Explain with case examples directors statutory duty of care

Part A:

1. Explain briefly the significance of the decision in Salomon v Salomon [1897] AC 22.

2. Explain the principle of fraud on minority and how does it differ from minority oppression.

3. Explain, with case examples, directors' statutory duty of care and diligence.

4. What is the aim of the indoor management rule and how does it operate?

5. How does a company's voluntary administration differ from receivership?

6. What is the capital maintenance rule and what is its relevance in modem company law?

Part B:

1. Slide Pty Ltd ('Slide') is a newly registered company which provides skiing equipment for hire at Mount Buller. The directors of Slide are Alison, Bob and Chris. Alison is responsible for the day-to-day running of the company. She has never been appointed as a managing director.

Last year, Slide entered into a 5 year contract with RipOff Pry Ltd ('RipOff') to purchase $10,000 worth of brand-name skiing equipment per year. Alison owns 36% of the shares in RipOff.

Slide is dissatisfied with the equipment provided by RipOff Pty Ltd. Slide finds out the equipment is fake, overpriced and it breaks down on the snow causing the dangerous accidents to skiers. As a result of this, Slide wishes to discontinue the contract.

Slide says that the contract they executed with RipOff was done without affixing Slide's common seal. Alison did not tell Bob and Chris about the contract with RipOff. She signed the contract and forged Bob's signature. Dale, the CEO of RipOff, has seen Bob's signature on many occasions and noticed that on this occasion, it was slightly different.

Is the contract between RipOff and Slide enforceable?

2. Mary bought two shares in Lamb Ply Ltd for $50,000. Mary, now a director of Lomb Pry Ltd, is unhappy with the state of affairs of the company. The following events have occurred:

-Mary has received no dividends to date

-Lamb Pry Ltd's revenue has increased 200%

-Peter and Paul, the other two directors of Lamb Pty Ltd, have decided to pay no dividends this year

-Peter and Paul have voted themselves a large pay rise and bonus  

-Peter and Paul have arranged for Lamb Pty to lease two expensive BMW cars for their exclusive use

Mary attends her first directors meeting and questions the dividend policy and asks that her objection to the lease of the BMWs be recorded.

Peter and Paul decide to remove Mary from the board. They hold a members' meeting and remove Mary from the board. They then send Mary a letter offering to buy her shares for $50,000. Mary is happy to sell her shares but thinks that the price offered is too low. Advice Mary.

3. James is the only shareholder and director of James Softie Pty Ltd, which makes asbestos-lined winter wear for toddlers. The company has 10 employees. It has been trading profitably, however recently it has faced increasing tort claims for liability for asbestosis in toddlers and their parents as a result of the escape of asbestos fibres from the winter wear. In July this year, James pays himself a large bonus and then transfers the remaining assets of James Softie Pty Ltd to a new company called Soft James Pty Ltd. Soft James Pty Ltd does not use asbestos in its products. The employees continue to be employed by James Softie Pty Ltd. James Softie Pty Ltd has no assets and owes each of its employees several thousand dollars in accumulated holiday, superannuation and long service entitlements. Tort claims, present and future, run into the millions of dollars. Advise the employees and tort claimants.

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Business Law and Ethics: Explain with case examples directors statutory duty of care
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