Problem
Axel Pty Ltd (Axel) is a car mechanic company based on the Gold Coast. Axel is a family run company, and the board comprises Sally and Richard and their two children, Gemma and Simon. The company was registered in 2018 and initially returned good profits. However, in late 2020 a new mechanic set up business down the road from Axel which has significantly impacted on Axel's revenue. At this time, due to the stress of declining profitability Simon resigned as a director of Axel.
In January 2021, at a board meeting of Axel, Simon proposed the company develop a block of land behind the current premises of Axel to expand the business into car detailing and a full commercial car wash with café and child-minding facilities. The three remaining directors agreed to this proposal and voted in favour of it. Simon also voted in favour of the project, despite his resignation.
The directors of Axel approached ABC Bank in February 2021 who agreed to loan Axel $100,000 to expand the business. This loan was secured over the business and assets of Axel.
In May 2021, Axel entered into a contract with Mighty Movers Pty Ltd (MM), a construction company to clear and level the site for a price of $90,000. The progress payments of $20,000 each due in June and July 2021 have not been paid by Axel to MM. By August 2021, after several months of work by MM, it is clear Axel does not have the finances to complete the project. Axel approaches ABC Bank for further loan amounts but ABC Bank refuses as Axel is already behind in the loan repayments scheduled from March 2021. ABC Bank had issued a letter of demand for the payment of those outstanding loan amounts in April 2021.
In August 2021, a crisis board meeting of Axel is called after Axel receives notification from one of its biggest suppliers of spare parts, Triton Pty Ltd (Triton) that a cheque made out by Axel to Triton in March and then another in April 2021 was dishonoured. Triton has recently notified Axel that they will only be supplying parts to Axel if cash is paid on delivery. At this meeting, the directors review the signed financial report that had been provided to all directors and signed in March 2021 which clearly showed rising debt, declining profitability and cash flow issues. Gemma states she did not read the report as she was in Hawaii at the time. Simon argues he was not required to read it as he is not a director. Sally and Richard concede they did not read the actual report but instead relied on a summary of it by the high school economics student who was an intern at Axel at the time.
Task
A. Advise Axel Pty Ltd whether any of the directors have breached s 588G of the Corporations Act 2001 (Cth) and what remedies might be available to the liquidator or to ASIC?
B. Explain whether Mighty Movers Pty Ltd and Triton Pty Ltd are entitled to seek compensation under the Corporations Act 2001 (Cth)?
C. Are there any defences the directors may be able to raise?