Question 1

Candy is a director of Chocolate Ltd, a company without a constitution. The three directors of Chocolate Ltd hold a board meeting and pass the follow two resolutions:

(a) First Resolution: To purchase shares in Fresh Fruits Ltd. Further Information: Candy has been busy with her racehorse which is to run in the Melbourne Cup and has not had time to read a financial analyst's report provided to the directors on this transaction. The report recommended to delay a decision until further research could be conducted but the other two directors decided that they had sufficient information and supported the share purchase. Candy relied on their assessment and voted in favour of the transaction. The shares in Fresh Fruits Ltd proved to be a very poor investment for reasons which would have been identifiable with a more detailed analysis.

(b) Second Resolution: The directors of Chocolate Ltd to be permitted to accept large customer orders in their own company, Sweets Pty Ltd and ratify this resolution at the general meeting. Further Information: The directors' control 80% of the shares of Chocolate Ltd and control 100% shares in Sweets Pty Ltd.

REQUIRED: (a) Discuss if the directors have breached a director's duty with the First Resolution decision to purchase the shares in Fresh Fruits Ltd. Refer to the Corporations Act 2001 (Cth) and cases where relevant.

(b) Advise the directors of any legal action they can be exposed to under the Corporations Act 2001 (Cth) from the shareholders of Chocolate Ltd because of the second resolution. NOTE: You are required to answer the two parts separately using the 4-steps process. The marks allocated for each part are as follows: Part (a): 10 Marks. Part (b): 10 Marks. [20 Marks] Please answer Question 1 below: