Marks Mansfield Lid (Mansfield) is a company which owns and operates Mansfield Grammar School, a prestigious boarding school for girls in rural Victoria. Charlotte, Kate and Mary are the company's directors and majority shareholders. In past years, Mansfield was very successful. However, from May 2022, the company began to struggle with its finances following several well-publicized accidents involving its outdoor education programs. As a result, the school has suffered from a decline in enrolments due to the negative publicity and the company started to struggle to pay its debts. One family had approached Charlotte and told her that they would continue to keep their six daughters at the school if she agreed to name a building after them in exchange for a secret payment to her. Charlotte refused. Charlotte, Kate and Mary know that they are responsible for changing the company's financial situation. In an attempt to persuade parents to enrol their students at the school, the three directors developed a plan to improve their outdoor education programs. To finance this venture, they entered Mansfield into a secured loan with the XY Bank for $80,000. However, poon after taking on that loan, the company began to struggle to pay the loan repayments. The company's cash reserves began to run very low and some of its creditors began ringing up to demand that their debts be paid immediately. In response, the three directors then decided to launch an advertising campaign to try to boost enrolments. To do this, they arranged for Mansfield to borrow a further $50,000. They scheduled a directors' meeting to be held in October 2022 to discuss it. Mary was given the role of preparing a financial report for the company so that its true financial position was known. Mary was not an accountant, so she asked her cousin William, a qualified accountant to help her. William prepared the report very quickly and did not proofread it carefully. Mary trusted him to prepare the report properly, so she did not read it or ask him any questions about it. At the meeting, Charlotte and Kate read the financial report very carefully. They both thought that they noticed mistakes but decided to not toll Mary because they know that William was a professional accountant Mary was given the role of preparing a financial report for the company so that its true financial position was known. Mary was not an accountant, so she asked her cousin William, a qualified accountant to help her. William prepared the report very quickly and did not proofread it carefully. Mary trusted him to prepare the report properly, so she did not read it or ask him any questions about it. At the meeting, Charlotte and Kate read the financial report very carefully. They both thought that they noticed mistakes in it, but decided to not tell Mary because they knew that William was a professional accountant. William regularly advised Charlotte, Kate, and Mary about how to run the company and they were accustomed to regularly following his advice without usually questioning it. The three directors concluded that Mansfield could afford to take out a $50,000 loan to finance the advertising campaign. Miraculously it resulted in enrolments increasing and the company's financial position improved so that it was able to pay its debts.

Have the directors of Mansfield breached any of their duties under the Corporations Act 2001 (Cth)?

 If they have, could they use any defenses or receive any penalties? Explain.

Answer rating: 100% (QA)

The scenario provided raises several potential issues related to the duties of directors under the Corporations Act 2001 Cth in Australia Lets analyze the actions of the directors of Mansfield Grammar ... View the full answer