QUESTION 1

Ned and Percy have been directors of a company they established many years ago. Since setting up and running their successful company, Ned and Percy have been bringing in family members to take over the running of the company. Both Ned and Percy resigned some time ago as directors but are still active in giving advice to their family members who are now the official directors and officers.

Ned usually attends the board meetings and offers advice on various company matters. In fact he sends emails consistently to the managers about matters affecting the company.

Percy is no longer considered to be a director, but works part time now as the company secretary, keeping records and doing the various work, for which he is paid a small amount.

A number of problems seem to have occurred in the company in recent times: there are amounts of money missing and not accounted for, it is possible there has not been appropriate supervision of some employees, and company property is being used inappropriately by the management.

REQUIRED

Would Ned and Percy be in any way liable for any of the management issues in the company, since they no longer occupy the positions they originally held?

Could they be liable for failing to comply with s588G?

--------------------------------------------------------------------------------------------------------------

QUESTION 2

A group of environmentalists have purchased shares in a mining company. Some 200 members of the group are now shareholders and holding various amounts of shares. The members of the group who have purchased shares are not against profits being made by their company but are concerned that appropriate health and safety standards are not implemented by the company, and further that appropriate environmental safeguards should be implemented when extracting a mineral, transporting it and manufacturing the final product.

REQUIRED

What rights do members have to question directors at a meeting regarding the company's environmental practices?

What are the rights of members to actually call an extraordinary meeting in order to discuss a particular environmental issue that has arisen since the last meeting of members was held?

---------------------------------------------------------------------------------------------------------

QUESTION 3

ABC Insurance Co Ltd is a huge insurance company which has grown substantially, in great part cause of acquiring smaller insurance companies, and also employing some of the managers of those smaller companies.

Jim was a director of one of the smaller companies which has been absorbed into the larger company, and he is given a position as CFO in the larger company. Jim uses his office to organize loans from company funds to purchase some business interests he personally owns. Jim transfers a company car to his wife, who purchases the three-month-old car for $100. Jim, also being aware that the company is about to purchase two more smaller companies, secretly tells his family members to buy shares in the target since he knows the price will go up before the takeover occurs.

An auditor doing a routine check of the company alerts the board to the various transactions undertaken by Jim.

REQUIRED

Explain whether Jim has done anything wrong, and whether the board should take any action.

-------------------------------------------------------------------------------------------------------------

QUESTION 4

2) Massive Insurance Co is a leading insurance company in Australia. It is listed on the ASX and has a massive capital base with more than 300 employees around Australia. The directors of the company are well known figures in Australia, and all have held important positions in companies before joining Massive as directors.

The company recently bought out some smaller insurance companies for considerable amounts; this was done in order to grow the business of the company. The directors were given considerable information on each of the insurance companies prior to their purchase. There was much discussion at the board level, and some serious investigation by financial experts before the purchase was made.

It now transpires that the company paid too much for the various companies they acquired; the purchase has resulted in a significant outflow of capital for what now appears to be poorly performing companies. The purchase of the companies was a bad decision now that the financials have come to light. There is quite some discontent from the shareholders who have seen the value of their shares plummet.

REQUIRED

What might be the liability of the directors for the purchase of the companies, a decision which now appears not to have been a good decision for the company?

What defences are available to the directors for what turns out to be 'not a good business decision'?