Question 1 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 Pilbara region of Western Australia. DEF Ltd have four directors: Apollo, Rocky, Drago and Clubber. Both Apollo and Rocky are executive directors. 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. Both Apollo and Rocky are eternal optimists and never know when to quit. They both argue 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 and Apollo that the company should continue with its drilling program. At the completion of the drilling activities in 2012, all of the company’s capital has been exhausted and there have been no major discoveries.
(a) Have Apollo and Rocky breached their directors’ duties?
(b) Do Apollo and Rocky have an arguable defence?
(c) Has Clubber, as the company’s chair, breached any duties?
(d) Advise whether Drago, as the company’s chief financial officer, breached any duties.
Question 2 Citrus Ltd, a gold mining company listed on the ASX, is currently the subject of a hostile takeover from Anglo Brit Ltd. Prior to Anglo Brit’s announcement, the market capitalisation of Citrus Ltd is currently $100 million and its pre-takeover share price is $1.00. Anglo Brit has offered $1.20 per share for Citrus, representing a 20% premium. The directors of Citrus Ltd devise an ingenious plan to defeat the takeover. The board manages to convince one of its directors, Mr Lang, to be provided with an interest-free loan worth $20 million. The loan was for the purpose of purchasing shares in Citrus Ltd in order to push up the company’s share price. This will mean that Anglo Brit will have to offer more to the Citrus shareholders if they are to successfully take over the company.
(a) Have the directors of Citrus Ltd breached their directors’ duties (in particular duty to act for good faith in the best interests of the company and for a proper purpose) in relation to the loan that has been advanced to Lang?
(b) Can Anglo Brit Ltd take legal action against Citrus Ltd in relation to the latter’s conduct and tactics concerning the hostile takeover?