GreenThumbs Pty Ltd (GreenThumbs) operates a wholesale nursery growing and selling garden plants. Suni, Pierre and Rachel are the only shareholders and directors. Suni manages the company\'s day-to-day operations. Pierre, who left school at 14 and has no tertiary qualifications, is in charge of the nursery.Rachel is a non-executive director who does not take an active part in the management or operations of the company.
Until recently, GreenThumbs has been very profitable. However, six months ago, a competing business opened nearby and since then GreenThumbs\' profits have dropped considerably.
Suni thinks that GreenThumbs should move to larger premises in a different area. Without consulting Pierre or Rachel, Suni starts looking for new premises and she decides the first place she inspects is perfect, although the price is more than GreenThumbs can comfortably afford. Suni does not think this will be a problem, because there is no competition nearby and she expects that profits will recover immediately.
Suni calls a board meeting and tells Pierre and Rachel that moving will solve all the company\'s problems and that this property she has seen is absolutely perfect for GreenThumbs. She says they will have to act quickly as there is another interested purchaser. Suni does not tell Pierre and Rachel that she only looked at this one property. Suni is so enthusiastic that both Pierre and Rachel agree to the proposal even though Rachel is doubtful, feeling that they are being rushed into making a decision without being given time to consider other alternatives.
Pierre agrees to Suni\'s proposal without really understanding the financial implications.
GreenThumbs purchases the new premises but, because of continuing dry weather, its profits remain low. Rachel is becoming worried about her obligations as a director, especially if GreenThumbs\' financial position deteriorates any further.
Required:
Advise Rachel about
1) her position in respect of any breaches of her general law or statutory duty of care and diligence as a director; and
2) whether her decision to agree to the purchase of the new premises would be protected by the business judgment rule.
Support your advice with reference to relevant sections of the Corporations Act 2001 and to case
GreenThumbs Pty Ltd (GreenThumbs) operates a wholesale nursery growing and selling garden plants. Suni, Pierre and Rachel are the only shareholders and directors. Suni manages the company\'s day-to-day operations. Pierre, who left school at 14 and has no tertiary qualifications, is in charge of the nursery.Rachel is a non-executive director who does not take an active part in the management or operations of the company.
Until recently, GreenThumbs has been very profitable. However, six months ago, a competing business opened nearby and since then GreenThumbs\' profits have dropped considerably.
Suni thinks that GreenThumbs should move to larger premises in a different area. Without consulting Pierre or Rachel, Suni starts looking for new premises and she decides the first place she inspects is perfect, although the price is more than GreenThumbs can comfortably afford. Suni does not think this will be a problem, because there is no competition nearby and she expects that profits will recover immediately.
Suni calls a board meeting and tells Pierre and Rachel that moving will solve all the company\'s problems and that this property she has seen is absolutely perfect for GreenThumbs. She says they will have to act quickly as there is another interested purchaser. Suni does not tell Pierre and Rachel that she only looked at this one property. Suni is so enthusiastic that both Pierre and Rachel agree to the proposal even though Rachel is doubtful, feeling that they are being rushed into making a decision without being given time to consider other alternatives.
Pierre agrees to Suni\'s proposal without really understanding the financial implications.
GreenThumbs purchases the new premises but, because of continuing dry weather, its profits remain low. Rachel is becoming worried about her obligations as a director, especially if GreenThumbs\' financial position deteriorates any further.
Required:
Advise Rachel about
1) her position in respect of any breaches of her general law or statutory duty of care and diligence as a director; and
2) whether her decision to agree to the purchase of the new premises would be protected by the business judgment rule.
Support your advice with reference to relevant sections of the Corporations Act 2001 and to case
GreenThumbs Pty Ltd (GreenThumbs) operates a wholesale nursery growing and selling garden plants. Suni, Pierre and Rachel are the only shareholders and directors. Suni manages the company\'s day-to-day operations. Pierre, who left school at 14 and has no tertiary qualifications, is in charge of the nursery.Rachel is a non-executive director who does not take an active part in the management or operations of the company.
Until recently, GreenThumbs has been very profitable. However, six months ago, a competing business opened nearby and since then GreenThumbs\' profits have dropped considerably.
Suni thinks that GreenThumbs should move to larger premises in a different area. Without consulting Pierre or Rachel, Suni starts looking for new premises and she decides the first place she inspects is perfect, although the price is more than GreenThumbs can comfortably afford. Suni does not think this will be a problem, because there is no competition nearby and she expects that profits will recover immediately.
Suni calls a board meeting and tells Pierre and Rachel that moving will solve all the company\'s problems and that this property she has seen is absolutely perfect for GreenThumbs. She says they will have to act quickly as there is another interested purchaser. Suni does not tell Pierre and Rachel that she only looked at this one property. Suni is so enthusiastic that both Pierre and Rachel agree to the proposal even though Rachel is doubtful, feeling that they are being rushed into making a decision without being given time to consider other alternatives.
Pierre agrees to Suni\'s proposal without really understanding the financial implications.
GreenThumbs purchases the new premises but, because of continuing dry weather, its profits remain low. Rachel is becoming worried about her obligations as a director, especially if GreenThumbs\' financial position deteriorates any further.
Required:
Advise Rachel about
1) her position in respect of any breaches of her general law or statutory duty of care and diligence as a director; and
2) whether her decision to agree to the purchase of the new premises would be protected by the business judgment rule.
Support your advice with reference to relevant sections of the Corporations Act 2001 and to case
1) Rachel who is a non-executive director of the company,has powers and obligationswhich are indistinguishable to executive directors.She will have to examine the execution of administration in meeting concurred objectives and goals.
Non-executive directors need to guarantee they are free from the administration of the organization and any of its \"invested individuals\". It is essential to guarantee that non-executive directors have an indistinguishable access to data inside the organization from different directors.
As directors are in charge of the general administration of the organization it takes after that they are obligated to some degree for their activities. A non-executive director will be liable to an indistinguishable liability from some other director in connection to repaying their organization for misfortune emerging from breaks by directors of their obligations. It is accordingly vital that they demonstrate that they have found a way to practice care, aptitude and steadiness in the execution of their parts and duties.
Directors may acquire individual liability, both common and criminal, for their demonstrations or oversights in coordinating the organization. An individual can be fined on outline conviction or detained for up to a half year, however on arraignment the court is engaged to force a fine of up to €4m and a term of detainment not surpassing five years (Section 8 (1) of the Competition Act 2002). A director may likewise be held by and by careless where he is by and by in charge of a specific exchange or contract with an outsider.
2) Rachel will have to agree with the decisions of the executive members of the board, here Suni and Pierre, in purchasing of the new premises.The expanding time duty is steady with the situation under the Corporations Act 2001 that there is no qualification between non-executive director and executive directors in the use of the center perspectives of the obligation of care – ie understanding organization\'s monetary position and being in a situation to screen the organization\'s issues. Accordingly, non-executive directors should generally depend upon the business judgment manage and \'appointment\'resistances in the Corporations Act in leaving the everyday administration of the organization to the organization\'s executives. Nonetheless, an ongoing responsibility from a non-executive director is required.
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