READ THE FOLLOWING
Nature Now Pty Ltd organises ‘environmental awareness’ getaways in various locations around Australia. It specialises in weekend retreats that involve camping and bushwalking activities that build respect for nature. Many businesses pay $1,000 for each of their employees to attend a Nature Now weekend retreat.
There are three directors of Nature Now: Yasmin (Managing Director), Stacey (Financial Director) and Wes (a non-executive Director). When they started the company in February 2008 they sought advice from an accountant friend of theirs, who suggested that no director should have the capacity to bind the company to contracts worth more than $60,000. This limitation was written into the company’s Constitution.
Yasmin and Stacey control the business, and Wes, who is Yasmin’s boyfriend, has little interest in the company and little knowledge about its affairs.
The three directors each hold 20% of the shares of the company, and there are several non-director shareholders who hold the balance of the shares.
Yasmin, Stacey and Wes regularly hold directors’ board meetings. During a meeting in July 2014, the directors consider the following proposals
1. That the company should enter into a contract to purchase camping equipment imported by Outdoors Pty Ltd, a company wholly owned and controlled by Yasmin and Stacey. The price for Outdoors Pty Ltd’s equipment is twice that of Nature Now’s current supplier.
2. That the company should expand into Fiji.. Yasmin and Stacey believe Fiji. is a great untapped market. Neither Yasmin nor Stacey provide any financial forecasts or legal information about the proposed expansion into Fiji..
Yasmin and Stacey vote in favour of the above proposals. Wes initially displays some doubt, but a stern look across the board room from Yasmin silences him, and he also votes in favour of the proposals.
In the period after this meeting, Wes becomes increasingly unhappy with his passive role in the business. He decides to show how useful he is to the company, and while Yasmin and Stacey are on a business trip to Fiji. in September 2014, he approaches Bank Ltd for a loan of $600,000 to finance Nature Now’s expansion into Fiji. Wes knows the bank staff because he has occasionally deposited Nature Now’s weekly takings into the company’s account. Wes signs a loan agreement with Bank Ltd, writing his name next to the words ‘director of Nature Now, for and on behalf of Nature Now’. When the bank’s accountant asked for another director to sign as well, Wes explained that this was not possible as both Yasmin and Stacey were unavailable and could not be contacted because they are in a remote location. He also went on to say that ‘financing the expansion into Fiji is urgent’.
The bank’s lending officer was reluctant to approve the loan as it was a large sum for Nature Now but Wes convinced him it would be alright.
Unfortunately, during their trip, Stacey and Yasmin discovered that Fiji’s government imposes heavy legal restrictions on companies operating adventure activities. It is clear to them that Nature Now would not be able to obtain the necessary government approvals to operate in Fiji. The proposed expansion cannot proceed.
Because of this, and because Nature Now is now paying twice the price for camping equipment that it used to, the company’s financial situation deteriorates and it can no longer meet its repayment obligations to Bank Ltd. At a directors’ meeting, it is decided that Nature Now would argue that the loan contract was not valid as Wes had no authority to make it.
Part A (20 marks)
Consider the actions of the directors of Nature Now Pty Ltd, and discuss whether any of them are in breach of any of their directors’ duties.
Hints
i. Consider each director separately.
ii. Identify relevant sections of the Corporations Act 2001 (Cth) and apply these to the facts.
iii. Identify and discuss at least two relevant cases.
iv. Consider whether there are any defences available to any of the directors.
Part B (10 marks)
Discuss whether Nature Now Pty Ltd is bound to the loan contract with Bank Ltd.
Hints
o Discuss companies’ relations with outsiders. Do NOT discuss directors’ duties
In Part B
A) Identify relevant sections of the Corporations Act 2001 (Cth) and apply these to the facts.
b)Identify and discuss at least two relevant cases