QUESTION 4 - CORPORATE GOVERNANCE [25 Marks] Go through the case below and then apply the principles pertaining to directors' fiduciary duties to the facts provided in the case (i.e. evaluate the conduct of Peter and Rod against their fiduciary duties). NOTE: Your answer need not exceed a page and a half (A4 sized) in length.

LeisureNet Limited, was a JSE listed company founded in the 80s by Mr Peter G and Mr Rob M who became its joint CEOs. This company was well known for its Health & Racquet Fitness Clubs and for a few years, it enjoyed considerable success as a large profitable company. It employed 4,500 people in South Africa alone. Thus, its eventual demise affected many people, including Rob and Peter themselves, as they were prosecuted and received jail sentences. In its heyday, LeisureNet took interest in expanding its business to foreign markets, which it did through LeisureNet International Limited (International), its offshore subsidiary. Peter G. and Rod M. who were directors of International, took a lead in what became LeisureNet's aggressive international expansion program. International acquired a 50% share of Healthland Germany Limited. The latter held 50% shares in Healthland GmbH (GmbH), and the rest of the shares in GmbH were held by Dalmore Limited in `Germany, which was initially LeisureNet's franchisee.

Peter G and Rob M, each held 20% interest in Dalmore (Germany), which they never disclosed to boards of LeisureNet companies. In 1999, International purchased Dalmore's interest in Healthland Germany for DM 10 million which meant that Peter G and Rod M each received DM2m. LeisureNet paid the purchase price for Dalmore, with Peter G and Rod M's interest still unknown to it. The purchase agreement (which Peter signed on behalf of International) meant in effect that LeisureNet was unknowingly making a deal with its 2 executives and providing funds that would benefit them personally. It also advanced a loan to GmbH to enable it to fit out its facilities and further nominated Peter G and Rod M to the GmbH board. It has been reported that LeisureNet had parted with 80m to fund the Healthland expansion and that all its available cash, some of which it had raised through the sale of shares had been invested in it. Clearly, LeisureNet was squeezed to the pulp. In the meantime, Peter G and Rod M had sold most of their interests in LeisureNet and had been awarded a large stake free of charge in Healthland International. At this stage, they were still heading both companies.