Q4:

Youareanaccountant/financial adviser workingforfinancial restructuring firm. One ofyourclientsisEmpire HotelsPtyLtd(Empire),whichownsseveralluxuryhotelsservicingMelbourne'selite.Empirewasincorporatedin2012 and has its own writtenconstitution.

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 thecompany. Sarah is the Chairperson and is a high-profile property lawyer. Nancytakesnoactiveroleinthebusiness,andrarelyattendsdirectors'meetingsbecause she ffiiinds them boring,sheonlywantedtobeappointedadirectorsothat shewouldgetVIP

accessto Empire'sexclusive events.

In 2021anumberofeventsoccurred:

• AtaboardmeetinginJanuary2021,Sarahwasgiventhetaskofinvestigatingthepurchase of aproperty for anewhotel site.
• InApril2021,Sarah negotiatedforEmpiretopurchasepropertyfromBrooklynHoldings Pty Ltd (Brooklyn) for $2.7 million. The other directors are not awarethat Sarah's father-in-law, Rupert, owns 80% of the shares in Brooklyn. Under Rupert's will, on his death his shares in Brooklynn will pass to Sarah. He is 95 and in poor health.
• At the Board meeting to discuss the transaction (see week 5 tutorial question), Sarah did not disclose that she would benefit from the transaction when father in law passes away. She says this is a personal matter and not relevant to the other directors.
• The contract is signed by Sarah and Brian.

REQUIRED:

1. Has Sarah breached her obligations to the company?

Sarah has breached her duties as a director of Empire Hotels Pty Ltd by failing to disclose her conflict of interest in the proposed property transaction. Under section 191 of the Corporations Act 2001 (Cth), a director must disclose any material personal interests they have in a proposed transaction to the other directors before the transaction is entered into. Sarah's conflict of interest arises from the fact that her father-in-law owns 80% of the shares in Brooklyn Holdings Pty Ltd, the vendor of the property. If the transaction goes ahead, Sarah will benefit financially when her father-in-law passes away and she inherits his shares in Brooklyn.

1. If so does she have any defence?

Sarah might be able to argue that she did not believe her personal interests were relevant to the other directors, but this is unlikely to be successful given her close relationship with the vendor of the property. Sarah was negotiating the purchase of the property on behalf of Empire and she knew that her father-in-law owned the vendor company. It is not credible that she would not have realised that her personal interests were relevant to the other directors.