Question
Sourplum Pty Ltd (Sourplum) is a food manufacturing company that produces jams, sauces and other condiments that are sold in specialty grocery shops. The directors
Sourplum Pty Ltd (Sourplum) is a food manufacturing company that produces jams, sauces and other condiments that are sold in specialty grocery shops. The directors of Sourplum are Sarah, Winda and Ben. Sarah is a trained chef and has very good knowledge of food production. Winda has a business accounting background and she tends to look after the companys finances and refers to herself informally as the CFO. Windas cousin Ben was appointed as a director on Windas request because he had been unemployed and needed something to keep him busy. Sourplums business had been doing well, and it had $80,000 in cash reserves. On 4 January 2021, Ben approaches the other directors with a new business idea. He presents a written proposal that Sourplum should invest $150,000 in a new readymade pasta company called Fasterpasta. Ben does not tell Sarah or Winda that he is actually the majority shareholder in Fasterpasta. Winda has a quick look at the proposal but does not investigate whether Fasterpasta is a viable business opportunity because she trusts her cousin Ben. Sarah does not read the written proposal at all because she is too busy formulating a new sauce recipe and she always relies on Windas opinion on financial matters. On 10 January 2021, the three directors decide to invest Sourplums $80,000 in savings in Fasterpasta and they also take out a loan from ABC Bank for the remaining $70,000. Unfortunately, it soon becomes clear that investing in Fasterpasta was a poor decision because Fasterpasta was unable to compete with already established businesses in the readymade pasta market. On 1 September 2021, because of the debt repayments it has been making to ABC Bank, Sourplum starts to experience cash flow problems and has to negotiate an extension on the electricity bill from its manufacturing premises. Starting to panic, on 10 September 2021 the three directors take out another loan from ABC Bank for $30,000 so that they can quickly launch Sarahs new sauce recipe. However, the new sauce is quite unpopular and Sourplums entire business collapses. On 4 May 2022 a liquidator is appointed.
Advise whether the directors of Sourplum Pty Ltd have breached any of their duties under the Corporations Act 2001 (Cth) and/or the general law. If so, explain the consequences of this.
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