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The constitution of Mouse Pads Pty Ltd provides that Warren is entitled to nominate one director to the board. Warren appoints Lester to the position. At a recent board meeting, the Chair proposes that the company enter into a transaction to acquire another company called Squeaky Cat Ltd. The Chair distributes some documentation about Squeaky Cat Ltd and says that at the next board meeting the board will vote on the acquisition. Lester looks at the documentation and believes that Squeaky Cat Ltd is a terrible company and Mouse Pads Pty Ltd would lose a lot of money if they acquired Squeaky Cat Ltd. Lester speaks to Warren about the proposed transaction. Warren says he is very familiar with the Squeaky Cat company and under no circumstances should Lester vote in favour of the transaction. Which of the following is correct:


A) If Lester votes against the transaction, he would be breaching his duty to act in good faith and the best interest of the company because he would be following Warren's directions.
B) Even if Lester was of the view that the transaction was in the best interests of Mouse Pads Pty Ltd, he could vote against the transaction because Warren appointed him to the board and he owes fiduciary duties to Warren and is obligated to follow his directions.
C) Because Lester has a reasonable belief that voting against the transaction is in the best interest of Mouse Pads Pty Ltd, he can vote against the transaction.
D) If all the other directors vote in favour of the transaction, this is proof that the transaction is in the best interests of Mouse Pads Pty Ltd and, in those circumstances, if Lester votes against the transaction he would breach his duty to act in good faith and the best interests of the corporation.
E) Lester has a material personal interest in the transaction and should not participate in any board discussion concerning the matter.

F) B) and C)
G) A) and B)

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What are the penalty and remedies that apply for breach of directors' and officers' duties?

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When the company has suffered a loss bec...

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Dale, Mary and Marcos are directors of Little Wave Ltd - a public company, which sells seashells. Dale is the managing director and Mary and Marcos are non-executive directors. Mary to the chair of the board and Marcos has extensive experience in the seashell sales industry. Which of the following is incorrect:?


A) It is possible that the standard of care owed by the three directors differs due to their position and experience.
B) All the directors owe certain minimum duties to the company such as undertaking the business of the company.
C) Dale could never owe any higher duty of care compared to Mary and Dale as executive and non-executive directors owe the same standard of care.
D) Mary may owe a higher standard of care as she is the Chair.
E) Dale, as the managing director has overall responsibility for the day-to-day management of the company's business.

F) A) and B)
G) A) and E)

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Maribelle and Deigo are the only directors of PlantMart Pty Ltd ("PlantMart") . PlantMart is in the business of selling horticultural products. Zahara sells plants wholesale. She has a lot of small shrubs she needs to sell quickly. She approaches Maribelle and asks her if PlantMart would be interested in buying the shrubs at half price. Maribelle thinks this is a great deal and buys the plants herself and sells them and makes a large profit for herself. Which of the following is true:


A) Maribelle has breached her duty to act in good faith and in the best interests of the company.
B) Maribelle has breached her duty to avoid a conflict of interest.
C) Maribelle has breached her duty under section 181 of the Corporation Act.
D) Maribelle has not breached her duty under section 181 of the Corporations Act.
E) While it is uncertain as more facts are needed, it is possible that (a) , (b) and (c) could be correct.

F) C) and E)
G) A) and B)

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Jamie and Larry are the only directors of Titanic Pty Ltd. Mary is the Chief Financial Officer of Titanic Pty Ltd. It has been determined that Titanic Pty Ltd was insolvent and during the time it was insolvent it traded thereby incurring debts. Which of the following is incorrect:?


A) Jamie, Larry and Mary may face liability under section 588G for insolvent trading.
B) Jamie and Larry could possibly be found to have committed a criminal offence.
C) Even if they have breached 588G, the directors of Titanic Pty Ltd may avoid liability if they can establish a defence under section 588H.
D) There would only be a breach of section 588G if at the time of incurring the debts, Titanic Pty Ltd's liabilities exceeded its assets.
E) If Titanic Pty Ltd paid a dividend while it was insolvent, this would be automatically deemed to be an incurrence of a debt for the purposes of section 588G.

