QUESTION
Costa, Su Lin, Elliot, Chloe and Raj are directors of De-Caffeine Delights, a new concept coffee shop that specializes in exotic decaffeinated coffee. As the concept is new, it is all the rage and soon De-Caffeine Delights has a presence in all the major cities in Australia. 3 years into the business the company reports a healthy profit. The company recently has been thinking about branching off into some other health related drinks.
The Australian Naturopath Association published an article on the health benefits of coconut water - the new wonder drink. Coconut water was fast becoming popular and the directors decided to form a new company, Coco Delights, which will sell health drinks using coconut water as its base. Coco Delights is registered as a wholly owned subsidiary of De-Caffeine Delights. Coco Delights rapidly became very popular and soon there were branches all over Australia.
The Australian Medical Journal recently published an article highlighting that the process used to extract caffeine from coffee was in some cases known to cause certain cancers. This article had a major impact on De-Caffeine's business. Suddenly customer numbers dwindled and within a year sales plummeted. The company was struggling to meet its loan repayments and had to sell some of its major assets to meet its debt and to report a profit.
At a recent De-Caffeine board meeting, Costa, De-Caffeine's CFO, reported to the board that the company had made a profit of $1.5 million for the financial year ending 2014. He circulated the financial report to the directors, which on very careful inspection would have revealed De-Caffeine's true financial position. But nobody seemed that interested to read this. They merely glanced at it and put it away. The board decided to pursue an aggressive marketing campaign in an attempt to boost sales and for this purpose engaged the international marketing company Ogilvy Mather, who didn't come cheap - $80,000! Despite aggressive advertising, sales continued to plummet and in 8 months time De-Caffeine Delights went into receivership.
Just prior to that, Elliot Chloe and Raj, who also sit on the board of Coco Delights, in an effort to bail out De-Caffeine, approved the sale of Coco's prime office property (worth $5.5million) to Caffeine Delights for $500,000. This sale put Coco in a serious financial situation.
It was later discovered that De-Caffeine hadn't maintained its financial records properly form Feb - Aug 2013.
Su Lin was holidaying in the South of France when De-Caffeine's board meeting took place.
Advise Costa, Su Lin, Elliot, Chloe and Raj if they may have breached any of their duties as directors, and if so which, giving reasons for your answers, citing appropriate sections of the Corporations Act and relevant case law.
Corporation law assignment, use Australian laws in the assessment. The questions will consist. -Identify the issues raised by the facts. -Identify and explain the relevant legal principles. -Apply the relevant legal principles to the facts. -Reach a conclusion which addresses the question asked. Give Harvard system references.