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AppData/Local/Packages/microsoft.windowscommunicationsapps_8wekyb3d8bbwe/LocalState/Files/S ED Page view | A Read aloud (T) Add text Draw Highlight QUESTION 1: (30 Marks) Charlotte, Harry and Louis are the executive directors
AppData/Local/Packages/microsoft.windowscommunicationsapps_8wekyb3d8bbwe/LocalState/Files/S ED Page view | A Read aloud (T) Add text Draw Highlight QUESTION 1: (30 Marks) Charlotte, Harry and Louis are the executive directors of Forest Wood Ltd. Charlotte is the managing director. Harry is the CFO. Meg and Kate are non-executive directors. At the end-of-year Board meeting, the directors meet to approve the annual report for release to shareholders. Harry presents the financial reports for the approval of the directors. The reports are examined by the directors Meg notices that there seems to be an error in the Balance Sheet. The 10 year mortgage is recorded as a Long-term liability. But Meg is aware that the mortgage is to be repaid on 30 September of the coming year, and is therefore a Short-term liability. She raises the matter at the meeting, but Harry advises that it is still a mortgage and is to be classified as Long-term. Meg and the other directors accept Harry's explanation. They sign off on the report and it is released. Shareholders are misled by the error and pay high prices for the shares. When the mortgage is to be repaid on 30th September, the company has to borrow funds and enters into a further short term loan. The company's cash flow falls. It is unable to pay its debts and creditors move to appoint a liquidator. Share prices drop and shareholders and creditors begin an action for breach of director's duties As a non-executive director, Meg believes she should not be responsible for the breach of director's duty. She seeks your advice. REQUIRED: a) Advise Meg whether there are any duties that she is expected to comply with as a non- executive director in this context. b) Advise Meg whether she and the other non-executive directors would escape responsibility for breach of duty. O Fi P 20
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