Pets Pty Ltd ('Pets') is a small family company which operates a pet business. Adam, Bec and Chris are all siblings and the only directors of Pets. Each owns 50 ordinary shares. Clause 20 of the constitution of Pets provides that Adam, Bec and Chris shall be a director of Pets at all times.

Earlier this year, Adam had a falling out with the rest of the family and now Bec and Chris won't speak to him and don't want him to have anything to do with the company. Bec and Chris now want to change the company's constitution to prevent Adam from being a director.

At a recent board meeting, Bec and Chris passed the following resolution (Adam voted against the resolution):

Pets Pty Ltd (ACN 123 456 789)-Written resolution

Share Issue

Resolved that:

As Pets Pty Ltd requires additional capital to undertake long overdue capital works, Pets Pty Ltd shall issue 50 ordinary shares to Bec and 50 ordinary shares to Chris in consideration of $5,000.00 for each share

Signed: Bec (Chairperson)

JANUARY 1, 2020

An extraordinary general meeting was held in February where a special resolution was passed removing Clause 20 of the constitution. Thereafter, a second resolution was passed at the meeting removing Adam as a director.

After removing Adam from the board, Bec and Chris attended a board meeting suspending dividends indefinitely and increasing their directors' salary.

Unfortunately, in March that same year Pets runs into financial difficulty. Pets hires Dave, a qualified accountant, to advise using his expertise on how to increase sales. Pets also names Dave to its board as a non-executive director.

In July Pets issues its year-end financial statements. Neither Bec, Chris or Dave realise that the financial statements neglected to disclose that Pets had just borrowed $10 million from Broke Bank. The omission made Pets financial situation look significantly healthier than it in fact was.

(a)Advise Adam whether it was legitimate for Bec and Chris to award the new shares to themselves.

(b)Have the directors Bec, Chris and Dave breached any of their common law and statutory duties to the company in connection with the year-end financial statements. In your answer refer to relevant case law and sections in the Corporations Act 2001.

This is Australian Company law and they refer to The Australian corporations act 2001. The IRAC method - Issue, Rule, Application, Conclusion - should be used.