Q3: You are an accountant/financial adviser working for a financial restructuring firm. One of your clients is Empire Hotels Pty Ltd (Empire), which owns several luxury hotels servicing Melbournes elite. Empire was incorporated in 2012 and has its own written constitution. The directors and shareholders of Empire are Catherine, Nancy, Brian, and Sarah. Catherine and Brian are joint executive directors, running the day-to-day business of the company. Sarah is the Chairperson and is a high-profile property lawyer. Nancy takes no active role in the business and rarely attends directors meetings because she finds them boring, she only wanted to be appointed a director so that she would get VIP access to Empires exclusive events. In 2021 a number of events occurred:

At a board meeting in January 2021, Sarah was given the task of investigating the purchase of a property for a new hotel site

. In April 2021, Sarah negotiated for Empire to purchase property from Brooklyn Holdings Pty Ltd (Brooklyn) for $2.7 million. The other directors are not aware that Sarahs father-in-law, Rupert, owns 80% of the shares in Brooklyn. Under Ruperts will, on his death, his shares in Brooklynn will pass to Sarah. He is 95 and in poor health.

At a board meeting later that month, the directors were provided with a 50-page report from Sarah. The report contained advice that this was the only site suitable for hotel development within 5 kilometres of the Melbourne CBD, and an independent valuation of the property showed the site to be worth between $2.2 million to $3.1 million. This was based on where interest rates were and the increase in travel as COVID restrictions were being lifted

. Nancy did not attend the meeting, and Catherine and Brian did not have time to properly read the report as they were busy with hotel operations, and they trusted Sarahs expertise. Following the meeting, Sarah and Brian executed the sale contract.

Nancy is unhappy with this purchase and doesnt understand how the contract could have been signed without her signing anything.

REQUIRED: a) Advise all of the directors of Empire as to whether any of them have breached their duty to: the company and under the Corporations Act b) Consider also whether there are any defences available. (15 marks) c) Advise the directors what the company can seek as compensation if they have breached their duties to the company.

Q1: You are a corporate law specialist working for Flinders Partners, a mid-tier professional services firm in Melbourne. One of your clients is Great Southern Seafood Ltd (Great Southern), a public company based in Tasmania. It is a vertically integrated business involved in catching, processing and packaging high-quality sustainable seafood for high-end Australian restaurants. The directors of Great Southern are Ronald (Managing Director), Joanne (Chief Financial Officer), Robert (Internal Systems Manager) and Jessica (non-executive director). The Board is considering appointing Sarah as another non-executive director. Sarah is a professional director, holding several other appointments although 2 companies that she was previously involved with as a director has failed in the last 7 years, leaving creditors owed hundreds of thousands of dollars. Great Southern owns several fishing trawlers. One of those trawlers is the FV Bruny, a highly profitable vessel moored in Hobart, Tasmania. There were 8 crew members working on board the vessel. On 2 February 2020, the FV Bruny left for its usual 4 am fishing journey, and after a few hours lost communication with Great Southerns base. Two weeks later it is established that the vessel had got into trouble in the rough sea and sunk, and the crew did not survive. The sunken vessel featured in the news headlines for weeks, damaging Great Southerns brand. An examination of the FV Bruny after its recovery found that:

Several shortcuts were taken with routine maintenance. Joanne, Robert, and Jessica had trusted Ronald to oversee this in his role as managing director. The minutes of the previous 10 directors meetings, held during 2020, indicate that Ronald provided no reports to the board on maintenance and no questions were asked of him on this issue by the other directors. The communications equipment across the Great Southern fleet was out of date. The latest MORSE technology may have been more reliable at raising the alarm over long distances at sea, but the directors had decided on Joannes advice that the company could not afford it that it was not worth the $1 million upgrade cost for the entire fleet. Meanwhile, Robert has responsibility for buying Great Southerns computers and audio-visual equipment. Joanne discovers that in 2016, Robert used part of the allocated technology budget to purchase a $5,000 digital SLR camera. While Great Southern needed a new camera for its marketing publications, many cheaper options were available. Robert wanted a high-end camera so that he could borrow it on weekends for his side project as a wedding photographer. There are rumours that ASIC is investigating the actions of the directors. The directors of Great Southern approach you to advise the company.

REQUIRED: 1. Advise ASIC whether any action can be taken against any or all the directors for a breach of their statutory duties as directors of the company.

2. If ASIC is successful in bringing an action, advise the directors about the potential penalties or remedies that a court could impose against them.

Q 2: You are the accountant for The Biggest Loser Pty Ltd, a health and fitness company. The directors and shareholders are Michelle, Hayley, and Stephen. Michelle is the managing director and manages the day-to-day operations. Hayley who was an Olympic champion swimmer has no tertiary qualifications and oversees marketing and sales. Stephen is a non-executive director and takes no active part in the affairs of the company. He is a good friend of Michelle and is only acting as a director to help Michelle. He is a qualified sports scientist. From the accounts that you have prepared, the company has traded profitably for the last three years. However, a competitor recently opened a fitness and health centre in the same suburb and the companys profits have decreased significantly. The cash flow budgets you have prepared for the company show that it will not have sufficient cash in the next 18 months unless it raises fees or reduces costs. Hayley thinks that the company should relocate and move to bigger premises in a new area where there is no competition. She is confident she can generate more sales for the company. Without telling either Michelle or Stephen she inspects a new building and comes to the view that it is the perfect building and location. She has not looked at any other buildings. If she had read and understood the financial accounts, she would have realised that the rent was too expensive for the company, unless the income increases three-fold. The reason she was keen on the building was that it was owned by her brother Ian who is desperate to sell so he can clear his business debts. Hayley has been helping him meet his loan repayments. Hayley does not think the additional rent will be an issue as she can generate more sales to cover the costs. Hayley calls a board meeting and tells the other two directors of the proposal. She does not disclose to them she has only looked at one property and that it is owned by her brother. There is no independent valuation done on the property. All she provides to the other directors is an analysis that you as the accountant have prepared showing the estimated increase in income less the increased expenses and still showing a profit for the year. Because Stephen is busy with his practice and Michelle is busy worrying about other issues, they do not ask many questions and accept Hayleys recommendation. However, all did not turn out well. The building needed a substantial fit out and customers were no longer keen to buy health products because of recent adverse publicity.

Required: a) Advise the company whether any of the directors have breached their duty to the company.

b) Explain what the company could claim back as compensation from the directors.