Bat Fencing Contractors Pty Ltd has recently appointed two more directors so it has four directors, Dusky Bat, Javan Bat, Hennick Rum and Bligh Rum. Hennick and Bligh have just been appointed following an agreement between these four people for Hennick and Bligh to purchase a share each in the company for $100,000 each. The shareholders are Wattle Bat, Javan Bat, Dusky Bat, Pipistrelle Bat, Hennick Rum and Bligh Rum. Each shareholder owns one share.

Following buying into the company Hennick and Bligh are appointed as ‘working directors’. They take over managing the day to day operations of Bat Fencing Contractors Pty Ltd. Javan provides guidance but is no longer involved in fencing work. Dusky is responsible for some marketing duties and Pipistrelle remains be company secretary. She also prepares the financial records and pay invoices for the company.

It quickly becomes apparent that whilst Hennick Rum is a good worker, his brother Bligh does not contribute. He is suffering from depression so is rarely working for the company.

For a few months the company goes well and Wattle, (who is an employee) and Hennick have a lot of work and are ensuring that the company is viable.

The company has experienced a severe decline in new contracts in the last two months. This is due in part to a number of cut-price fencing businesses offering cheap fencing contracts. This has placed the company in financial difficulties.

As Javan and Dusky have been with the company since day one they are attached to it. The company is a large focus for them and provides them with emotional wellbeing.

Although there are four directors only Javan and Dusky attend board meetings. Hennick trusts his friends to make all board decisions. Bligh has been too unwell from soon after his appointment to attend any of the monthly meetings.

Recently, Bat Fencing Contractors Pty Ltd contracted with Zade Pty Ltd. The contract was to purchase $50 000 of fencing supplies. Javan mentioned the possibility of this contract to Dusky but did not mention it to Pipistrelle, Hennick or Bligh.

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Also, recently Bligh is feeling better, so he attended a board meeting two months ago and brought with him what he believed was a great idea. His proposal was that the company become involved in constructing cubby houses for children out of the leftover fencing materials. Javan and Dusky were not so convinced, but Pipistrelle explained that she believed that the company had a lot of left-over material and it would be good to use this material in any way possible. Javan and Dusky voted against the proposal.

Bligh is very is disappointed. Yesterday he signed a deal with another building company known as Tasmanian Tiny Houses Pty Ltd. The deal involves Bligh being paid a commission of 10 per cent for every cubby house sold and a place on their board.

Bat Fencing Contractors Pty Ltd is having financial problems, yet the board continues to allow the company to trade without considering the consequences. They can not pay Zade Pty Ltd the $50 00 owing to them.

Required: 

Discuss the statutory and common law positions of the directors should they allow the company to trade whilst insolvent.

Answer rating: 100% (QA)

INTRODUCTION A director of a company has several statutory and common law duties These include the duty to act in good faith in the best interests of the company the duty to exercise care and diligenc... View the full answer