Fab Funerals Ltd (FF) is a business that conducts funerals and sells funeral plans. It has three shareholders: Alice, Candice and Danielle, who are also the directors.

Although it began as a small company in 2018, it expanded rapidly and by 2020, it was returning a large profit. However, in 2021, large (profitable) funerals gave way to intimate, immediate family only affairs and therefore it did not perform as well. The directors decided to act to arrest the decline. Although FF was carrying significant debt, it was able to meet its commitments, so Alice and Candice decided at a directors meeting to take a risk they decided to borrow an additional $1 million to upgrade its fleet of hearses, its computer equipment and to run an advertising campaign.

FF applied for and obtained the $1 million from Levee Bank Ltd in June 2021 and spent part of the money on a new computer hardware and software system purchased from Orange Electronics. Orange Electronics is owned by Alice, but this was not revealed to FFs shareholders/directors.

After three months, FF had defaulted on its debt repayments to its creditors, so a liquidator was appointed. It was clearly, in hindsight, a poor decision to increase its debt levels at the time that it did.

The liquidator seeks your advice on the following matters:

Answer the following questions;

Is any of Alice, Candice, or Danielle personally liable for the $1 million loan from Levee Bank? Use relevant sections and cases to support your answer. [5marks]

Can any action be taken against Alice in relation to the computer supply contract? Use relevant statutes and cases to support your answer. You are not required to discuss any remedies. [5marks]

Assume for the purposes of (c) only that FF was unable to service its debts when it took on the loan from Levee Bank. However, after seeking advice from financial planners, they went ahead because they believed that, in a post-COVID environment, they could use the loan money to kickstart the company and achieve a better outcome for the company (than going into liquidation). The plan failed. Advise the directors whether there are any relevant defences. [2 marks]