Nim is a director of Avarice Ltd, a successful multimedia and marketing company. Avarice Ltd is keen to grow its business and wants to take over another successful marketing business, Marketers Rule Ltd. This is discussed at a board meeting and it is decided to attempt the takeover in three months. As it happens, Nim's sister Ann is an executive director of Marketers Rule Ltd, a fact he does not disclose to the board of Avarice Ltd. Nim informs Ann of the intended takeover and also buys 200,000 shares at $20 a share. Ann also increases her own shareholding, but prior to the takeover, resigns as a director of Marketers Rule Ltd to set up her own marketing business. Ann takes with her a wonderful new software marketing package she has developed while working as a director at Marketers Rule Ltd.

Avarice Ltd proceeds with the takeover, at which point the share price of Marketers Rule Ltd increases to $100 a share. Nim and Ann sell their shares in the takeover and make a large profit. Subsequently,, Avarice Ltd and Marketers Rule Ltd discover Nim and Ann's conduct and demand an explanation.

a) Have Nim and Ann acted properly in fulfilling their duties as directors? If not, why not?

b) What are the possible consequences of their conduct?

c) With reasons, explain whether the 'business judgement rule' will be relevant in these circumstances?