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Lulu, Victoria and Uda Are the Directors of Blue Sky

Question 7

Multiple Choice

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:


A) Victoria and Uda cannot be liable for this loss because they have no understanding of the printing industry and, therefore, can't have breach their duty of care and diligence.
B) None of the directors could be liable for breaching their duty of care and diligence because they didn't know that the presses required the expensive ink.
C) All the directors have potentially breached their duty of care and diligence because they should have undertaken certain minimum diligence before entering into the transaction, which would have highlighted the problem with the ink.
D) All the directors would probably be liable for breaching their duty under section 180(1) of the Corporations Act, but it would be highly unlikely they would have breached their common law duties of care and diligence.
E) While BS could pursue a cause of action against the directors for breaching their duty of care and diligence, ASIC has no standing to pursue such a cause if action.

Correct Answer:

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