You are a director and member of a long established company. There are five memb

Question

You are a director and member of a long established company. There are five members in your company and each member has 20% ownership in the company. The board, of which you are a part of, has delegated its executive authority to one of the other directors. Last week, this managing director purchased $1,000,000 worth of office furniture and art work for the office. The director in question was advised by an unqualified but experienced marketing guru that to attract more customers he should invest in modernising the appearance of the business. However, the company was already carrying financial debt of $800,000, and sales did not increase as a result of the refurbishment. The company is now nearing insolvency. Did the managing director breach any of his duties? Did the board of directors breach any of their duties? In your group of five, answer the question and upload your answer onto the discussion board. Consider the issues relating to director’s duties. Using the IRAC method to answer this question, outline the: 1. Issues: ie. Outline the facts of the case 2. Relevant Law: Refer to the Corporations Act (s. 180(1)), and the common law relating to: A. Duty of care i. What constitutes the duty? ii. Who owes the duty? iii. To whom is the duty owed? iv. Sources of duty of care? v. Standard of care (Daniels v AWA, ASIC v Healey) vi. Business judgment rule 3. Analysis of the case: ie State the arguments for both parties (the board’s arguments and the managing director’s arguments). 4. Conclusion: ie. the likely outcome

Explanation / Answer

Did the managing director breach any of his duties? Did the board of directors breach any of their duties?

Answer : The Managing director is required to consent with his team ,expecially when the decision involve high stakes and has a direct impact on rveneues , in this given case , the MD has sought counsel from unqualified sources to increase revenues and with non consensus.

The case also reflect lacking involvlment from Board of Directors on decisions

Issues related to director's duties

Outline the facts of the case : This case involve counsel from unqualified sources ,without consensus and consent ,leading to heavy spend on renovating the office ,with no outcome on results .

2. Relevant Law: Refer to the Corporations Act (s. 180(1)), and the common law relating to:

A. Duty of care -- it refers to uphold the intrest of company/organzations and its employees before anything else .

In this given case , a wrong decision to invest in refurbishment of office at high cost ,apparetly leading to insolvency

i. What constitutes the duty? -- to think beyond and for every empoyee and organization as a whole before undertaking any critical decision

ii. Who owes the duty? -- both employers and employees

iii. To whom is the duty owed? -- employer

iv. Sources of duty of care? -- legal obligation

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