Assignment task:
Sam, John and Erin are directors and equal shareholders in A1 Foods Pty Ltd. Sam is proposing a radical move for the business as she would like the business to move into themed restaurants (the 'Sydney Bar and Grill'). Sam has been working on this as a project for several months and has produced a 200-page report with detailed financial and market analysis.
She sends a copy of this to Erin and John and proposes a discussion of the report at the next board meeting (in two days' time).
At the meeting, Sam, John and Erin have a 30-minute discussion about this proposal, and Erin believes that Sam has done her homework and has produced a compelling business case. Erin asks lots of questions and is happy with Sam's responses. Erin signs off on the proposal. John seems preoccupied on his laptop and he says, I trust you, Sam; whatever you think is best'
What Erin doesn't know is that Sam has made up some of the financial figures to make his proposal more attractive. Sam proposes to cause A1 Foods Pty Ltd to guarantee a new $2 million bank loan. If the financial forecasts for the new venture are not accurate and lower profits are generated, the bank will be able to seize all of the assets of the company.
Assume that the new venture is a disaster and A1 Foods Pty Ltd falls into liquidation.
a. Could the liquidator take action against Sam, John and Erin for breaching their duty of care?
b. What would Sam, John and Erin (separately) need to establish the statutory business judgment rule?