F) B) and E)
G) A) and D)

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A

To whom is the duty of care and diligence owed?

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Duties are owed to the company...

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Luke, Maddi and Emily are the directors of a company that creates mobile phone apps called Angry Nerd Ltd. The board passed a resolution to retain an outside programmer to help with an app they were developing. The programmer did a poor job and the app was substandard. This caused the company to suffer reputational damage and this caused financial loss. Luke, Maddi and Emily are concerned they might by pursued for breaching their duty of care, skill and diligence. They would be able to rely on the business judgment rule in section 180(2) of the Corporation Act as a defence to any claim if:


A) The decision was a business judgment as defined in section 180(3) ;
B) The decision was made in good faith for a proper purpose;
C) They did not have a material personal interest in the decision;
D) They reasonably informed themselves about the subject matter of the decision to the extent they reasonably believed to be appropriate;
E) They rationally believed that the decision was in the best interest of the company;
F) All the foregoing is necessary to be established.

G) E) and F)
H) A) and F)

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F

Lulu, Victoria and Uda are the directors of Blue Sky Ltd ("BS") . BS owns a newspaper publishing business. Lulu is an expert in the publishing business whereas Victoria and Uda are investment bankers and have no experience whatsoever in the publishing industry. BS needs to purchase new printing presses as the ones it owned were old and were constantly breaking down. Without doing any due diligence whatsoever, the board pass a resolution to buy new printing presses from Nasty Presses Ltd. Unfortunately, the new presses can only use a very expensive type of ink that needs to be imported from Argentina. The cost of purchasing the ink has caused BS to cause tremendous financial losses. Which of the following is true:


A) Victoria and Uda cannot be liable for this loss because they have no understanding of the printing industry and, therefore, can't have breach their duty of care and diligence.
B) None of the directors could be liable for breaching their duty of care and diligence because they didn't know that the presses required the expensive ink.
C) All the directors have potentially breached their duty of care and diligence because they should have undertaken certain minimum diligence before entering into the transaction, which would have highlighted the problem with the ink.
D) All the directors would probably be liable for breaching their duty under section 180(1) of the Corporations Act, but it would be highly unlikely they would have breached their common law duties of care and diligence.
E) While BS could pursue a cause of action against the directors for breaching their duty of care and diligence, ASIC has no standing to pursue such a cause if action.

F) A) and E)
G) B) and D)

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Sahil is a director of Dog Toy Pty Ltd, a company which makes and sells plastic dog toys. Sahil is also a majority shareholder in Aussie Plastic Ltd, a company which sells plastic products. The other directors of Dog Toy Pty Ltd have been aware for some time that Shail is a majority shareholder in Aussie Plastics Ltd. Dog Toy Pty Ltd entered into a significant contract with Aussie Plastics Ltd to buy plastic for the manufacture of the dog toys it is producing. Which of the following is correct about Sahil's obligations under section 191 of the Corporations Act.


A) The only way Sahil can satisfy his obligations under section 191 is by giving notice to the other directors of the nature and extent of his interest in Aussie Plastics Ltd.
B) Sahil does not have any obligation under section 191 because Dog Toy Pty Ltd is a proprietary company and section 191 only applies to public companies.
C) Because Dog Toy Pty Ltd is a proprietary company, section 191(2) (b) would apply, and since the other directors are aware of the nature and extent of Sahil's interest in Aussie Plastics Ltd he is exempt from making disclosure under section 191(1) .
D) If Sahil was required to make disclose under section 191, he could not be present at any meeting where the contract with Aussie Plastics Ltd was being discussed.
E) This is a related party transaction and shareholder approval needs to be obtained before the contract is entered into.
F) Both (a) and (e) are correct.

G) A) and B)
H) A) and C)

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C

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