Easy Going Pty Ltd (Easy Going) manufactures surf boards on Queensland's Sunshine Coast. Its co-founders, Max and
Question:
Easy Going Pty Ltd (Easy Going) manufactures surf boards on Queensland's Sunshine Coast. Its co-founders, Max and Ned, are best friends and directors. Max is also Managing Director.
The last two years have seen some big changes for Easy Going. In mid-2021, Ned resigned from his full-time role as Easy Going's Chief Financial Officer and moved overseas. He remains a director, as said, but is not much involved in the business.I ndeed, Ned does not spend much time reading company emails anymore. He trusts Max to come to him with any big issues.
Next, to fill the gap left by Ned, Max has turned to Wolf, a Noosa-based life coach. Wolf's website says that he was a high-ranking officer the French Foreign Legion and has 'extensive experience as a corporate leadership consultant'. Max has come to confide in Wolf and to follow Wolf's advice, almost unquestioningly. At Wolf's suggestion, Max stops reading all 'bad news' about Easy Going. So, he refuses to read an email from Easy Going's accountant (dated 1 February 2022), which advises that Easy Going's sales income is decreasing. Max also deletes (without reading) an email from Easy Going's factory floor manager (dated 13 March 2022), saying that Easy Going is in danger of not being able to fulfil a major contract for surf boards because of a shortage of fibreglass. Because Max did not read that email, he did not look for alternative sources of fibreglass, and Easy Going could not produce the surfboards. It lost the contract on 20 April 2022 and is now on the verge of cashflow problems.
Wolf persuades Max that the best way to turn around East Going is by selling a major asset, its collection of rare surfboards. Wolf suggests that Wolf Enterprises Pty Ltd (Wolf Enterprises), of which he is sole director and shareholder, could buy the surfboards from Easy Going for 50% of the market price. The sale agreement is executed on 9 May 2022. Max is convinced that the sale will be a positive move for Easy Going, because it will signal his new willingness to trust the universe in times of difficulty. In reality, it pushed Easy Going into insolvency.
Advise the liquidator of Easy Going about any potential breaches of directors' duties on the facts, considering:
- who was a director of Easy Going;
- whether there has been a breach of the directors' duties of care; and
- whether there has been a breach of the directors' duty to avoid insolvent trading.
Answer must be in ILAC method.
Managerial Accounting A Focus on Ethical Decision Making
ISBN: 978-0324663853
5th edition
Authors: Steve Jackson, Roby Sawyers, Greg Jenkins