Reference no: EM131630635

Intelligent Kiddos Ltd ("IK") is a company involved in the publication and sale of children's books. Its main office is located in Sydney. Samuel was a shareholder and an executive director of IK, and was responsible for the day-to-day management and control of the company's business. IK also has two long-term employees Nam and Tam who have been with the company for almost 10 years. They are not shareholders.

The remaining directors and shareholders of IK were based in two different states of Australia. Samuel had a disagreement with the other directors Cory and Jacob and subsequently proposed that they buy out his shareholding or that he would buy them out of IK, which was refused by Cory and Jacob.

A few weeks later Samuel approached his friend Costa with an idea to incorporate a new company - Books and Tots Ltd ("BT"). Samuel and Costa began to work for BT. Costa later transferred his entire shareholding in BT to Samuel for no consideration, and Samuel was also appointed a director.

BT started being involved in the publication and sale of children's books and Samuel provided the company with the lists of all future and current projects of IK. Moreover, Samuel also downloaded and shared with BT IK's entire customer lists, customer database, customer account information, client lists, client data, intellectual property such as the business plan of IK and a few trade secrets. This was done with the direct assistance from Tam and Nam who were paid commissions by Samuel. A few weeks later Samuel resigned from his directorship of IK fearing legal liability.

Cory and Jacob found out that BT is a new competitor of IK and Samuel provided the company with confidential business information of IK.
They decided to take legal action against Samuel and other persons of interest. ASIC also received a report about breaches of director duties and decided to conduct an investigation. In response to the allegations of breach of directors duties Samuel argued that BT was established legitimately by Costa as a cross-marketing venture with foreign publishers. He also argued that due to the irretrievable (permanent, irrevocable) breakdown in relations with Cory and Jacob, he had been compelled to resign and had taken the opportunity to move to BT. Samuel also claimed that BT was started without any purpose of competing with IK and information about publishers, customers and future projects was publicly available.

REQUIRED:

Advise IK and ASIC if there are any legal actions against Samuel and other persons of interest. Apply relevant Australian case law and legislation. Focus on the legal concepts discussed in week four.