Your second appointment is with Richard and Lisa. They were at University together with Anna and have been friends for 20 years. They came together to start their own business 10 years ago specialising in sound effects pedals and amplifiers for guitarists. Richard and Lisa are both electrical engineers by background and they have created all of the products the company manufactures and sells. They deal with all aspects of design and manufacture for the business. Anna deals with marketing, finance (including sales and suppliers) and company admin activities.

All 3 are directors and receive a salary of 40,000 per annum for their roles. They each hold 10,000 1 shares in the company, Celestial Sounds Ltd ("CSL"). They rotate who will be chair of both board and shareholder meetings.

XYZ Ltd, has been a long-standing buyer of CSL's products. Six months ago, they took delivery of 50,000 worth of the company's "Best Ever" amps. Payment was due within 30 days but has still not been received. At recent board meetings, Richard has been quite vocal in his criticism of Anna's handling of the situation. Lisa has maintained the peace until now, however, she is also starting to worry that the outstanding debt is beginning to put the business' cashflow under pressure and no-one wants to expand the company's overdraft facility.

Lisa was recently approached by Gizmos & Doodads Ltd ("G&D") and offered a place on their board as a non-executive director. G&D currently have a contract for the supply of the circuit boards used in the manufacture of the Best Ever amp. This contract is due to be the subject of a re-tender when it expires at the end of the year.

Recently, Lisa discovered that a holiday Anna took to the Maldives with her husband and children was paid for by the haulage company CSL uses for all of their deliveries, Safe Cargo Ltd. The trip was to celebrate the 10th anniversary of the relationship between the 2 companies.

CSL's Articles of Association are in the same form as the Model Articles for private companies limited by shares save for the following additional article:

I. ENHANCED VOTING RIGHTS FOR DIRECTORS AT GENERAL MEETING If at any General Meeting a poll is duly demanded on a resolution to remove a director from office, that proposed director's shares shall count three votes for each share of which he is the holder

With reference to case law, statutory provisions and secondary sources, advise the parties in respect of each of the following matters:

Richard and Lisa have approached you asking for advice, on behalf of themselves and the company. In particular they wish to know:

c) What, if any, breach or prospective breach of director's duties may arise from the facts set out above? What steps, if any, may be possible to correct the position?