a) What options are available to the directors if they feel the company operations should be reviewed to see whether it can continue to operate or should cease? Practically how would this process or processes operate?

(b) What risks are the directors exposed to if they fail to take these options?

(c) What options may be available to the bank depending on the nature of their security?

(d) What options may be available to ASIC if investigations prove the suspicions of the bank regarding the chairperson of the board?


This question belongs to business law and discusses about advices to board of directors of a company that has been experiencing years of financial difficulties.

Total word count: 1390


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