Christine Holgate is a business student, Adam Smith is an economics student, and Luca Pacioli is an accounting student. They meet in a breakout room of a subject and discover that they all have a high distinction weighted average mark and are highly motivated students. They also realise that between them, they have sufficient knowledge to run a study motivation business to earn some money while they go on to do PhDs. After further discussion, they decide to establish a company called Study Now Pty Ltd. They take a share each in the business and give a share each to five of their friends who provide capital to advertise the business on social media. As Christine is the business scholar, she is appointed managing director, and changes to part-time study. Adam and Luca are appointed as non-executive directors, as they want to work on their PhD theses for 70 hours per week rather than manage the day-to-day operations of the business. Hence, they refer to themselves as observers rather than directors. The board of directors allows Adam's clever sister who is mid-way through high school to act as an alternate director. Furthermore, the business hires a senior manager called Apostolia, who decides to expand the company's clientele to students at other universities in NSW. Because of this expansion and the successful study motivation formula of the directors, the company does very well. Consequently, the board decides via a circulating resolution to borrow a significant sum of money from the Teachers Mutual Bank Ltd to expand the business's operations across Australia. The other shareholders are concerned about this strategy. They try to make the directors call a members' meeting so that they can oppose the decision, but the directors decline to do so. On a business trip to Tasmania, Christine and Apostolia discover that there are no rival study motivation businesses there, unlike in the other states. Recognising Tasmania as a potential goldmine, Apostolia suggests that she and Christine use some assets of Study Now Pty Ltd to set up another business so that the two can profit from the Tasmanian market. She argues that as Adam and Luca have their heads in their books, they will not notice, and that as Study Now Pty Ltd was not operating in Tasmania in the first place, the new business would not be in competition with it. Christine is eventually convinced and gives Apostolia a luxury watch, paid for by Study Now Pty Ltd, as a reward for her business acumen. Christine and Apostolia then set up Fail No More Pty Ltd as their own operation. However, students in Tasmania do not seem to require much motivation and, after Fail No More Pty Ltd makes its first million dollars, business tapers off. Christine channels more money into it from Study Now Pty Ltd, but to little avail. With its funds leaking and an increasing range of free study tips available on YouTube, Study Now Pty Ltd declines financially and struggles to pay its interest payments to the bank, its rent, and various bills including for utilities and computer programs. Moreover, the Teachers Mutual Bank refuses to lend Study Now Pty Ltd more money. The latest financial report of Study Now Pty Ltd does not paint a bright picture. However, Luca has not had time to read it due to his study commitments, and Adam and his sister can barely understand it and do not want to reveal their ignorance by asking questions. Christine, who is hoping that sales for a motivational concert that the business is organising will pick up, convinces them that as she is well-versed in the matter, they can trust her view that the report is sound. Also, the board of directors approves an interim dividend payment to assuage the concerns of the shareholders. But under mounting financial pressure, Study Now Pty Ltd has become hopelessly insolvent. The concert is cancelled without refunds for customers, the company's employees have started to complain that they have not been paid in months, and the Teachers Mutual Bank Ltd is considering its legal options. Christine must finally admit to the board and shareholders everything that has happened. Answer the following questions, referring to relevant legislation and case law.

1. Have any duties been breached, and by whom?

2. What legal action could the shareholders and/or directors take?

3. If ASIC or an external administrator suspected a breach, what action could they take? 4. What avenue should the company pursue in relation to its financial difficulty, and if it winds up, how might any remaining assets be divided?