Question 1 (12 marks)

Kyle owns a small company called Prime. Kyle also sits on the board of a large proprietary company called Destiny as a nonexecutive director. Unfortunately, Kyle has a gambling addiction and is in significant personal debt. A financial trader tells Kyle that he can make a lot of money if he uses his position as director to gain access to the company cheques, forge a loan from Destiny to Prime, and then use this money to buy shares in Destiny. Kyle follows this advice, and within one week returns enough money to discharge all his personal debts. Kyle then sells the shares that Prime bought in Destiny and pays back the total amount loaned from Destiny. ASIC discovers the fraud and takes action against Kyle for contravening his duties as company director. Kyle argues that since the loan was paid back in its entirety, Destiny has not suffered any detriment.

Explain, with reference to the Corporations Act 2001 (Cth) and case law, whether Kyle has acted in accordance with his duties as a director. (DO NOT discuss penalties.)Kyle owns a small company called Prime. Kyle also sits on the board of a large proprietary company called Destiny as a nonexecutive director. Unfortunately, Kyle has a gambling addiction and is in significant personal debt. A financial trader tells Kyle that he can make a lot of money if he uses his position as director to gain access to the company cheques, forge a loan from Destiny to Prime, and then use this money to buy shares in Destiny. Kyle follows this advice, and within one week returns enough money to discharge all his personal debts. Kyle then sells the shares that Prime bought in Destiny and pays back the total amount loaned from Destiny. ASIC discovers the fraud and takes action against Kyle for contravening his duties as company director. Kyle argues that since the loan was paid back in its entirety, Destiny has not suffered any detriment.

Explain, with reference to the Corporations Act 2001 (Cth) and case law, whether Kyle has acted in accordance with his duties as a director. (DO NOT discuss penalties.)

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