Question

The board of The Best Banana Cake (TBC Ltd), a large coffee bean company listed on the Australian Stock Exchange, comprised of four directors, three of whom are executive directors and one of whom is a non-executive director:

• Brendan is the managing director of TBC Limited. He has been on the board of TBC Ltd for several years.
• Stephen is a chartered accountant and is the Chief Financial Officer at TBC Ltd and is an executive director of TBC Limited.
• David is an executive director of the board who has substantial experience in the banana cake industry.
• Jane is a non-executive director who barely attends board meetings and is a hairdresser.

The board of TBC Ltd has recently entered into a number of investments including a new kitchen in which to create the best banana cake, and other investments which have been losing large sums of money. At a board meeting in March 2019, the board considered the company’s financial statements relating to the loss making investments. The financial statements were negligently prepared and showed a profit instead of a loss. These financial statements were prepared by Stephen.

During the board meeting, Stephen failed to tell the director’s about the loss and David failed to ask any questions about the financial statements, and Jane (as per usual) was absent from the meeting. Due to time constraints, Brendan failed to read the financial statements, believing that Stephen would discuss the statements with him if there were any important matters that required his attention.

The board of directors do not identify the mistake and authorize further investment in the loss making business ventures. By May 2019, TBC Ltd is insolvent.

Discuss any liability of the directors of TBC Ltd in relation to those events. What are the consequences, if any of a breach of the Corporations Act? Refer to relevant

Answer 1