QUESTION 1 [20 Marks] Wong, Ho and Lucinda are directors of Tropical Designs, an accessories company selling stylish leather goods and ornaments. Ho and Lucinda are married and Wong is a friend from university. Tropical Designs owes three creditors $100,000. The expiry date for payment of each debt has passed. One of the creditors is threatening to apply for winding up of Tropical Designs. Of the three directors of Tropical Designs, only Wong is aware of the overdue debts. Wong usually avoids looking at company accounts, because he considers his role at Tropical Designs is to manage the design team. However, he recently held a meeting with the company's accountant. He was the only director who responded to the accountant's messages. The accountant told him that Tropical Designs had $5000 in its bank account and could no longer pay the salaries of its employees. He said to Wong that it was the directors' duty to cease company trading during any period of insolvency. Wong said, 'I don't know what that means, the others are much smarter with finances, I'll try and call them. But I'm sure we can work this out. The main thing is to keep going. That will keep morale up.' Ho and Lucinda have missed monthly board meetings for the last three months. Wong has rarely seen them in this time. When he last saw them a month ago, they told Wong that he was doing a good job with the design team and they had every confidence in his ability to run the company for a few months. They said they were busy establishing a new windsurfing business and they would be back in the Tropical Designs office in about two months. Wong cannot contact either Ho or Lucinda for a week. In that week, Tropical Designs' three employees say they will not work if they are not paid, and one of them says he will consult a lawyer about suing Tropical Designs for payment of salary arrears. The creditor that threatened to apply for the winding up of Tropical Designs makes good the threat and applies to court for an order appointing a liquidator. During the week, Wong uses the company credit card to pay the monthly loan repayment on his Ferrari sportscar. The amount of the repayment is $10,000. You are the lawyer for Tropical Designs. Advise the directors on their potential legal liability under the Corporations Act (2001) (Cth).