Transpire Graphics is a business owned and operated by Mac as a sole trader. Transpire specializes in graphic design and corporate imaging. Mac began the business in 2013 and it has expanded steadily since that time. Mac employs a part-time illustrator and an office manager who comes in several days a week and handles the paperwork and accounts.

In 2018, Mac married Kay. Kay is an office manager who works in a suburban architecture firm.

Mac has an overdraft with Sandgroper Bank (the bank) of $20,000. Last year, the net profits of the business amounted to $175,000.

Recently, an old school friend, Sean, approached Mac with a proposal that Transpire take over the corporate imaging and graphic design work for his rapidly growing computer company. The contract would represent a substantial growth opportunity for Transpire, but would require extra staff, a move to larger premises, and a fairly sizeable investment in additional computer and drawing equipment.

Mac is keen to take up the opportunity. Kay suggests that, before doing so, they form a company in which she and Mac are both shareholders, and transfer the business to it. Once the new company is established, Kay intends to leave the accounting firm and join Transpire full-time as its business manager. Their intention is that ownership and control will be shared between them equally.

Kay and Mac decide to incorporate a company to run the business, called Transpire Limited. They decide that they will each own 100 shares in the company and they will both be appointed as directors.

Transpire is incorporated as a company (Transpire Ltd) under the Companies Act 1993, on 1 August 2020. Immediately after incorporating, Transpire enters into the following agreements:

• a one-year lease for new premises for the business (Transpire Ltd is the tenant and the landlord is Ivan).

• a loan of $50,000 from the bank to fund the expansion of the business. The bank agrees to lend the money to Transpire only if Kay and Mac personally guarantee repayment of the loan. Kay and Mac reluctantly agree to give the bank a mortgage over their house to secure their obligation under the guarantee.

• the purchase of some computers from a supplier called HIIT Co. Under the terms of the purchase agreement, one-third of the purchase price is payable on delivery (1 September 2020), with the balance payable in equal monthly installments over the following two years. HITT has not required Transpire to provide any collateral as security.

Required

(a) If, six months after the above agreements are entered into, Transpire Ltd was unable to make the payments required under the above agreements, would Kay or Mac be personally liable to:

i) the landlord (Ivan)

ii) the bank (Sandgroper) or

iii) the supplier (HIIT Co)?

Provide reasons for your answer. (You must consider all 3 above) (maximum four hundred w0rds)

(b) How would your answer to (a) differ if Kay and Mac carried on the business as partners, and each of the agreements had been entered into by them as partners? You may assume that it satisfies the definition of a partnership under the Partnership Law Act2019. (maximum two hundred and sixty w0rds)

(c) Describe the legal rights HIIT Co has in respect of the computers sold to Transpire? (maximum one hundred and forty w0rds)

(d) Explain how HIIT could have secured their legal rights to the computers in the event Transpire defaulted on payment? (maximum two hundred w0rds)

Answer rating: 100% (QA)

a Kay and Mac are personally liable to the bank Sandgroper because under the contract the bank agreed to lend the loan only if Mac and Kay guarantee t... View the full answer