Inspired Design Ltd (Inspired) is a medium size company with approximately $100 million of assets (mainly computing equipment and contracts to supply services or receive royalties for the applications it develops) and $70 million of liabilities.It creates applications for smart phones like the iPhone and Android phones using computing facilities based in Perth.

Inspired has a wholly owned subsidiary called Basket Case Ltd (Basket Case). Inspired provides Basket Case with an interest free loan of $1 million, provides administrative and management support to Basket Case for no charge and grants Basket Case a licence to use some of Inspired's application patents in return for a royalty based on the cost to Inspired of providing access to the patent (that is, Inspired makes no profit from the licence).Inspired also calls a general meeting of Basket Case shareholders (being Inspired) and votes to remove and replace Basket Case's managing director, even though Basket Case's constitution provides that the managing director is appointed for life.

Question 1

(a)Assuming that the directors of Inspired owe a duty to act in good faith in the best interests of the company, have they done so despite Inspired providing the various kinds of assistance to Basket Case?

(b)Will Inspired have any liability from removing and replacing the managing director of Basket Case?If so, is there a better way for Inspired to replace the managing director?

Question 2

While on holiday in Hong Kong, you catch up with your friend Cathy who lives there.Cathy (who regularly travels to Australia for business) has been asked by a current board member of an Australian company, Finance Company Limited (FCL), if she would like to become a company director of FCL.The board member of FCL has told Cathy that they think FCL's financial records have not been kept in proper order and that they think Cathy's accounting experience would come in very handy on the board to help fix up any issues.

Cathy tells you that she thinks she should agree to become a director because she thinks that directors' duties are quite narrow and in any event the enforcement of the duties is unlikely to result in significant penalties.

Critically analyse whether you agree with Cathy.Make sure you refer to relevant provisions of the Corporations Act 2001 (Cth) and relevant cases

For discussion purposes only:

A's to argue from Basket Case's perspective and against Cathy becoming a director.

B's to argue from Inspired's perspective and in favour of Cathy becoming a director.