Jerry, Mark and Martha are directors and shareholders of Vamina Hotels Pty. Ltd. Jerry, the founder of the company, owns 90% of the shares while Mark and Martha each own 5% of the shares in the company. Jerry is also a single director and shareholder of FMO Construction Pty Ltd. Jerry convinced the board of Vamina Hotels that the company could improve its position by refurbishing and expanding one of its hotels. The expansion required Council approval and a loan of $1.5 million. Jerry sought quotes from other construction companies (which exceeded the quote from FMO Construction) and ensured the quote from FMO Construction is well below these other quotes. At the Board meeting, Jerry showed Mark and Martha various financial figures, prepared by Ned, the newly hired graduate accountant at Vamina Hotels and said Ned is confident the company would benefit financially if we go ahead with this. None of the directors understood the financial figures and had not realised the companys cash flow was low and that the loan could lead the company into insolvency. Mark and Martha were unaware that Jerry was also a director and shareholder at FMO Construction. At the Board meeting, Jerry further represented that Council approval for this expansion is not a problem our competitors have done similar expansions and have managed to get Council approval in a month or so. 4 | P a g e Mark and Martha relied on Jerrys representations to the Board meeting, as they were excited about the refurbishment and the potential for profits to increase and hence their remuneration to rise accordingly. Jerry had assumed that Council approval would be easily granted and did not attempt to seek approval until after the Mark and Martha had signed the contract with FMO Construction. In the meantime, FMO Construction has commenced work and collected an advance payment of $300,000 from Vamina Hotels. Two months after the refurbishment commenced, the Council informed him that the approval was not granted. Vamina Hotels was struggling to meet its loan repayments and has become insolvent. Mark and Martha have now realised the true state of affairs and demand that Jerry repay the $300,000 to Vamina Hotels at the general meeting. Jerry being a majority shareholder in the general meeting passes a resolution ratifying the contract.

1. Advise Jerry, Mark and Martha whether they have breached any of the directors duties under the Corporations Act 2001 (Cth).

2. Advise what if any defences are available to Jerry, Mark and Martha.

3. Advise Mark and Martha what member remedies are suitable for them in the circumstances.