QUESTION 1

Gemsales Pty Ltd Company

Jack: Managing director

Nolan:Director

Andy: Director

Helen: Director

Erica: Director

Mark -----retailer of jewellery

Jack, Nolan, Andy,HelenandEricawerethedirectorsofGemsalesPtyLtd,a companyengagedinthebusinessofimportingandsupplyingjewelleryas wholesalers to the local market.The company decided that as the market was becoming more competitive it needed to expand its business asitfeltwithincreasedvolumesofsalesitwouldbeableto loweritspricesandbemorecompetitive.In order to dosoitobtaineda$4million dollar loan from the Friendly BankLtd. $3 million was used to buy more stock and $1 millionwasusedtobuyalargenewwarehouseandshowroomsfromTradersP ty Ltd.

Andy was not at the meeting thathadmadethesedecisionsashewasinhospital

recovering from aseriousaccident.Erica, as was her usual custom, hadnot attendedthemeetingbutsignedtherequisitedocumentationagreeingtothe expansion of the business and the getting of the loan. Helen who attended, said she did not know if she agreed and abstained from voting. Jack and Nolan both voted to go ahead with the

expansion and the getting of the loan.

At aboutthistimeNolanhasestablishedcontactwithMark,whowassettingupa newbusinessasaretailerofjewellery.Mark was looking for reliable suppliers, but

said he would not deal with Gemsales Pty Ltd as he did not like Jack, the Managing Director.Not wishing to missoutonsuchalucrativebusinessopportunity,Nolan arrangedtosetuphisownbusinessasajewellerywholesalerandacontractwasentered into between Mark and Nolan for the supply of jewellery .

Six months later, Nolan resigned as a director.At the same time it wasclearthe companyhadover- ex tendeditselfandwasinsolventandcouldnotpaytheinterest on its loans

It also became clearthatNolanwasamajorshareholderinTradersPtyLtdandthe otherdirectorswereunawareofthisatthetimeofthepurchaseofthewarehouse andshowrooms.Furthermore, Nolan had been approaching other established customers of Gemsales Pty Ltd and had secured orders for his own business.

Adviseas to the liability of the parties both under common lawand the CorporationsLaw Australia.