A court has ordered the appointment of liquidators to Farmilly Ltd based on the non-

payment of a statutory demand. Ah Ling and Jorge Cabello are the appointed

liquidators.

The liquidators are concerned that two of the directors, Herb Smith (CEO) and Greda

Pavlovic (CFO) have failed to exercise an appropriate degree of skill commensurate

with their qualifications and experience.

The liquidators believe that the judgment of Middleton J in ASIC v Healey & Ors

[2011] FCA 717 will be particularly relevant in proving the alleged breach.

The liquidators intend to initiate legal action in the name of the company.

Required: Answer the following questions:

1. Which duty do the allegations of breach relate to and what is the source of that duty? 2

2. What is the legal principle (test) that will be applied to the directors' conduct? (2

3. What is the standard expected of Herb? 1

4. What is the standard expected of Greda? (1

5. If the judgment in ASIC v Healey is relevant case law, what do the allegations against Herb and Greda relate to? (3

6. What are the likely consequences if the court finds the directors have

breached the duty? (1

Note: under organizational law

australia