Understanding Business
Understanding Business
12th Edition
ISBN: 9781259929434
Author: William Nickels
Publisher: McGraw-Hill Education
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Martina and Andrew are friends. They both have a keen interest in technology. They decide to form a business to pursue various technology projects, and decide that a company will be the best business structure to adopt. They establish Apricot Pty Ltd. Martina and Andrew are its only shareholders, and they are also its only directors. Martina takes a much more active role in managing the company than Andrew. Andrew relies heavily upon Martine to provide him with information about the company, particularly in relation to its finances, and its dealings with other companies. Andrew does not himself investigate the finances or transactions of Apricot Pty Ltd, other than by relying on Martina to provide him with this information. In June 2017, Martina arranges for Apricot Pty Ltd to purchase a very large quantity of electronics components. The components are acquired from ErinElectronics Pty Ltd, a company that Martina has a significant shareholding in. The transaction generates significant profits for ErinElectronics Pty Ltd. Martine signs the contract on behalf of Apricot Pty Ltd; Andrew does not sign the contract, and is not aware of the contract, as Martine does not inform him about it. The transaction puts Apricot Pty Ltd in a disastrous financial position. After paying for the very large order, it is no longer able to pay its debts. When Andrew eventually finds out (in August 2017), he is very worried — about his own potential responsibility, as well as about the failure of the business. Have Martina and I or Andrew breached any of their directors' duties?

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