Question
Corona Ltd ('Corona') owns and operates several restaurants in Australia. Corona's biggest shareholder and CEO, Ben Iso-Laten, holds 45% of the issued shares in Corona.
Corona Ltd ('Corona') owns and operates several restaurants in Australia. Corona's biggest shareholder and CEO, Ben Iso-Laten, holds 45% of the issued shares in Corona. The remaining 55% of the shares are owned by various minority shareholders comprising other board members and local community members. Corona's board of directors are aware that Ben is also a single director and shareholder of a small private company, Quarantini Pty Ltd, which produces alcohol-free 'mocktails' for use in the hospitality industry. For the past few months, Ben used his position as CEO to persuade Corona's board of directors to buy his interest in Quarantini Pty Ltd - the aim being, to enable Corona Ltd to save money by making its own mocktails inhouse. Although Ben took an active part in the decision-making around buying Quarantini Pty Ltd, he did not take part in voting and made sure that all board members knew that he was profiting from the sale of his company to Corona Ltd. In the end, a deal was validly signed to enable Corona Ltd to buy Quarantini Pty Ltd for a $2.5m. Unfortunately, less than 12 months later, Corona Ltd had suffered losses nearing $4m due to poor sales of its new mocktails. Later investigations revealed that Corona's board of directors never consulted with business experts about buying Quarantine Pty Ltd. If they had, a business expert would have recognised that there wasn't a demand for mocktails and that Quarantini Pty Ltd's business operations was only worth $500,000. Shareholders have now started legal action against Ben and the board members for breaching CA s 180(1). Answer the following questions and remember to refer to legislation/ case law: 1) What is the purpose of the Business Judgment Rule ('BJR')? (4 marks) 2) Offer one limitation of the BJR (2 marks) 3) Analyse whether Corona Ltd's board of directors (excluding Ben) can rely on the BJR to avoid liability for the losses suffered by Corona Ltd (7 marks) 4) Assume that Ben knew that his company was only worth $500,000, analyse whether Ben, acting as CEO of Corona Ltd, can rely on the BJR to avoid liability for Corona Ltd's losses (7 marks)
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