Out-Side Pty Ltd ("OS") is an outdoor furniture design and construction company formed in 2001. It has kept the replaceable rules. Ash and Kenzie are elected as directors in August 2018. Unfortunately, OS is going through a difficult financial period. Shareholders voted for Ash and Kenzie because they promised to create stability in the company to avoid it suffering financial loss in the future as an economic downturn in the industry was expected. Ash had been a director in a different company two years ago, but that company went into liquidation. There are 4 other directors in OS (making 6 directors in total) and a total of 15 shareholders. All the directors own shares. Ash and Kenzie are the only directors with university degrees. Natasha, one of the other directors, has very little education and left school at 14.

During October 2019 Ash is in Paddington and sees a "For Lease" sign on a warehouse. It is the same warehouse where 5 years ago he was a gym instructor and he has great memories of those days. He believes that converting the warehouse into a design studio and construction space for OS will be easy. The company's present premises are in an industrial area near Macquarie University, 15 km from the centre of the city, and the current lease has 6 months to run (6 months left). The warehouse in Paddington is located near fashionable furniture outlets but is much too big for the company's present needs and the rental is higher than at the company's current location.

Ash is unsure and so telephones Natasha and asks her to convene a directors meeting for later in the week to discuss the lease. Natasha explains that it may be difficult to get the other directors together at such short notice and tells Ash to have confidence. Ash doesn't think Natasha understands how big the warehouse is.

Ash contacts the owners of the premises and expresses interest in leasing it for OS. The owner says that there is another interested party who is also in the furniture business and that if he wants the premises he must act immediately. The owner informs Ash that the lease must be for an initial period of 2 years. He feels rushed but agrees and accordingly signs the lease on behalf of OS before he has been able to raise the matter at the directors meeting.

Kenzie finds out about the lease arrangement early the next day. She believes that Ash has been careless and "too creative." Natasha is in fact the only director who supports Ash. The board meets the next day and by majority rejects the lease. The owner of the warehouse wants the lease enforced and threatens to sue. OS already has several outstanding creditors and these debts, together with the claim by the owner, could easily result in the company's liquidation.

Consider the above fact situation and explain whether Ash has breached his duty of care and diligence. What are the relevant consequences if he has?

QUESTION 3 [10 marks]

In relation to one of the following:

A. Shareholders rights, or B. Takeovers

Explain: how the law regulates; why regulation is necessary; and what you think the law seeks to achieve through its regulation.