Jim and Peter are directors of Sambal Pty Ltd. Sambal Pty Ltd has a constitution which restricts the amount of money the company can borrow at any one time to $10m. The company already has a bank loan outstanding from the bank in the amount of $10m. The company recently took out another $2m loan from ABC Bank. The loan contract was signed by 2 of the companys directors and had been authorised by the board.

The company is now claiming that the loan contract with ABC Bank is invalid as it contravenes the constitution. The company is refusing to pay interest to ABC Bank in relation to the $2m loan.