Sunny Oak Mills Pty. Ltd. (SOM) runs a sawmilling business in Victoria. There are three shareholders: Andrew, Bert and Charlie. Andrew holds 200 shares, Bert holds 120 shares and Charlie (an employee of the company) holds 50 shares. All three have also been directors since the registration of the company. Bert is the Managing Director and Chairperson of the Board.

A friend of Berts approached him, asking whether SOM would be interested in investing in a new company (Prospect Timber Pty. Ltd.) that was purchasing a pine plantation. Bert said he would be personally interested but would also put it to SOMs Board of Directors when it next met. At that meeting Andrew said it sounded a bit vague and he was not interested in diversifying into tree ownership. Charlie thought it was a good idea but he generally agreed with whatever Andrew said.

At the next Board meeting Bert asked Andrew and Charlie to approve a large loan to him at low interest as he was going to renovate his house. Andrew said sure. Charlie thought it was a bit foolish as the company didnt have a lot of extra money, but they both trusted Bert as he had graduated as an accountant and been finance director of another company.

Bert used the loan money to buy a large amount of shares in Prospect Pty Ltd. He was also appointed a director of Prospect. Six months later the share value of Prospect increased substantially because bush fires burnt out most of the States tree plantations, except for Prospects. As a result of the fires, SOM found it hard to find enough timber and prices of sawmill timber increased dramatically. This put pressure on SOMs financial position.

Andrew and Charlie have now realised that Bert has made a large profit from his investment in Prospect and believe that he should pay that to SOM. Bert has refused.

Required:

DO NOT REPEAT THE FACTS BUT discuss whether any of the directors in this case scenario have breached or may be about to breach their directors duties. Note: only discuss the duties in the Corporations Act 2001.

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