Sarah is the managing director of Youth Unlimited Pty Ltd (Youth Unlimited), a profitable company specialising in selling anti-aging products.

Whilst shopping at the local supermarket Sarah chats with another customer (Trisha) who asks Sarah if she would be interested in helping her to market a new product 'Be Blonde', a product supposed to stop hair from going grey. Sarah says she does not think the company she works for would be interested as 'Be Blonde' is more about maintaining appearance than about increasing the length of a person's life. However, Sarah tells Trisha that she personally would be interested in marketing 'Be Blonde' and suggests she and Trisha set up a company together to be called Bright Spark Pty. Ltd (Bright Spark). Bright Spark becomes an overnight success. Sarah and Trisha are the only shareholders and directors.

Eleven months later, Bright Spark is finding it difficult to market its product and there have been some customer complaints. Sarah is trying to find ways of selling more Bright Spark products. She suggests to the Board of Youth Unlimited that they should diversify and stock Bright Spark products. The other directors agree. They also agree that Sarah should receive a commission on each sale of a Bright Spark product by Youth Unlimited stores. Sarah did not disclose her connection with Bright Spark but thought that most of the Board of Youth Unlimited would know of this connection as she and Trisha had been featured in the media.

Assume that Mary, one of the shareholders of Youth Unlimited, finds out about the Board of Youth Unlimited paying Sarah these commissions. She is angry as she was one of those customers who had complained to Bright Spark about "Be Blonde" and was ignored. Mary knows Sarah is involved in Bright Spark. She reports the matter of the commissions to the corporate regulator, ASIC.

REQUIRED:

• To whom does Sarah owe duties as the managing director of Youth Unlimited Pty Ltd? (
• Identify and explain the statutory duties Sarah owes as a director of Youth Unlimited Pty Ltd.
• Has Sarah breached any of her statutory duties under the Corporations Act, 2001? If yes, what are the possible consequences of these breaches?
• Discuss the defenses that may be available to Sarah for such breach(es)?