QUESTION FOUR- Directors duties

Part a) - 10 marks

Hint: The best practice question to use from workshops is workshop 7 question 2.

Christine, Sharni and Mandy are the directors of Layabout Ltd, a company that manufactures camping equipment. Sales are falling and the directors are worried about the future prospects of the company. At a directors' meeting it is resolved that a marketing campaign to promote the company's products will be put out to tender.Part of the campaign will involve television advertising and Christine wants the company to employ her husband Sunil to appear in television commercials as he has experience modelling and has taken acting lessons. It is expected that Sunil will be paid $100,000 by Layabout Ltd to be the 'face' of the company in the television commercials.

REQUIRED

Using your knowledge from studying directors duties (chapter 13.3 in 19^th edition and chapter 16 in 20^th edition), describe the procedure under the Corporations Act the company and Christine must follow in order to employ Sunil for the advertising campaign.

Part b) - 10 marks

Part b) is a real exercise in understanding the development over time of the duty of care and diligence as well as understanding liability for breach in order to determine whether the statement is correct or not. Note that, in either the introduction or the conclusion, you must state whether the statement is correct or not.

"Company directors have to exercise a very high standard of care and diligence under both the Corporations Act and case law because if they make a decision that causes any damage to the company, they will be personally liable to creditors."

REQUIRED:

Using your knowledge from studying directors duties (chapter 13.4 in 19^th edition and chapter 17 in 20^th edition), discuss the correctness of this statement.