In December 2019 the Australian Government launched its National Innovation and Science Agenda (NISA).NISA involves a number of initiatives intended to encourage entrepreneurship and innovation, including a planned $250 million investment by government over two years to help translate Australian health and medical research into commercial reality.

The launch caught the attention of BIO Ltd, a public company that has been listed on ASX since 2011.BIO Ltd was formed to invest in new opportunities in alternative medicine and so far has a small stake in three or four research ventures.

BIO Ltd has five directors.Its executive directors are Arthur and Brenda and its nonexecutive directors are David, Elizabeth and Frank.Arthur is the managing director and Elizabeth is the chairperson.Brenda's title is 'Director, Innovation'.All the directors are based in Sydney except for Frank who lives in California.

Arthur, Brenda and Frank are substantial shareholders of BIO Ltd.Until 2016, David was the general counsel of a large multinational agribusiness company.He now owns a farm in the Riverina and in recent years has been pursuing his lifelong interest in the breeding of Merino sheep.His sheep business is operated by a small proprietary company, in which he and his wife are equal shareholders, called Davmeri Pty Ltd.

In February 2020 Brenda attended a meeting about NISA and decided that BIO Ltd should apply for funding.From discussions with David she knows that Davmeri Pty Ltd has been participating in a small research trial on the medicinal properties of lanolin, a natural compound that occurs in sheep fleece.She thinks this might be an interesting idea to pursue.

Straight after the meeting, without checking with any of the other directors, Brenda signs an

'expression of interest' form and submits it to NISA.In the form she says that BIO Ltd is looking to invest in early stage research into the medicinal properties of lanolin and will match any NISA funding up to $500,000 in a suitable project.NISA confirms receipt of the proposal and says that BIO Ltd will be notified in due course whether the government agrees to fund the project.

Brenda then asks the company secretary to arrange a meeting of the board to discuss the proposal and confirm her decision to submit the expression of interest.Notice of the meeting is sent to all the directors except Frank, who sees himself as a 'silent partner' and who rarely attends board meetings.Arthur and Elizabeth are aware that David is a director and shareholder in Davmeri Pty Ltd, and that Davmeri Pty Ltd has an interest in sheep breeding.However they do not know that Davmeri Pty Ltd is specifically interested in research into the medicinal properties of lanolin, and will benefit directly if that research is eventually commercialised.

Arthur, Brenda, David and Elizabeth hold a board meeting and resolve that BIO Ltd should pursue the NISA funding opportunity.After the meeting BIO Ltd makes an announcement to ASX that BIO Ltd 'has agreed to partner with the Australian Government in a substantial investment under NISA into research into the medical properties of lanolin'.

Later that day, Frank reads the announcement.He immediately calls Arthur and says that he is against the proposal and that the ASX announcement is premature.Following the announcement, the price of BIO Ltd shares increases by 45%.Frank decides to sell his shares and does so at a sizable profit.

Three months later, NISA decides not to fund the BIO Ltd project.When the NISA decision is announced, BIO Ltd shares fall in value by almost 60%.Many small shareholders in BIO Ltd complain and ask ASIC to investigate.

Advise ASIC on whether any of the directors of BIO Ltd have breached their duties:

(a)at general law

and

(b)Under the Corporations Act 2001 (Cth), together with the potential consequences of breach.