Question 1:

JWP Limited is 50% owned by Green Ltd and the remaining 50% of shares are widely held by various investors. In 2019, JWP was approached by Green Ltd, to make a further major investment in new and highly prospective technology based on blockchain. The directors of JWP delegated to others, including a computer expert, the task of obtaining the technical information about the prospects of the technology.

The report prepared for the directors indicates that the proposed investment should be very successful. Queried by his fellow directors about the optimistic forecasts, Mr. Chester (who has an information technology qualification) assures them that all appears to be in order. However, some of the information in the report has been negligently prepared. This means that, when the directors rely on the report and invest JWP's funds in the technology, the investment will not be as successful as the report indicates and in fact, the company loses money on this investment.

Have the directors of JWP Limited (or any of them) breached their duty of care?

8 marks

Question 2:

JWP Limited is a public company and it has four directors: Anderson, Brown and two nominees of Green Ltd, the company that owns 50% of the issued shares in JWP Limited.

JWP Limited has already spent several million dollars on developing certain new technology, but it is not going well. The chief operating officer of JWP Limited sent a report to the directors explaining that there have been cash flow difficulties that are also expected to continue until the trading situation improves as rival technologies and competitors were emerging. Due to this increasing business risk, the prospects of JWP Limited raising further capital by borrowing or further equity injections from Green Ltd, or other investors, is very limited.

At a board meeting attended by Brown and the two Green Ltd nominees, the directors resolve to enter into an agreement with a German software firm to purchase some intellectual property that might assist the company. This purchase is for a significant amount of money. Anderson was absent from this board meeting as he was away interstate on holidays.

1. (a)Have the directors (or any of them) breached their statutory duty to prevent insolvent trading by JWP Ltd?
2. (b)If you conclude that the directors have breached their duty to prevent insolvent trading, what action, if any, can the German software firm take against the directors of JWP Limited? (Assume the debt owed to the German firm is unsecured).
3. 7 marks

Question 3:

Stone and Downie both originally started the business now owned and run by ABD Limited, a public unlisted company, and both are directors of ABD Limited, along with three other directors (including a Mr. Xi). Downie is concerned that a significant stake in ABD recently acquired by XYZ Limited means that he and Stone might soon end up being frozen out of the business they started.

For some time now, Downie has been in discussion with a finance industry figure about a highly prospective investment project in Europe. Downie suggests to Stone that ABD should issue 500,000 shares to this finance industry figure in Europe as a means of creating ties with ABD Limited that might also help it to secure access to investments in Europe in the future. Downie and Stone are both eager to bring this proposal to the ABD board and they do so at the next board meeting.

Once this proposal has been presented to the board, Mr. Xi, who was the only director who voted against the proposal, is furious as he sees this share placement plan as a ploy to further entrench Stone and Downie's control of the company by putting shares in the hands of a person who is likely to support Stone and Downie in the future.

If the share issue to the finance industry figure in Europe does go ahead, have the directors breached their duty to exercise their powers for a proper purpose?

5 marks