TRUE OR FALSE 7 marks 1. Lucy is a directory of Big Wheel Ltd (\"Big Wheel\"). Big Wheel operates a large bicycle retailing business. Lucy was a world class cyclist and is the \"face\" of Big Wheel. She has no business experience. Lucy has no duty to understand the nancial aspects of Big Wheel's business as she wouldn't understand it anyway. 2. As part of a director's duty of care, skill and diligence, they are expected to regularly attend directors' meetings. 3. If a company is insolvent or nearing insolvency, an obligation arises for the directors to act in the interests of the creditors of the company. 4. Olympia is a director of Trade Toys Ltd and also is the sole shareholder of LittleKids Ltd. Olympia owns no shares in Trade Toys Ltd and is not a director, ofcer or employee of LittleKids Ltd. Trade Toys Ltd enters into a large contract with LittleKids Ltd. Olympia makes no disclosure of her interest in LittleKids Ltd to the directors or shareholders of Trade Toys Ltd. It is likely Olympia has breached her duty to LittleKids Ltd to avoid a conict of interest. 5. Directors and officer owe duciary duties to the corporation. 6. Directors are breaching their duty to creditors where they improperly transfer assets from the company in order to frustrate a debt. 7. Under the common law, directors have a duty to be duciary, act with reasonable care and diligence, be loyal and must retain discretion. MULTIPLE CHOICE 7 marks 1. m Salomon and Fang are the only directors of SleepWell Ltd, a company that sells mattresses. Midwants to remove Fang from the board as he believes Fang has stolen money from the company's bank account. Which of the following is correct: a. Fang could only be removed by a members' special resolution; b. Fang would be automatically disqualied as he has committed a serious criminal act; 0. Fang can be removed by W and Salomon and they are directors and they have the power to do so (1. Fang can be removed by the company passing a general resolution; 2. Lulu, Victoria and Marc the directors of Blue Sky Ltd (\"BS\"). BS owns a newspaper publishing business. Lulu is an expert in the publishing business whereas Victoria and Lida are investment bankers and have no experience whatsoever in the publishing industry. BS needs to purchase new printing presses as the ones it owned were old and were constantly breaking down. Without doing any due diligence whatsoever, the board passes a resolution to buy new printing presses from Nasty Presses Ltd. Unfortunately; the new presses can only use a very expensive type of ink that needs to be imported from Argentina. The cost of purchasing the ink has caused BS to cause tremendous nancial losses. Which of the following is true: a. Victoria and Lida cannot be liable for this loss because they have no understanding of the printing industry and, therefore, can't have breach their duty of care and diligence. b. None of the directors could be liable for breaching their duty of care and diligence because they didn't know that the presses required the expensive ink. c. All the directors have potentially breached their duty of care and diligence because they should have undertaken certain minimum diligence before entering into the transaction, which would have highlighted the problem with the ink. d. Only Lulu has breached the duty of care and diligence as she is an expert in the publishing business 3. In order to exercise the minimum standard of care, directors and ofcers must, among other things: a. Acquire a basic understanding of the business and be familiar with the fundamentals of the business. b. Make sufcient enquires to inform business decisions. 0. Be familiar with the nancial status of the company by reviewing nancial statements. cl. All of the above is correct. 4. Mgribelle, and {3&ng are the only directors of PlantMart Ltd (\"PlantMart\"). PlantMart is in the business of selling horticultural products. m sells plants wholesale. She has a lot of small shrubs she needs to sell quickly. She approaches mm and asks her if PlantMart would be interested in buying the shrubs at half price. Wthinks this is a great deal and buys the plants herself and sells them and makes a large prot for herself. Which of the following is true: a. Whats breached her duty to act in good faith and in the best interests of the company. b. Whas breached her duty to avoid a conict of interest. 0. Whas breached her duty to retain discretion and not to delegate to others (1. While it is uncertain as more facts are needed, it is possible that (a) and (b) could be correct. 5. To whom is the duty of care and diligence owed? a. To the directors b. To the company as a whole 0. To third parties d. To individual shareholders 6. The consent of members for special resolution requires at least of members should be in favor of the motion. a. 100% b. 50% c. 50% d. 75% 7. In what ways can an ofcer of a company demonstrate diligence in going about their duties? a. Attend board meetings b. Seek professional advice on matters beyond the board's experience of expertise c. Propose issues and questions on matters being considered d. All of the above LONG ANSWERS 30 marks (2 marks each) 1. Explain the standard of care required of directors in relation to the company's financial statements. 2. Why is an executive director expected to exhibit a higher standard of care than a nonexecutive director? 3. Dene and distinguish (a) an executive director and a non- executive director; and (b) the chair of directors and the managing director. 4. In what circumstances will a director be disqualied from ofce? 5. Discuss the Common Law duties of a Director. 6. Discuss the Statutory duties of a Director. 7. Discuss the components of a director's duciary obligation. 8. When does a director's conict of interest arise? What is one example upon which a director has breached their duty to avoid conflict of interest? 9. What does the 'best interests of the company' mean? 10. What is 'good faith' in the context of duciary duties of directors and ofcers? ll. Distinguish between the 'ownership' and 'management' of a company. 12. Discuss the significance of section 85 of the Companies Act 2001. 13. Discuss the standard of care required of directors in relation to their duty of Delegation. 14. Discuss the penalties that can be imposed on directors as a result of a breach of duty of care and diligence. 9. What does the 'best interests of the company' mean? 10. What is 'good faith' in the context of duciary duties of directors and ofcers? 11. Distinguish between the 'ownership' and 'management' of a company. 12. Discuss the significance of section 85 of the Companies Act 2001. 13. Discuss the standard of care required of directors in relation to their duty of Delegation. 14. Discuss the penalties that can be imposed on directors as a result of a breach of duty of care and diligence. 15. Discuss the significance of section 65 of the Companies Act 2001. DEFINITIONS - 6 marks a. Conflict of interest b. Proper purpose c. Insolvent trading d. Diligence e. Good faith f. Non-executive director