Eiffel Towers Ltd, a listed company, was a builder and property developer specialising in projects in Brisbanes central business district. It has five directors. Giscard is the managing director and Henri is the chief financial officer. They are the only executive directors on the board. The others, all experienced business people, were non-executive directors and attended the monthly board meetings.

Over the past two years, Eiffel Twoers Ltds financial position had worsened. Apart from Henri, the directors were unaware of this. Henri made sure the other directors were kept in the dark about this and did not give them meaningful or accurate financial information. The other directors did not read the financial reports and were satisfied with Henris false assurances that the companys finances were satisfactory.

Several months ago at a companys meeting, Giscard asked the board to approve the acquisition of a development site owned by Blue Sky Pty Ltd for 50 million, to be borrowed from Eastpac Bank. This is because Henri convinced the rest of the board to contract with Blue Sky Pty Ltd. Giscard explained that this site was suitable for a 50-storey office building. The board agreed with his suggestions, notwithstanding that Giscard provided only sketchy details. In particular, the directors were unaware that Blue Sky Pty Ltd was controlled by Henris wife, and Blue Sky had been trying unsuccessfully to sell the development site for $20 million. The board was also unaware that the zoning laws did not permit the construction of a 50-storey building on the site.

Not long ago the non-executive directors ordered an investigation of Eiffel Towers Ltds finances and for the first time became aware of the zoning laws. They forced Giscard to resign and reported the matter to ASIC.

You as a professional accountant are asked to write a formal letter to ASIC advise it whether there have been breaches of the Corporations Act 2001 (Cth) in the above circumstances.

In you answer consider the positions of each of the directors and any possible defenses.