Alliance Mining Ltd is a small mining public company listed on the ASX.The

directors of Alliance are

Eric(the Chair of the board of directors)who owns 5% of the shares

Andrew(the CEO) who owns 20% of the shares

Bart(a non-executive director) who owns no shares in Alliance

Mary(a non-executive director) whose husband Jack owns a 20% stake in

one of Alliance's key customers in China

Alliance needs further funds to enable it to expand its mining operations in Western

Australia but it is having difficulty securing these funds through traditional sources of

bank debt or a new share issue (because its share price is too low to make a share

issue viable). Mary discusses these problems with her husband Jack and he suggests

that Alliance enter into a joint venture with AMCO Pty Ltd, which is a venture capital

company that assists businesses looking to expand. Jack has negotiated a substantial

ongoing consulting fee with AMCO and will make a large fee if this deal is approved

by the Alliance board of directors.

The next month Mary puts forward the proposal to the Alliance board. There is

considerable discussion, and the company's financial advisors are present for the

meeting. Eric and Andrew tell the board that the company is running out of financing

options and will not be able to meet market expectations in the next quarter if they

don't secure financing for the expansion of the project. Andrew is also privately

concerned about a key component of his remuneration package which provides a large

cash bonus if the expansion of the project is successful. The board votes to approve

the Joint venture after a 3 hour meeting. The joint venture will sell one of the

company's most valuable assets into a joint venture company with AMCO and

Alliance as the only ordinary shareholders(AMCO will also receive preference

shares). AMCO will pay S10 million in consideration for the acquisition of shares in

the joint venture, although this is well below the market value for the asset being

transferred into the joint venture

When the joint venture is announced to the market it is extensively criticised by

mining analysts and several large institutional shareholders are outraged that the

company is selling a key asset for what is commonly believed is a very low price

There has been talk of a shareholder suit against the directors for breaching a number

of duties to the company

Advise the members on issues relating to breaches of directors duties, defences,

and legal consequences under general law and the Corporations Act 2001(Cth)(25

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