Question
James, Tom, Peter and Mary are the only directors and shareholders of Easy-Deasy Pty Ltd. Easy-Deasy operates a profitable hotel business in Sydney. James (managing
James, Tom, Peter and Mary are the only directors and shareholders of Easy-Deasy Pty Ltd. Easy-Deasy operates a profitable hotel business in Sydney. James (managing director) and Tom are executive directors. Peter and Mary are non-executive directors who merely attend monthly board and audit committee meetings. At a recent board meeting attended by all the directors, James and Peter proposed that it would be better for the company to purchase bedding products from Bromand Ltd. At the meeting, Mary was concerned that Bromand's prices were higher than most suppliers. She questioned whether the company could afford the costs associated with the purchase considering the impact of the pandemic on its financial position. She suggested they investigate other suppliers. The board delegated this investigative task to Peter. However; Peter spent very little time doing so because he was busy with personal matters. He hastily prepared a report for the board meeting recommending that the proposal be accepted. However, it turned out that there are suppliers of bedding products at much cheaper prices and with similar products of reasonable quality.
At the next board meeting, the directors considered the proposal and the report prepared by Peter and voted in its favour. Mary did not attend the meeting as she was on a holiday in Hawaii.
After the meeting, James and Tom signed a five-year contract with Bromand Ltd to purchase bedding products worth $1 million dollars per year. A week later, Peter and Mary became aware that James and Tom owned 50 percent of shares in Bromand Ltd. [Page 2 of 2]
(a) Assess whether James, Tom, Peter and Mary have breached any of their directors' duties under the Corporations Act 2001 (Cth). Discuss using relevant case law.
(b) Do the directors have any legal defences? If unsuccessful, what are the consequences of any breach?
(c) Assume that after six months, Easy-Deasy becomes insolvent, and a liquidator is appointed. With reference to the powers of a liquidator, what possible actions can the liquidator take?
(d) What legal steps can Bromand Ltd (unsecured creditor) take to recover money $1.5 million that is owing to them under the contract?
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