Brian is a non-executive director of OTC Ltd. Rakesh is a director and the CEO of OTC Ltd. Michael is a director and the finance controller of OTC Ltd. Brian has a substantial shareholding in OTC Ltd. This has entitled Brian to appoint a nominee director, who happens to be Rakesh. 

H2O Pty Ltd is a wholly owned subsidiary of OTC Ltd. Brian requested, and Rakesh and Michael arranged, for H2O Pty Ltd to advance $10 million to Dithery Pty Ltd - a company controlled by Brian. During the next two weeks Dithery Pty Ltd used some of these funds to purchase OTC Ltd shares to the value of approximately $4 million. Soon after the advance and the purchase of the shares, Brian created a unit trust with Dithery Pty Ltd as trustee. Units were issued to H2O Pty Ltd at a price of $10 million. 

A further 10% of the units in the trust were issued to another corporation controlled by Brian, Myne2 Pty Ltd. The trust property comprised of the shares in OTC Ltd and the residue of the $10 million advance. Over subsequent months, Dithery Pty Ltd had the opportunity of selling the OTC Ltd shares at a profit but chose not to. Eventually they were sold at a loss of $2.5 million. The residue of the $10 million advance was used by Dithery Pty Ltd to: 

(i) purchase from Myne2 Pty Ltd unlisted technology shares (they were purchased at the price Myne2 Pty Ltd had initially paid for them. 

They were almost worthless at the time of purchase and were ultimately sold at a loss of $3.8 million);

(ii) make unsecured loans to further corporations controlled by Brian. ASIC has received a complaint from a preference shareholder in OTC Ltd. 

He is angry that the board of OTC Ltd has not declared a dividend in many years "despite the fact that my shares have a guaranteed right to 10% annual dividends." He has outlined to the ASIC the above facts that he has discovered through his own investigations. He has complained that "the management of OTC Ltd" is appalling. ASIC now approaches you seeking your advice on the above matters. 

REQUIRED 

Advice ASIC on whether Brian, Rakesh and Michael have breached any of their general law and/or statutory duties as directors and outline the remedies and/or penalties which would apply if any general law and/or statutory director’s duties have been breached.