Question A3(10+10+10 = 30 marks)

GreenThumbs Pty Ltd (GreenThumbs) operates a wholesale nursery growing and selling garden plants. Suni, Pierre and Rachel are the only shareholders and directors. Suni manages the company's day-to-day operations. Pierre, who left school at 14 and has no tertiary qualifications, is in charge of the nursery.Rachel is a non-executive director who does not take an active part in the management or operations of the company.

Until recently, GreenThumbs has been very profitable. However, six months ago, a competing business opened nearby and since then GreenThumbs' profits have dropped considerably.

Suni thinks that GreenThumbs should move to larger premises in a different area. Without consulting Pierre or Rachel, Suni starts looking for new premises and she decides the first place she inspects is perfect, although the price is more than GreenThumbs can comfortably afford. Suni does not think this will be a problem, because there is no competition nearby and she expects that profits will recover immediately.

Suni calls a board meeting and tells Pierre and Rachel that moving will solve all the company's problems and that this property she has seen is absolutely perfect for GreenThumbs. She says they will have to act quickly as there is another interested purchaser. Suni does not tell Pierre and Rachel that she only looked at this one property. Suni is so enthusiastic that both Pierre and Rachel agree to the proposal even though Rachel is doubtful, feeling that they are being rushed into making a decision without being given time to consider other alternatives.

Pierre agrees to Suni's proposal without really understanding the financial implications.

GreenThumbs purchases the new premises but, because of continuing dry weather, its profits remain low. Rachel is becoming worried about her obligations as a director, especially if GreenThumbs' financial position deteriorates any further.

Required:

Advise Rachel about

1)her position in respect of any breaches of her general law or statutory duty of care and diligence as a director; and

2)whether her decision to agree to the purchase of the new premises would be protected by the business judgment rule.

Support your advice with reference to relevant sections of the Corporations Act 2001 and to cases.