Question
the directors of a company are planning to change the business of their company significantly from that fast food retailer, to a company that supplies
the directors of a company are planning to change the business of their company significantly from that fast food retailer, to a company that supplies fine food and exotic tasting delicacies. the company does several studies on behalf of the directors before embarking on the new business, the report that this will be very profitable as a venture. the company invest a lot of money into a new project and the executive directors are very busy the whole year getting up the business.
things do not go well and at the end of the year it is quiet evident that this new venture is not going to succeed due to the number of competitors. the high cost and the small target market. the company lost a lot of money and owes a quit bit as well. the CFO tells the directors the company is in serious financial trouble but will see if he can fix it. the directors leave it to CFO to come up with a solution. but after a month the creditors move in on the company and place it under external administration. the creditors discovers the company has been unstainable for more than 6 months and should not have been trading. explain with reference to law:
- what are the liabilities of the directors in this situation for the losses and the poor business decisions?
- do the directors have any defences to the fact that so much money has been lost on this venture.
- will the directors be liable to creditors for the insolvency of the company? refer to appropriate law in your answer.
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