Fancy Noodles Ltd operates a wholemeal noodle outlet. The company has three directors, Kris, Mary and Luwa. Kris is the managing director. Mary left school when he was 15 and has no further qualifications other than being an expert on wholemeal noodle manufacturing. He is in charge of the manufacturing process. Luwa is a non-executive director and was only appointed to the Board because she comes from a wealthy family and has connections with financial institutions.

Fancy Noodles Ltd has been trading profitably until six months ago when a competitor selling seaweed noodles emerged and is rapidly gaining market share. Kris thinks that Fancy Noodle Ltd should open up outlets in major shopping centres.

Kris calls a board meeting and tells Mary and Luwa that by opening an outlet in the most expensive and prestigious city shopping centre will solve all the company's problems. He says that they will have to act quickly as the seaweed noodle competitor is also interested in that outlet.

Kris does not tell Mary and Luwa that he has not carried out a feasibility study into the financial implications of this proposal. Kris also proposes that they should issue shares to Luwa's brother to fund the proposal and advises Mary and Luwa that this will also prevent the seaweed noodle manufacturer from taking over their company.

Luwa is doubtful about the whole proposal and feels that they are being rushed into making a decision without being given time to consider alternatives. Mary however agrees to Kris's proposal without really understanding the financial implications.

Within 6 months of opening the new outlet, it becomes apparent that the company was not in a financial position to have taken such a step and a proper feasibility study would have shown this. The company is unable to pay its debts and a Liquidator has been appointed.

REQUIRED

Please use IRAC method to Answer

(a) Advise Kris, Mary and Luwa whether they have breached any duties under the Corporations Act and case law in making the decision to open the outlet. Also, discuss any defences they may have. (10 Marks)

(b) Advise the directors whether they have breached any duties under the Corporations Act and case law in making the decision to issue shares to Luwa's brother. (10 Marks)

Total (20 marks)