Facts: Ronald S Lauder founded RSL. Ltd. A multinational telecommunic RSL Ltd. T
ID: 1165379 • Letter: F
Question
Facts: Ronald S Lauder founded RSL. Ltd. A multinational telecommunic RSL Ltd. The subsidiary ations corporation that provided voice, mobile, and data/intermet services. RSL. Pic subsidiary of sary began issuing 51-4 billon of bonds. A few years later, in July, Lauder provided RSl Pic with a 5100laic was a subsidiary of the company's board held their first meoting in a year Five days laten e2sg lPispfieovbut in August direw down $25 million tom the loan. The following March, the companý's board held their fiat company's board did not hold The ibsue before the court is whether the members of the board of directors of RSL Plc breached their duty at a time when the company was in such a precarious financial posiation of care to the company when they failed to hold a meeting for a year Issue: Did the directors of RSL Plc violate their duty of care to the corporation? Holding: Yes, the board violated its duty of due care. According to the court, under New care that an ordinarily prudent person in a like position would use under similar circumstances. This d diligence in gathering and considering material information. York law, a drector shall perform his duties as director, in good faith and with that degree of uty requires that a director's decision be made on the basis of reasonable When faced with allegations of misconduct, a director may raise the business judgment rule as a defense. The business judgment rule applies even where conclusions were stupid or irrational as long as the process er not simply the existence of a business decision. Thus, where the director's methodol sham, their acts are not protected by the business judgment rule ployed was either rational or employed in a good faith offort to advance the corporation A direchor must show an erercke ofjudgment, e gies and procedures are so halthearted or restricted in scope as to constihute a pretext or a RSL Plc did not hold board meetings on behalf of RSL Pic during the time period relevant here. Despite this RSL. Plc still operated and took actions such as drawing down $25 million from the loan apparently at the direction of RSL Ltd. However, no independent board meeting or discussions regarding the propriety of this and other business decislons were held on behalf of RSL Plc The law does not tolerate inaction of this sort RSL Plc allegedly faled to consider any information regarding the company's financial health and allegedly faled to make a business judgment as a board regarding any financial decisions on behalf of RSL Plc RSL Pic argues that closely held corporation with directors who are frequently in contact with one another do not have to abide by such formalities as board meetings when making business decisions However, RSL Pkc is not a small company it has accrued $1.4 billion in debt. Although some of RSL Pic's board members had some contact, there were no behind the scenes meetings where the business of RSL Pic was discussed Lastly RSL Plc argues that its board members were fully informed about the financial situation of the company because some RSL Plc board members were also RSL Ltd board members, and thus they exercised their judgment on behalf of RSL Ltd the parent of RSL Plc. However, individuals who act in a dual capacity as directors of parent and subsidiary corporation owe the same duty of good management to both corporations Question: The board members of RSL Plc and RSL Ltd overlapped RSL Plic claims that because of this overlap both boards were aware of what was going on with RSL Pl Shouldn't that make a difference when determining whether the board of RSL Pic was making an informed decision?Explanation / Answer
Answer:
yes it does make a difference when determining whether the board of RSL Plc was making an informed decision or not because the board member of RSL Ltd were also a part of RSL Plc so while making any decision they should be included in it as they were also aware about the financial situations.
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