Green Savings Pty Ltd. makes mini solar panels. It also tenders to provide environmental solutions for large development sites such as new supermarkets and shopping plazas. Green Savings was formed out of the partnership of three sisters with different skills. Annie is an accountant, Beverley is the 'creative brains' and Cindy is the 'hands-on' operational person. They are directors and shareholders of the company. The total number of issued shares in Green Savings is 6,000 ordinary shares. Each shareholder has 2,000 shares. All the shares are fully paid.

According to its constitution, although all the directors can routinely arrange day-to-day purchases and services, any contract worth more than $100,000 between the company and any other party must be approved by all of the directors. As the demand for solar panels are growing, the directors agree the business should expand. Annie volunteers to explore options while she is touring Australia on her winter holidays and to come back with ideas to present to Beverly and Cindy at the next directors' meeting. The other two agree. When Annie arrives in Darwin she attends a trade fair and met Sebastian, the CEO of a property developer company. He tells her that he is looking for solar panels for newly built residential houses in one of his property development project urgently. Annie hands Sebastian her business card that describes her position as "Director" for Green Savings. Annie sees a real opportunity for Green Savings to get involved and, after Sebastian tells her that he can pay Annie a $10,000 'commission' if she manages to engage the company to supply those solar panels within such a short notice. Annie immediately lets him know Green Savings can construct and supply the required solar panels within the deadline. She signs a contract as "Director of Green Savings" that commits Green Savings to provide those solar panels at a price "covering the cost of manufacturing plus 10%".

On Annie's return to the office she calls the other directors together to tell them about the contract. Beverley and Cindy conclude that Green Savings is unable to meet these targets and that Annie had no right to make such commitments as this contract is for over $100,000. They pass a motion (over Annie's objections) that Sebastian should be told that Green Savings will not be providing the vehicles. When Sebastian finds out, he demands that Green Savings should honour the contract Annie signed.

Beverley proposes the company tender to provide solar panels for the World Solar Powered Car Racing Competition in Darwin. Annie advises against the venture but Beverley and Cindy support a motion that the company will make a bid. Annie resigns from the Board in protest. Beverley and Cindy want Annie to sell her shares to them in exchange for the return of her financial contribution to the establishment costs of the company. Cindy does most of the work on costing the tender and is delighted when Green Savings wins it.

Since Annie is not there to help with the financial side of the business, Beverley and Cindy decide to hire a 'manager' to 'do the books' and generally advise them on the accounting side of the business. Sunny, a friend of a friend and a recent Bachelor of Commerce graduate, has been looking for work for some time. They hire him. As the bills come in and the bank balance falls, Sunny becomes concerned but thinks that Beverley and Cindy, being experienced in business, know what they are doing. There certainly is a lot of activity and he knows the company is being paid by the Northern Territory Government for the design and supply of the solar panels.

Beverley and Cindy presume Sunny will tell them if they are running out of money. When asked by suppliers when they are going to be paid, Cindy just tells them to 'see Sunny - he is in charge of that sort of thing'.

Green Savings completes the project on time and is paid by the NT Government but when Beverley and Cindy finally have time to look at the company's position they are horrified to find out that they still have unpaid accounts of $300,000 relating to materials and specialist services obtained for the project. It seems their tender was underpriced. They are late paying interest on the loan the company took out to cover the purchase of some of the raw materials for the panels and the bank, a secured creditor, is threatening to take action if this happens again. Several unsecured creditors have written to Beverley explaining they are concerned that Green Savings is insolvent. Beverley has been so busy she has only just opened these letters.

1.Advise whether Green Savings is bound by the contract signed with Sebastian's company

2.Advise Annie if she wants to prevent Beverley and Cindy removing her as shareholder.

3.Explain fully what duties (both statutory and general law) have potentially been breached by the directors of this Company and whether any defences available to them against the alleged breaches. Discuss the consequences of breach of those duties.