Question 2 (20 marks)

Ann, Boris, Carrie and Daniel are directors of SpeedRoad Transport Ltd. SpeedRoad is listed in the Australian Security Exchange (ASX) and operates a fleet of 2,000 buses travelling interstate. SpeedRoad borrowed money from First Great Bank Ltd (FGB) without having to provide security over its assets, and the loan should be repaid in full by 31 July 2024.

After rumours of financial stress due to high fuel prices, FGB suspended the credit facility to SpeedRoad in May 2022. Many SpeedRoad's suppliers panicked and started dealing with SpeedRoad only on a cash-on-delivery basis. Other SpeedRoad's creditors are concerned since they do not hear back from SpeedRoad's directors about when they will be paid for services rendered. Ann, Boris, Carrie and Daniel only paid the more demanding creditors and put the rest on hold. At that point, it was not a matter of if but when payment orders would bounce back.

At the end of the month, the markets reacted so badly to SpeedRoad's news of financial stress that its share price plummeted immediately. To stop the free fall, the board of directors passed a resolution on 5 June 2022 to pay shareholders dividends. Shareholders were happy to receive the long-promised payment the following week; however, this was not good news at all because the next day, there was little doubt about SpeedRoad's cash reserve issues and its inability to honour its outstanding debts.

Boris desperately transferred the last $100,000 in the company's accounts to FGB on 18 June 2022 to appease the bank. He also transferred ownership of an Airbus Helicopter into his name as an in-kind bonus payment for his professional services and loyalty to SpeedRoad.

On 31 August 2022, the board of directors had no choice but to put SpeedRoad into voluntary administration, so it went into liquidation two months later. As a result, a liquidator has now taken over SpeedRoad's assets and requires your professional advice on the following matters

a) the liquidator is determined to bring legal proceedings against SpeedRoad's directors under s 588G of the Corporations Act (Cth);

b) the liquidator wants to recover the Helicopter;

c) the liquidator wants to recover the $100,000 Boris transferred from SpeedRoad's accounts; and

d) the liquidator wants to challenge the dividend payment to shareholders in early June 2022.

Answer rating: 100% (QA)

ANSWER a Legal Proceedings Against Directors under s 588G of the Corporations Act Cth Under section 588G of the Corporations Act directors can be held personally liable for allowing a company to incur ... View the full answer