PandoraDiamonds and Gems Pty Ltd is a company engaged in the business of importing,wholesaling and retailing jewellery nationally all across Australia.
Andrew,Brian, Colin, Diana and Elizabeth are the directors of Pandora Diamonds.
Thecompany decided that as the market is becoming more competitive it needs toexpand its business and it feels with the increased volumes of sales it wouldbe able to lower its prices and become more competitive. In order to do so itobtains a $4 million dollar loan from Bonza Bank Ltd. $3 million is used to buymore stock and $1 million is used to buy a large new warehouse and showroomsfrom Space Solutions Pty Ltd.
Colinwas not present at the meeting when these decisions were made, as he was inhospital recovering from a serious accident. Elizabeth, as her usual custom,had not attended the meeting but signed the requisite documentation agreeing tothe expansion of the business and the getting of the loan. Diana who attended,said she did not know if she agreed and abstained from voting. Andrew and Brianboth voted to go ahead with the expansion and the getting of the loan.
Atabout this time Brian had established contact with Victor, who was setting up anew business as a jewellery retailer. Victor was looking for reliablesuppliers, but said he would not deal with Pandora Diamonds and Gems Pty Ltd ashe did not like Andrew, the Managing Director. Not wishing to miss out on sucha lucrative business opportunity, Brian arranged to set up his own business asa jewellery wholesaler and a contract was entered into between Victor and Brianfor the supply of jewellery.
Sixmonths later, Brian resigned as a director of Pandora Diamonds and Gems PtyLtd. At the same time it was clear the company had over-extended itself and wasinsolvent and could not pay the interest on its loans.
Italso became clear that Brian was a major shareholder in Space Solutions Pty Ltdand the other directors were unaware of this at the time of the purchase of thewarehouse and showrooms. Furthermore, Brian had been approaching otherestablished customers of Pandora Diamonds and Gems Pty Ltd and had securedorders for his own business.