Question
in April 2018, Betelgeuse became the managing director of anewly registered company, Aussie AceSouvenirs Limited (AAS). At that time the company was in a strong
in April 2018, Betelgeuse became the managing director of anewly registered company, Aussie AceSouvenirs Limited (AAS). At that time the company was in a strong financial position. In December 2019, a liquidator was appointed to AAS. An investigation of the affairs of AASby the liquidator disclosed a probable shortage of funds of over $3 million.
Although there had been a steady increase in souvenirsales from 2017to 2019 (resulting in substantial trading profits), the liquidator reported the following:
the purchase of a $1million apartment in Sydney with funds from AASwhich, upon resale, was only likely to realise $600 000-representing an expected net loss of $400 000;
the purchase of new machinery designed to substantially speed up the manufacturer of a number of lines of Australian souvenirs, which, despite high hopes at the time and potentially large (labour) cost savings, subsequently proved to be unsuitable and had to be replaced at a net cost of over $800,000;
that $200,000 is due from Shrewd Advisers Ltd (Shrewd), Ace'sinvestment advisers, a company of which Betelgeuseis a director and majority shareholder. There is a guarantee by Shrewd in favour of AAS for $100,000 but, given Shrewd's financial position; no more than $70,000 is likely to be recovered. Betelguese did not disclose his interest in Shrewd Pty Ltd to AAS'sBoard, although they knew about it; and
Betelgeusehad himself fraudulently misappropriated about $500 000to finance his extravagant lifestyle. Fraud charges against Betelgeuseare currently being heard by the court.
The directors of AAS during the period 2018-2019were:
Betelgeuse, as Managing Director and Chair;
Altair Rigel,(Executive Director) and director in another related business Beacon Fun Stuff Pty Ltd;
PennyPatton, (Non-Executive Director)a highly regarded accountant who sits on several public company boards;
Vernon, (Non-Executive Director), retired businessman and friend of Altair; and
Eleanor Arnold (Non-Executive Director), a public relations consultant.
Eleanor was ill for much of 2018and was unable to attend board meetings or take any part in the company's management.
The day-to-day management of AAS was left to Betelgeuse. The other executive director Altair is Betelgeuse's father and he only spent a day every week overseeing and working at any of the premises occupied byAAS.The non-executive directors conceived their role to be planning and policy-making. There is no evidence of willful neglect or default by any of the non-executive directors,who were all deceived by Betelgeuse, as were the auditors.
Required: Advise the liquidator whether she should pursue any of the directors for compensation. Also advise which directors duties may have been breached?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started