Royal Aquariums Ltd (Royal) owns and operates a chain of marine aquarium shops on the Gold Coast. Jean, Ruth and Ann are the only directors of Royal. Jean was appointed the managing director due to her extensive knowledge about marine aquariums. Both Ruth and Ann are non-executive directors. Royal has a number of unrelated shareholders.

Over the last few years, Royal's financial position has steadily deteriorated. Whilst Jean is aware of this, she has not passed on any financial information on to the other directors or indicated that she has any concerns. In fact, she has repeatedly told the other directors that the company is performing wonderfully. Ruth and Ann have received the company's financial reports but they never look at them closely because they assume that Jean or the company's auditors would alert them to any problems.

By January 2021, things have started to get dire for Royal. Monthly sales have dropped significantly after a competitor opened some new aquarium stores nearby that offer cheaper and more exotic types of fish. Royal's cash reserves are running low and Jean is post-dating cheques (putting dates into the future on the cheques) to avoid the company running out of money. In a few instances, cheques have been presented when Royal had insufficient funds and those cheques bounced.

On 20 January 2021, the manager of Royal's bank calls Jean with the news that the bank will be forced to suspend Royal's overdraft facilities unless the company improves its financial position.

At a board meeting held on 1 February 2021, Jean informs the board that she has a revolutionary idea for Royal. She proposes that Royal enter into leases for two more shops located in Surfers Paradise. She suggests that undertaking this transaction will mean revenue increases, and could even make Royal a potential takeover target for its competitor. Ruth and Ann are intrigued and tell Jean to do whatever she has to do to get the transaction finalised.

After the meeting, Jean approaches a commercial leasing agent who informs Jean he has two shops available for lease. The agent says the shops are in wonderful condition and will be just what Royal needs. Jean inspects the shops with someone recommended by a friend, Frank, who he advises is an accredited residential building inspector. The fact is that Frank's qualifications were obtained many years ago and in fact Frank has stopped practising for the last 10 years and is no longer currently accredited. Jean thinks the shops are acceptable and Frank says he can't see any structural problems with the buildings.

On 1 March 2021, the Royal board has another further meeting and Jean gives an update regarding the leases. She also says that Royal needs $2 million to place signage on the shops. Jean says she has reached an agreement with Royal's bank for it to loan the company $1 million, and she suggests that Ruth and Ann each also contribute $500,000 in exchange for shares in Royal. Ruth and Ann both agree.

On 5 March, the leases are signed and Ruth and Ann transfer a combined $1 million to the company and a credit agreement is entered into with Royal's bank for $1 million. The new signage is completed on 10 March and Jean has arranged a grand opening for 15 March.

However, on 13 March Jean receives a letter from the Gold Coast City Council saying that Royal is not permitted to open the two new shops because they do not have adequate fire exits and the fire sprinkler system needs to be replaced. After some preliminary investigations, Jean discovers that it would cost over $5 million to install additional fire exits and upgrade the sprinkler system.

With these setbacks and declining sales, by 20 April 2021, the directors have no alternative but to place Royal into voluntary administration, and the company subsequently goes into liquidation.

The liquidator now wishes to commence an action against the directors (a) alleging the directors breached their duty of care, skill and diligence; and (b) for insolvent trading.

Have any of the directors, Jean, Ruth and Ann, breached any of their respective director duties? You may wish to deal with Jean's situation separately to that of the other two directors.