Reference no: EM132455763

Question 1:

The main business of Deju Vu Ltd is making and innovating musical instruments and producing records and CDs.  There are five directors who have steered a very successful company.  Together they own 20 million of the company's 45 million issued shares. At a meeting of the board of directors in May 2010, a proposal was presented for the purchase of both retro-technology as well as new innovative Pono-format technology.  Three of the directors (Crosby, Stills and Nash) opposed this proposal and argued that the market-value of both technologies was unknown and their success or otherwise, unpredictable.  Crosby, Stills and Nash said they heard rumours from the engineer company, Woodstock Pty Ltd, that the new Pono format promised to bring new levels of fidelity to the digital sphere had not been demonstrated. They convinced the other directors, Neil Young and Emmy-Lou Harris that the company should not proceed with the proposal. In fact, Crosby and Stills had been told by Woodstock Pty Ltd that initial testing had proved extremely successful and would prove to change the digital sound experience very significantly.

The Pono format technology was in fact bought by Monterey Pty Ltd, whose share capital was held in equal proportions by Crosby and Stills.  This was known by Nash but not by the other directors.  Monterey Pty Ltd paid $4million to Opus Pty Ltd for the rights to the technology and subsequently sold these rights to Wild Tales Ltd.  Nash received a payment of $100,000 from Monterey Pty Ltd that was described as a "commission."  The directors of Wild Tales Ltd asked Nash to join their board knowing that at the time he was involved in negotiations for the purchase of retro and new music-digital technologies by Deju Vu Ltd.  After Nash's appointment to the board of Wild Tales Ltd, it secured the contract to purchase the technologies instead of Deju Vu Ltd.  Nash was paid a bonus of $400,000 by Wild Tales for his efforts.

Crosby, who is a sound engineer and singer, recommended to a board meeting of Deju Vu Ltd that the company engage the services of Wooden Ships Pty Ltd as consultant music arrangers for future production purposes.  The directors voted in favour of this proposal and engaged Wooden Ships to provide music arrangements to the value of $200,000.  Crosby did not reveal that he was in fact the major shareholder of Wooden Ships Pty Ltd.  The remaining directors, later discover the full facts surrounding the activities of Crosby, Stills and Nash.

Advise Young and Harris on any breaches of directors' duties or other obligations in relation to the following matters:

1. The purchase of the technology by Monterey Pty Ltd;

2. Nash's receipt of the commission from Monterey Ltd and his arrangement with Wild Tales; and

3. The entering into the contract with Wooden Ships Ltd.