Corporations ILAC Hypothetical Problem Solving Question:
Sheldon, Leonard and Howard are directors of Genius Enterprises Pty Ltd (Genius), a company based in Brisbane that provides laboratory equipment to laboratories, universities and other research facilities.
On 1 September 2016, at the monthly directors’ board meeting, the directors decided that the current wholesaler who supplies the company with test tubes is too expensive, and they should source cheaper test tubes. Howard suggests that they buy test tubes manufactured by Lab Stuff Ltd (Lab Stuff). Howard says that he has heard good things about this company as it uses a revolutionary new manufacturing technique, which means it is able to produce the test tubes significantly cheaper than rival companies. Based on Howard’s recommendation, Genius enters into a contract with Lab Stuff to purchase test tubes from it exclusively for the next 5 years. Howard does not at any time disclose that his wife Bernadette is one of the directors of Lab Stuff.
On 16 September 2016, while Howard is having dinner with Bernadette, she tells Howard that Lab Stuff has just signed a contract to exclusively supply the United States government with test tubes and that its shares are “bound to skyrocket”. Bernadette swears him to secrecy because news of the contract has not been announced to the public yet. Excited by this news, Howard immediately buys personal shares in Lab Stuff that evening using money from his own bank account, without telling Bernadette.
In early October 2016, the Chief Financial Officer (CFO) of Genius, Raj, has a meeting with Sheldon, Leonard and Howard to discuss the company accounts. Sheldon, being forgetful, suddenly remembers that he purchased a bulk order of microscopes on credit on behalf of the company amounting to $30,000 in June 2016. Back in June when he made the purchase, he was busy inventing a new stain resistant fabric that could be used for making lab coats. As he was pre-occupied with his invention, he forgot to tell the other directors about the purchase, and he also forgot to give Raj the bill for the microscopes so that it could be paid when it became due. Sheldon does not tell his fellow directors about his oversight, as he is too embarrassed to admit that he simply forgot about the purchase. The business that sold Sheldon the microscopes sent a letter to Genius demanding payment of the money that is owed, plus interest on the unpaid amount for the last 4 months.
Raj has now become aware of all of the above facts and has asked for your advice. Using only the Corporations Act 2001 (Cth) and the common law cases, advise Raj using the ILAC method.
Note: Do NOT discuss s184 Corporations Act 2001 (Cth) as part of your answer.
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1. Is Howard an Officer of Genius?
2. Did Howard use his position as a director of Genius for a proper purpose or for...