Albert is the CEO of You Can Be Happy Again Pty Ltd, a company providing life coaching
Question:
Albert is the CEO of "You Can Be Happy Again Pty Ltd", a company providing life coaching services for wealthy clients experiencing depression and anxiety.
There are two other directors: Bob, Callie.
Albert, Bob and Callie each hold 33.33% of the shares. Bob is a non-executive director, while Albert and Callie are executive directors.
Bob has been feeling quite resentful towards the other two directors for some time, mainly because his ideas and suggestions are regularly ignored by the other two directors. Just last week, in a board meeting, Bob brought forward a suggestion to expand the business into selling herbal teas and herbal supplements. In Bob's opinion, herbal teas and herbal supplements have amazing healing powers and prescribing them would help the clients to feel happier. Bob believes this would be a highly profitable business initiative, because the company can sell these herbal teas at a very high price and charge a higher fee for a "herbal consultation service".
Albert and Callie hated the idea and voted against the resolution. They both laughed at Bob's idea and dismissed it as "pretty stupid" because in their opinion wealthy people do not believe in alternative medicine or herbal teas. They did not allow Bob to finish his presentation and told him that he should go get a university degree to improve his intelligence because all his ideas are "pretty stupid". Albert and Callie both graduated from RMIT University School of Accounting with honours. Bob, on the other hand, dropped out of high school at the age of 16.
Another thing Bob is very angry about is the fact the company has been paying Albert and Callie a Christmas bonus every year ($30,000 bonus) for the last 5 years. Bob has not received any dividends in the last 5 years.
Bob is feeling powerless and angry. He wants to leave the company, but he does not want to lose the money he initially put into the company. He wants Albert and Callie to buy his shares, so he can leave the company for good. Albert and Callie refuse to buy Bob's shares.
Two months later, the company is having cashflow problems, so Albert and Callie decide to sign a loan contract with AZN Bank to get a new loan of $100,000. Before signing the loan contract, a vote was held in a directors' meeting. During this meeting, Bob voted against the loan, because he believes the company is already having difficulties to pay back existing loans so it is a bad idea to get into more debt. However, Albert and Callie voted to go ahead with the new loan.
- Advise Bob on if he can compel Albert and Callie to buy his shares by taking legal action.
- Advise Albert, Bob and Callie, about whether they breached their director's duties.
Auditing An International Approach
ISBN: 978-0071051415
6th edition
Authors: Wally J. Smieliauskas, Kathryn Bewley