Buns in Tums Pty Ltd (Buns) operates 5 food trucks around Melbourne. Its three shareholders are Lee, Kate and Louise, who each hold $1 of paid up share capital. All three shareholders are also directors of the company but Lee runs the business on a day to day basis. Kate and Louise are non-executive directors with full time professional jobs elsewhere.
Sales of Buns' products have been going up each week and Lee thinks the company should expand by buying more food trucks. Lee discusses this with Kate and Louise one evening while having dinner. Kate is enthusiastic but Louise is concerned that the company already has a very large debt to the bank with a large monthly interest expense. Lee says 'two against one, so we win' and there is no more discussion of the proposal. The next day, Lee places an order for two more food trucks costing $40,000 each.
Unfortunately, a bad review of Buns' food is published in a Melbourne newspaper the following week after some of Buns' customers became ill. Sales drop immediately. It turns outthat Buns had been late in paying interest on its existing bank debt before the order for the food trucks was placed. As a result, the company is placed into liquidation.
Advise ASIC what legal actions, if any, it can take against all or any the directors of Buns, and any defences the directors might be able to claim. Do not discuss s 181-183 of the Corporations Act 2001 or their general law equivalents.
1. Do they breach S588 G, as we can see, when Lee tried to place an order for the trucks, Lee just wanted to expend the company and had no grounds to expect that the company will be insolvent due to incuring the debt. Moreover, no one can expect that there would be a bad review after that....Therefore, can S 588 H be a defence for them?
2. When referring to "advise ASIC", do we need to discuss about the general duties? I know the general duties are enforced by the company.