Question

HUB Utilities Ltd (HUB) is a construction management company that is listed on the ASX. HUB has 3 directors; Mr Short, Mrs Lee and Dr Wittless (who holds a PhD in “construction management policy”). At a directors’ meeting in March 2020, a proposal to purchase a small construction management company is discussed. The proposal is accompanied by a report detailing the financial status of a company called Tricky Business Pty Ltd. Only 2 of 3 directors attend this meeting. Mr Short does not attend the meeting (he has actually not attended any of the past 5 Board meetings) During the meeting, Dr Wittless glances over the financial report for Tricky Business Pty Ltd and comments that it “looks all good”. Mrs Lee does not read the financial report for Tricky Business Pty Ltd, considering the opinion of Dr Wittless to be entirely reliable. Together, Mrs Lee and Dr Wittless approve the proposal for HUB to purchase Tricky Business Pty Ltd. Not long after the purchase, it becomes apparent that Tricky Business Pty Ltd is financially unsound and that purchasing the company has very bad consequences for HUB. Mr Short is angry when he finds out about the deal but Mrs Lee and Dr Wittless tell him that "he has no right to be upset since he has not been active in decisionmaking for a very long time". Answer the below questions using I.R.A.C. structure and with reference to the relevant law: Have Mr Short, Mrs Lee and Dr Wittless breached their directors duties? If Mr Short, Mrs Lee and Dr Wittless have breached their duties, what consequences are likely to follow?

Answer 1

Facts of the Case: HUB Utilities Limited ( HUB) purchased a small construction management company and later on the company is not worthy to purchase.

Issue: On the basis of above facts, Issue is Mr. Shot ( Director -1) is failed to attend the board meeting for making decision over the purchase of the small construction management company. Dr. Wittless (Director -2) has did not exercise the due professional care while reviewing the financial Statement of the company. While Mrs. Lee (Director -3) also did not exercise his duties and rely on Dr. Wittless.

Rule: As per the responsibilities stated for Directors in place, they are not very rigorous to follow, but that is requisite for the effectiveness of the business. Here, Mr. Short failed to attend the meetings for more than 3 consecutive Board meeting without taking leave of absenteeism, such act is equals to vacating their respective offices, here in the case of Mr. Short same act is apparent as he has not attended any meeting i.e. 5 board meeting consecutively in row without seeking any leave of absenteeism.

While Dr. Wittless fails to exercise his knowledge, reasonable care and skill while making decision over the purchase of a small construction management company, as he per his education background he is PhD. Holder in such but fails to exercise the same.

Whereas Mrs. Lee simply relied over the decision of Mr. Wittless, failed to exercise the duties of Independent judgment, as per duties, every director shall require exercising his own judgment before making decision rather than relying over the judgment of others.

Analysis: Mr. Short fails to attend the meeting is also encircled within the ambit of Failure to perform his duties, Dr. Wittless exercise his duties but not with utmost care fails to deliver the basic requirements of any professional etiquettes, While Mrs. Lee is also failed to deliver the directors duties requirement by simply referring or taking the side of the Dr. Witness over his knowledge.

Above these acts are formidable in acts and lead to personal liabilities on directors.

The Consequences for failure to perform the duties obligations are treated as Criminal offence because they all failure to comply with company laws duties, and disqualification may also be initiated amongst the directors. Fines shall be otherwise lodged in the capacity of officer in charge as well as on company also.

Conclusion: Thus from Above discussion it can be concluded that none of the directors ( Mr. Short, Dr. Wittless and Mrs. Lee) did not perform their duties as required to be performed. They all are responsible for the vary act. The Consequences for the above act is fines and penalties including personal fines and penalties.