Question 1

Maribelle and Deigo are the only directors of PlantMart Pty Ltd ("PlantMart"). PlantMart is in the business of selling horticultural products. Zahara sells plants wholesale. She has a lot of small shrubs she needs to sell quickly. She approaches Maribelle and asks her if PlantMart would be interested in buying the shrubs at half price. Maribelle thinks this is a great deal and buys the plants herself and sells them and makes a large profit for herself. Which of the following is true:

Accepted Answer

Maribelle has taken up an opportunity for herself that belonged to the company thus not acting in the best interest of the company and creating a conflict of interest. We do not know if Maribelle has made disclosure under Corporations Act section 191 of under the company's constitution thus allowing the transaction]

Question 2

Sahil is a director of Dog Toy Pty Ltd, a company which makes and sells plastic dog toys. Sahil is also a majority shareholder in Aussie Plastic Ltd, a company which sells plastic products. The other directors of Dog Toy Pty Ltd have been aware for some time that Shail is a majority shareholder in Aussie Plastics Ltd. Dog Toy Pty Ltd entered into a significant contract with Aussie Plastics Ltd to buy plastic for the manufacture of the dog toys it is producing. Which of the following is correct about Sahil's obligations under section 191 of the Corporations Act.

Accepted Answer

The Corporations Act section 191 (2) (b) provides that a director does need to give notice under Corporations Act section 191 (1) if the company is a proprietary company and the other directors are aware of the nature and extent of the interest and it relation to the affairs of the company.

Question 3

The constitution of Mouse Pads Pty Ltd provides that Warren is entitled to nominate one director to the board. Warren appoints Lester to the position. At a recent board meeting, the Chair proposes that the company enter into a transaction to acquire another company called Squeaky Cat Ltd. The Chair distributes some documentation about Squeaky Cat Ltd and says that at the next board meeting the board will vote on the acquisition.
Lester looks at the documentation and believes that Squeaky Cat Ltd is a terrible company and Mouse Pads Pty Ltd would lose a lot of money if they acquired Squeaky Cat Ltd. Lester speaks to Warren about the proposed transaction. Warren says he is very familiar with the Squeaky Cat company and under no circumstances should Lester vote in favour of the transaction.
Which of the following is correct:

Accepted Answer

Nominee directors such as Lester must act honestly and reasonably believe there is no conflict between the interest of the party they represent and the interests of the company, as the interests of the company should prevail.

Question 4

Lulu, Victoria and Uda are the directors of Blue Sky Ltd ("BS"). BS owns a newspaper publishing business. Lulu is an expert in the publishing business whereas Victoria and Uda 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 pass 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 financial losses. Which of the following is true:

Accepted Answer

The duty of all the directors obliges them to have a basic understanding of the company's business know amongst other things the industry of the company the company is in, stay informed about the activities of the company and seek advice.

Question 5

Dale, Mary and Marcos are directors of Little Wave Ltd - a public company, which sells seashells. Dale is the managing director and Mary and Marcos are non-executive directors. Mary to the chair of the board and Marcos has extensive experience in the seashell sales industry. Which of the following is incorrect:?

Accepted Answer

Dale would owe a higher standard of care as the managing director. Managing directors are involved in the day to day running of the company and as such expected to exhibit a higher standard of care.

Question 6

Luke, Maddi and Emily are the directors of a company that creates mobile phone apps called Angry Nerd Ltd. The board passed a resolution to retain an outside programmer to help with an app they were developing. The programmer did a poor job and the app was substandard. This caused the company to suffer reputational damage and this caused financial loss. Luke, Maddi and Emily are concerned they might by pursued for breaching their duty of care, skill and diligence. They would be able to rely on the business judgment rule in section 180(2) of the Corporation Act as a defence to any claim if:

Accepted Answer

The matters in (a), (b), (c) and (d) above are the things that all need to be made out pursuant to Corporations Act section 180(2).

Question 7

Jamie and Larry are the only directors of Titanic Pty Ltd. Mary is the Chief Financial Officer of Titanic Pty Ltd. It has been determined that Titanic Pty Ltd was insolvent and during the time it was insolvent it traded thereby incurring debts. Which of the following is incorrect:?

Accepted Answer

Corporations Act section 588G applies if a person is a director. Mary is not a director.

Question 8

What are the penalty and remedies that apply for breach of directors' and officers' duties?

Accepted Answer

The answer of What are the penalty and remedies that...

Question 9

To whom is the duty of care and diligence owed?

Accepted Answer

The answer of To whom is the duty of care...

Quiz 5: Directors, Officers Duties B, Directors and Officers Duties A

Jamie and Larry are the only directors of Titanic Pty Ltd. Mary is the Chief Financial Officer of Titanic Pty Ltd. It has been determined that Titanic Pty Ltd was insolvent and during the time it was insolvent it traded thereby incurring debts. Which of the following is incorrect:?

What are the penalty and remedies that apply for breach of directors' and officers' duties?

To whom is the duty of care and diligence owed?