Commercial and Corporate Law for Accountants

DEF Ltd was incorporated on January 2011 and was floated on the ASX
in March 2011, having raised $20 million from investors. The company is
primarily involved in mining and exploration activities in the Northern
Territory. DEF Ltd have three directors: Rocky, Drago and Clubber. Rocky
is the company’s chief executive officer. Clubber is the company’s chair.
Drago is the company’s chief financial officer. The company began
exploration activities in July 2011. After drilling a number of sites, a
geological survey was commissioned and the results from the mine wells
were tested. The results from the survey reveal that the mining site has
low levels of gold deposits and is considered to be uncommercial. The
company has already spent $5 million. At a recent meeting, the board
considers whether to abandon its mining activities and return the
company’s remaining capital back to its shareholders. Rocky is an eternal
optimist and never knows when to quit. He argues that the company is on
the verge of a major discovery and should continue with its exploration
activities. Clubber and Drago are less optimistic and suggest that the
company’s remaining capital should be returned back to investors. To
avoid another heated confrontation, they agree with Rocky that the
company should continue with its drilling program. At the completion of
the drilling activities in 2018, all of the company’s capital has been
exhausted and there have been no major discoveries.
Required:

  1. Have Rocky, Drago and Clubber breached any directors’
    duties? (10 marks)
  2. Do they have an arguable defence? (10 marks)
  3. Advise whether the same standard will be applied to Drago, as
    the company’s chief financial officer? (10 marks)

Sample Solution

ACED ESSAYS