Question 2

Chan and Lim incorporated Grove Electrics Pte Ltd (GEPL) to sell electronic goods imported from China ten years ago. Five years ago, an Indonesian conglomerate invested substantial sums in GEPL and became a major shareholder in GEPL. Chan and Lim remain on GEPL's board of directors, with the addition of three other directors from the Indonesian conglomerate as new directors of GEPL. With the injection of additional funds, GEPL leased a warehouse and set up a flagship store in Tampines. During a board of directors' meeting at the beginning of the year, Chan proposed the purchase of a shipment of voice-activated devices for homes as he noticed that many young people in China had adopted their use. He made this proposal after studying one market research conducted in China. Since this was an emerging trend that had yet to be adopted in Singapore, Chan wanted to import these devices quickly to gain the "firstmover advantage" over other companies. The rest of the board of directors thought that it was a good idea and voted to approve the purchase. However, after the shipment arrived, the company was unable to sell many of these devices as Singaporeans did not adopt the use of these voice-activated devices as widely as expected. As a result, many of these devices remained unsold, causing a loss of $500,000 in GEPL's business.

In the previous year, Chan and Lim incorporated a separate company called The Club, in which they were the only shareholders and directors. The Club entered into a lease agreement with Brighton Properties, GEPL's landlord, for a unit above GEPL's warehouse. GEPL paid for all the security deposits, monthly rents and expenses. Neither Chan nor Lim disclosed The Club's payment arrangement to the board or the shareholders of GEPL.

(a) Explain whether GEPL's board of directors collectively has breached any directors' duties with respect to the purchase of the shipment of voice-activated home devices, and if the board has any defences in this case.

(b) Explain whether Chan and Lim have breached any directors' duties with respect to the lease agreement entered into between The Club and Brighton Properties; and if there are any breaches, the consequences they might face as a result of the breaches.