Question
TOPIC: DIRECTORS DUTIES please read the scenario and answer the following 4 questions below Scenario: Parra Building and Construction Ltd (Parra Ltd) was born as
TOPIC: DIRECTORS DUTIES
please read the scenario and answer the following 4 questions below
Scenario:
Parra Building and Construction Ltd (Parra Ltd) was born as a small public company by an enterprising individual. Parra Ltd thrived during a period of economic expansion. It has millions in issued share capital and it is involved in building, property, construction and insurance.
Frank Parra is the founder of the company and after a long period as the Chief Executive he has become Chairman. He spends his time in succession planning. There are a number of prospective leaders of the company. Alan Richards, Joseph Lynch and Henry Ray are all directors and each one believes they will be a future Chief Executive of Parra Ltd.
With the passage of years there has been the selling down of the share capital and this was typified by a large parcel of shares in Parra Ltd being off-loaded to Acorn Building Pty Ltd (Acorn). Financial advisors are always seeking consultancy contracts with Parra Ltd. One of the successful ones is A-on Financial Advisors Pty Ltd. They provide financial advice on a consultancy basis to Parra Ltd. Jan Parra is Frank Parra's daughter and the main shareholder of A-on Financial Advisors Pty Ltd (A-on). At one stage it looked as though she would step into her father's shoes but she was eager to make her own way in the business world. Upon doing some work for Parra Ltd, A-on submits an invoice for a large sum for completed work. This bill is recommended for payment by the Chairman and is subsequently paid by Parra Ltd.
Parra Ltd enters one of the periodic downturns that are part and parcel of the building game. There is an oversupply in the housing market. House prices tumble and the share price of Parra Ltd also plummets. Every officer of the company watches the market slide with trepidation. Despite the fall in the share price, business must go on.
Alan Richards (a Director of Parra Ltd) gave his authorization to a sizeable loan from Parra Ltd to Sky-Hi Insurance & Investment Services Pty Ltd (Sky-Hi) for the purchase of new premises. Alan Richards is also the Director and shareholder of Sky-Hi. Frank Parra is a shareholder of Sky-Hi. Subsequently, Sky-Hi experiences trading difficulties and as losses mount they default on the loan they received from Parra Ltd. In the aftermath of this event Parra Ltd sold its art collection to Acorn for a sum that was lower than the insurance valuation:
Questions:
(a) Advise Frank Parra about any liability regarding the appointment of A-on Financial Advisors Pty Ltd.
(b) Advise Frank Parra about any liability regarding the authorisation of the payment to A-on Financial Advisors Pty Ltd.
(c) Advise Alan Richards about any liability he may have in relation to the loan to Sky-Hi Insurance & Investment Services Pty Ltd.
(d) Advise Frank Parra about any liability regarding the sale of the art collection by Parra Building and Construction Ltd.
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