Discuss the following:
Problem
Groovy George Ltd ("GG") is a company that installs kitchen cupboards. GG has appointed four directors, Ann, Mark, John and Lynn. Lynn has been appointed as managing director. John is appointed to the board because of his accountancy skills. The company was originally extremely profitable; however, recently the company has experienced a number of problems.
Ann, a professional dancer, rarely attends board meetings due to her punishing rehearsal schedule. Some time ago she took one of the company's 4WD vehicles for her private use.
Following a board decision to offer customers a complete kitchen and bathroom installation package, Mark has negotiated an exclusive contract with Bathrooms Galore Pty Ltd. Mark has not informed the board that Bathrooms Galore is actually owned by Mark's family. John suspects that Mark is personally connected with Bathrooms Galore, however, he has not told the other directors about his suspicion.
Despite the company's persistent negative cash flow, Lynn proposes to the other directors that the company should expand its operations into oven and dishwasher installations. Mark questions whether the company can afford the costs associated with the expansion.
The board delegates to John the task of investigating Lynn's proposal.
John undertakes the investigation the next week, however, he spends very little time doing so because he is busy with other matters. He hastily prepares a report for the next board meeting, recommending that the proposal be accepted. It later turns out that his report is misleading as he has overlooked many of the additional costs involved in the expansion.
The next board meeting is very long and the consideration of Lynn's proposal and John's report is the last item on the agenda. The directors are anxious to finish the meeting so they spend five minutes considering the proposal and John's report before voting in favour of it. Ann was not present at the meeting as she was holidaying on Frazer Island in the company owned 4WD.
GG went ahead with the expansion, with Lynn entering into a contract with Ovens-R-Us Pty Ltd for the purchase on credit of ovens and dishwashers and the associated installation equipment. This debt is never paid.
Six months later the company is placed into liquidation on the application of one of its creditors. Advise the liquidator whether any of the directors of GG Ltd are in breach of any director's duties owed to the company? If so, what consequences might result? Explain.
Rationale:
It is designed to assess your understanding of Director's Duties under the Corporations Act 2001 (Cth) and the common law. Refer to legislation and/or case law, where relevant, to support your advice.
The referencing style for law subjects follows the Australian Guide to Legal Citation (3rd ed) (AGLC). This is the standard Australian guide for referencing in Law. It is a footnote style and will be taught to students during initial tutorials