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Law Assignment

In: Business and Management

Submitted By retxvalkriey
Words 440
Pages 2
Class & Taste Pty Ltd operates a vineyard in Hunter Valley, NSW. Miriam, Ryan and Stephen are the company’s directors and shareholders. Ryan manages the company’s day to day operations. Stephen left school early and has no tertiary qualifications and manages the workshop. Miriam is an accountant and partner is a local accountancy firm. She is a non-executive director of Fast and Furious Pty Ltd and she does not take an active role in the management of operations of the company.
Until recently the business has been performing well. However six months ago a competing vineyard opened next door and since then Class & Taste profits have dropped considerably.
Ryan thinks that the company should diversify to include a French restaurant and without consulting the other directors he has started looking for kitchen equipment. A friend has told him that there are equipment available at the nearby supplier and after a quick visit Ryan decides that the equipment are suitable, although the price is more than Class & Taste can afford. Ryan immediately orders the kitchen equipment. Ryan is optimistic and believes that as there is no competition for top French Restaurant nearby the company will recover quickly with increased profits from the business.
Ryan calls a board meeting and tells Miriam and Stephen that opening a French restaurant within the vineyard will solve all the company’s problems. To sound convincing he told them that they will need to act quickly as there are a number of nearby vineyards which are considering opening Continental style restaurants. Ryan has not informed Miriam and Stephen that kitchen equipment have been ordered.
Ryan is so excited and enthusiastic that Miriam and Stephen agree to the restaurant idea even though Miriam has some doubts and feels that they are being rushed into making a decision without looking at alternative solutions to their problems. Stephen agrees because he is strongly influenced by Ryan and does not understand the financial implications of the decision.
Class & Taste opens the restaurant but the business does not prosper and they have made significant losses.
Miriam is worried about her obligations as a director. If Class & Taste’s financial position deteriorates further they may not be able to make their next loan repayment.

Advise Miriam about:
(a) Whether or not her position as non-executive director will afford her any protection from breaching her director’s duty of due care and diligence? (5 marks)
b) Whether the decision to agree to opening of the restaurant would be protected by the business judgement rule in s 180(2)? (5 marks)
c) Any possible liability under section 588G if Class & Taste Pty Ltd becomes insolvent.

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