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:
A) If Lester votes against the transaction, he would be breaching his duty to act in good faith and the best interest of the company because he would be following Warren's directions.
B) Even if Lester was of the view that the transaction was in the best interests of Mouse Pads Pty Ltd, he could vote against the transaction because Warren appointed him to the board and he owes fiduciary duties to Warren and is obligated to follow his directions.
C) Because Lester has a reasonable belief that voting against the transaction is in the best interest of Mouse Pads Pty Ltd, he can vote against the transaction.
D) If all the other directors vote in favour of the transaction, this is proof that the transaction is in the best interests of Mouse Pads Pty Ltd and, in those circumstances, if Lester votes against the transaction he would breach his duty to act in good faith and the best interests of the corporation.
E) Lester has a material personal interest in the transaction and should not participate in any board discussion concerning the matter.
Correct Answer:
Verified
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