Reference no: EM13836373

Jolly Tots Pty Ltd operates a small child-care centre in Collaroy on Sydney's Northern Beaches. Lucy, Karen and Samantha are its directors and shareholders. Samantha manages the company's day-to-day business operations. Lucy, who left school at 14 and has no tertiary qualifications, looks after the children (with the help of two part-time employees). Karen does not take an active part in the management or operations of the company, as she is busy with her own office supplies business. Until recently Jolly Tots has been very profitable. However, six months ago a competing business opened nearby and since then Jolly Tots' profits have dropped considerably. Samantha thinks that Jolly Tots should move to larger premises in a different area like Double Bay. Without consulting Lucy and Karen, Samantha starts looking for new premises and she decides the first place she inspects is perfect, although the price is more than Jolly Tots can comfortably afford. Samantha calls a board meeting and tells Lucy and Karen that moving will solve all the company's problems and that the property is perfect for Jolly Tots. She states that they will need to act quickly as there is another interested purchaser. Samantha does not tell the other directors that she has only looked at one property. She is so enthusiastic that both Lucy and Karen agree to the proposal even though Karen is doubtful, feeling that they are being rushed into making a decision without being given time to consider other options. Lucy agrees to Samantha's proposals without really understanding the financial implications. Jolly Tots Pty Ltd purchases the premises but because most people in Double Bay use nannies instead of child-care centres, profits remain low. Advise whether Karen and Lucy have breached their directors' duties.