Corporate and Business Law

Case study: 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 (such as what and how shareholders do if they want sue against director of OIL) , giving legal reasons and examples to illustrates for your idea.

References provided:

Company Act 1993 PART 8 AND PART 9 (cited clear where you use each law session)

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)

Please explain detail not just few sentences so I can be easy to understand. Thank you.