Workshop activities

Case Study 1

Merlin bank ltd, a merchant bank, was experiencing a severe liquidity crisis and was also under investigation by government authorities. The Bank subsequently failed.

One of the directors, Cedric, had written a number of reports outlining the problems the bank had with its loan portfolio. This information was not passed on to Jackson, he being one of the directors, but a non-executive one.

Merlin Bank entered into negotiations to liquidate its loan portfolio and also mortgaged fees owed to the Bank.

Jackson discussed these matters with the executive chairman of the Bank Neil and expressed his concern over a number of board meetings that had been cancelled. Jackson was on the board of the company to whom the fees were mortgaged and as such stood down from discussions on this matter.

ASIC subsequently commenced action against Jackson for failing to exercise reasonable care and diligence in the discharge of his duty as a director and that he failed to reasonably inform himself of the financial affairs of Merlin Bank.

What is this duty of care and diligence? Is the duty of a non-executive director the same as those for executive directors?

Case Study 2

At a members' meeting of Great Wall Ltd the shareholders passed 2 resolutions, each with a 90% majority. The first was that the company should invest its excess cash in the Hong Kong stock market and the second was to create a constitution with a clause stating that the company's activities are to be restricted to real estate development and share investments.

At their next monthly board meeting the directors voted not to invest in the Hong Kong stock market. They also decided that the members had no right to create a constitution and restrict the company's activities, so they would also ignore the second resolution.

Are the directors legally required to observe both resolutions of the members in general meeting?