Q5:

Christine, Peggy and Bev are the three directors of a physiotherapy/pilates companycalledEYV Pty Ltd.

Bev is the managing director but has been busy looking after her grandchildren. Toexpand the business the three directors held a board meeting where it was decidedthe company buy 3 reformer beds at a cost of $35,000 each. This would help attractmorepatientsandthereforegeneratehigher incomefor thecompany.

Bev asked Peggy to research suppliers to see which offered the best product.Peggy's cousin Nicole ran a company that sold the equipment and as Nicole'sbusiness was not doing too well, it was in Nicole's interest to get the order. To"encourage" Peggy to recommend Nicole's to be the supplier she offered Peggy afreetrip to Europeforher and her husband,Kenny.

Three weeks later at the next board meeting which Peggy chairs the meeting as Bevis busy babysitting the grandchildren. This is the 5thmeeting she has missed in theyear. Peggy tells them that Nicole's business is the best and most reliable supplierandthat inher opinionthe companyshouldbuyfromNicole.

Peggy rings Bev who is caught in the traffic and merely says yes just do it and hangsup. Christine being more conservative asks some more questions and wants to knowhowthe company canaffordstobuyandhastherebeen anindependent

assessment of the reformer beds. Bev who is rushing off, says "don't worry, theaccountants will organise the finance for the company. Just approve the transaction."Christinereluctantly does.

The bank agrees to finance the equipment and three months later after the bedshave been delivered they continually break down and need maintenance. Also theparts to fix them are not readily available in Australia.Two of the three beds are outof action and EYV Pty Ltd cannot advertise for new customers. The company had toemploy additional staff to run the machines, but because of the continualbreakdownsthey werenotneeded.

YouaretheaccountantforthecompanyandChristinecomestoyouandseeksyouradviceon what happened.

REQUIRED:

Advise the company what are the consequences of the above actions by the threedirectors. What can the company claim back from the three directors? Do thedirectorshave any defences?

Pleasereferinyouranswertorelevantcaselawandlegislation.