QUESTION 1

MusangBhd.("the company")was incorporated in 2012. According to the company's objects clause, it was incorporated to carry on the business of exporting durians to China and selling durians in China.

The membersofthecompany areAhmad,Bong,Chandra,Daudand Elias.ItsdirectorsareAhmad, Bong and Chandra. According to the company's constitution, the board of directors has the power to approve any transaction valued at not more than RM300,000.

Initially, the company bought durians from various durian orchards inBentongand freeze the durians before shipping them to China. The directors found that the profit margin earned by the Chinese retailers was high. So they decided to open a shop in China to sell durians directly to the durian lovers there. They found a suitableshoplotlocated in a popular residential area. The owner agreed to rent it to them for two years for an equivalent sum of RM20,000 per month.

As the company needed more durians now, the directors decided to source them fromSegamat, which is the hometown of Ahmad. According to Ahmad, his father has a huge durian orchard ("the orchard"). Ahmad assured the board of directors that the durians are of very good quality, more delicious than theBentongdurians. An agreement was signed wherebyMusangBhd. agreed to buy all the durians in the orchard for RM15,000 per month for one year, with an option to renew for another year by the company.

Unfortunately, the texture of the durians from the orchard inSegamatis different from theBentongdurians.TheduriansfromSegamatwerenotpopularamongtheChinese.Forthefirsttwo months,MusangBhdsuffered a loss of RM25,000 from the misadventure of selling durians in their own shop. The losses are higher now due to the weakening Ringgit.

Daudand Elias heard about the losses and that the company would not be able to pay them any dividend.Theydemandedthatthedirectorsshouldcompensatethecompanyforthelosses suffered. However, the directors refused to do so, on the grounds that, if the company had made profit from this new venture, the members would have gladly accepted the profit.

BasedontheCompaniesAct2016and/orrelevantcaselaw,adviseDaudandEliasonthe following issue whether Ahmad and the other directors have breached their duties with regard to the contract to buy durians from Ahmad's father.