Question
XYZ company is a a proprietary company with liability limited by shares. It is a new company and all 4 directors vote in favour of
XYZ company is a a proprietary company with liability limited by shares. It is a new company and all 4 directors vote in favour of establishing a bonus scheme to be paid out for the employees on top of their usual pay. The bonus scheme is designed to encourage the employees to purchase risky investments in an attempt to increase company potential return on its investments.
In the first 3 months of operation, the investment are wildly successful, and returning huge profits for the company. On the basis of these profits, director A goes out and secures even more capital ($200m) from an investment fund operated by EFG Company in the form of a loan, with 5% interest per year. He does this without consulting the other directors and without securing shareholder approval.
ya Another three months later, interest rates rise, and soon every single one of company's high- risk investments tanks, reducing company's business value. As a result, now XYZ company cannot pay their rent, employees salary, or pay the interest on the loan from the EFG Company. Directors B and C issue public statements that they did not know about the loan from the EFG Company.
a) What if any defenses are likely to be raised and are they likely to be successful? (use Business Judgment Rule & legal theories
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