(English Law)

Couch Ltd is a meat and poultry processing company. Its articles of association are in standard form except as follows:

a) The board of directors has no authority to secure a loan or borrowing beyond 1 million in value and;

b) Without the consent of the shareholders in general meeting, the board of directors has no authority to change the nature of their business.

Although not appointed as Managing Director, Adam, to the knowledge and with the full agreement of his co-directors, Geoff and Eaton carries out the day to day management of Couch Ltd. Adam acting on behalf of Couch Ltd agreed that the company will process Seafood for Kirsty Ltd. To finance this operation he borrowed 3 million from Henshaw Bank plc to enable Couch Ltd to purchase refrigerators to carry out this agreement with Kirsty Ltd. The loan was evidenced by a debenture which was signed on Couch's behalf by Adam and Eaton. Owing to serious mismanagement, the company incurred considerable loss. Henshaw Bank did obtain a copy of the articles of association before the lending was approved.

Advise the shareholders of Couch Ltd the liabilities of the directors, the bank loan and the validity of the contracts.