Corporate and business law

Barry White is a director of Overseas Investments Ltd (OIL), a company organised under the laws of New Zealand. Barry is a professional accountant as well as a professional director. The other directors of OIL are neither accountants nor professional directors. New Wave Software Co Ltd (NWSL), a company also organised under the laws of New Zealand made a proposal to OIL for an investment in NWSL. NWSL is a recent 'start-up' and produces financial technology for the banking sector internationally. The investment proposal would require OIL to acquire a new issuance of shares in NWSL for a cost of $15 million. The board of directors of OIL commissioned a firm of investment bankers to investigate and report on NWSL. That report was appended to a board paper in support of the investment in NWSL prepared by the managing director. Before writing their report, the investment bankers analysed the financial statements of NWSL. Those financial statements disclosed that NWSL

was profitable and had retained earnings. In fact, the financial statements were fraudulent and NWSL was insolvent. A competent audit of the financial statements would have disclosed the fraud, but no audit of the financial statements had occurred before the investment took place. Both the report of the investment bankers and the board paper were positive about the investment, and the board of directors of OIL resolved to proceed to acquire the shares. NWSL went into liquidation not long after the investment, the $15 million of new equity having been transferred to an account in the Caymen Islands and thereafter to places unknown.

The shareholders in OIL are extremely unhappy that the company's investment in NWSL has been a disaster, and they demand that the board files civil proceedings to recover OIL's losses. In the meantime, the investment bankers have gone bankrupt, NWSL has been liquidated, and the officers and employees of that company cannot be located, having departed New Zealand for points unknown. The board of directors of OIL does not wish to bring any civil proceedings and refuses to do so.

Required

Advise the shareholders what they should do, giving legal reasons. (Please explain detail so it is easy for me to understand).

References required using:

Companies Act 1993, Parts 8 & 9

Watts P, Campbell N, and Hare C, Company Law in New Zealand 2nd ed (LexisNexis, Wellington 2015)

Schenone S, Duties and Responsibilities of Directors and Company Secretaries in New Zealand 4th ed (CCH, Auckland 2011)