1. Claude, Jackie and Allison are directors of Sinking Ship Ltd ("Sinking Ship"). Sinking Ship manufactures high end yachts and is listed on the ASX. Sinking Ship's bank is Bad Bank Ltd ("Bad Bank"). Sinking Ship has borrowed $10,000,000 from Bad Bank on an unsecured basis which it is required to pay back in full on July 1, 2019.

After the loss of a large contract, Bad Bank told Sinking Ship that it would no longer extend credit to the company. Likewise, many of Sinking Ship's suppliers became nervous and placed the company on a strict cash-on-delivery basis. The directors started to get numerous calls from creditors wanting to know when the company would be paying them back. The directors started to pay the more aggressive creditors while putting off others. Soon cheques started to bounce.

The stock market became very wary of Sinking Ship's financial status and the share price dropped precipitously. In order to arrest the drop in the share price, on May 1, 2019, the directors decided to pay a dividend to shareholders. The dividend was actually paid on May 4, 2019. After paying the dividend, it became apparent the company had very little cash left to continue paying creditors.

Knowing that the company was doomed, on May 10, 2019, Claude transferred the last $50,000 in the company's bank account to Bad Bank because he felt sorry for Bad Bank and thought it deserved something back. He also transferred a Mercedes motor vehicle which was owned by Sinking Ship into his name on the basis that he thought the company owed him something for all his hard work in running the company.

On August 20, 2019, the directors had no alternative but to place Sinking Ship into voluntary administration and it was subsequently placed into liquidation.

1. a)Can the liquidator commence an action against the directors for breaches of section 588G? (5 marks)
2. b)Can the liquidator recover the Mercedes motor vehicle and the $50,000 under the Corporations Act?(10 marks)
3. c)Did the directors have the right to pay the dividend? (5 marks)