Your client is a company called Giant Adventures. The company has four directors, Belinda, Bobbi, JJ and Charlie, all directors are also equal shareholders. The company specialises in travel packages for Melbourne’s rich and famous. Bobbi is the Managing Director and Charlie is the Chief Financial Officer. Belinda and JJ are non-executive directors.
The Company has adopted a written constitution which contains the following clauses:
(36) A directors’ meeting may be called by a director giving reasonable notice individually to every other director.
(37) Quorum for directors’ meetings is four directors and the quorum must be present at all times during the meeting.
(42) A resolution of the majority of directors may resolve to remove another director of the company.
Business has been growing steadily and Giant Adventures has made a great deal of money over the last few years. However, the Board of Directors have rejected Belinda’s proposal to declare a dividend for the last 5 years in a row – and she is getting fed up. The other directors always outvote her, arguing that it is better to keep the profits in reserve and continue to expand the business. Charlie is currently investigating the possibility of opening an agency in Brisbane.
Belinda has been away for a business conference and on her return discovers that the other directors have met and passed resolutions to remove her as a director of the company. Belinda did not receive any notice of the director’s meeting. In another resolution, the remaining directors voted to pay themselves $250,000 in bonuses – equating to the entire year’s profit.
Belinda is angry that she has been removed and not paid a bonus and comes to you for your professional advice and opinion.
Giant Adventures has a longstanding alliance with a tour company Detour Pty Ltd (Detour). In May 2018, Giant Adventures’ financial accounts show that Detour owed the company $15,000. This is a trade credit and there is no applicable security.
However, Belinda discovers that by June 2018 the debt owing to Giant Adventures had blown out to $50,000. Charlie had approved additional credit to Detour without the knowledge of the other directors. He did this, even though Detour had been taking a long time to pay its overdue account. There are rumours that Detour are insolvent, but this cannot be proven.
a) Can Belinda can bring an action to challenge the validity of her removal? (5 marks)
b) Can Belinda bring action to challenge the other directors’ decision to deny dividends for several years and then pay themselves bonuses? (5 marks)
c) Advise Belinda about whether Charlie has breached any of his duties as a director of Giant Adventures. Include in your answer the consequences of a breach of duty, whether Belinda could bring an action for compensation on behalf of the company against Charlie, and whether there are any defences available.