Discuss matters referring to the corporations act

Reference no: EM132736791

Question: Paradise Travel Ltd, is a listed

Australian public company providing exclusive expensive and exotic holidays in the Pacific Islands. The company also operates a water front resort on the island of Bora Bora. Paradise Travel Ltd has three directors Donavon is the managing director, Clare is a non-executive director appointed due to her connections with banks and financial institutions and Kaveeta, a Bora Bora islander with local connections. Clare lives in Perth and finds it difficult to attend monthly directors' meetings on the island. She has missed the last two meetings and also cannot attend the next one, as she has her parents golden wedding anniversary in Perth.

At the next meeting, the directors are to consider the company's financial position and a loan. Over the last few years the water in front of the resort has been showing increased algae presence due to climate change and the directors have been aware of this. However this year the algae bloom is so bad that the guests have been unable to swim or go into the water. As a result, the cost of the on-going treatment plan has increased significantly. The company providing the treatment, Algae Treatment Ltd, has stopped work as payments from Paradise Travel Ltd are overdue. The directors of Algae Treatment Ltd have informed the directors that Paradise Travel Ltd has no choice but to incur major costs of treating the algae bloom and then contain the treated water by building a surrounding wall. The directors may need to consider obtaining a loan from All West Finance Pty Ltd to pay for the major cost of treating and containing the algae bloom.

Clare believes that it will not matter if she does not attend the meeting because, after missing so many, she is not up to date with the company's financial position. Also, she thinks it is better if the other directors are not aware of her father's connection with All West Finance Pty Ltd so they would not be biased to support it.

At the board meeting, the directors decide to follow advice from Algae Treatment Ltd and change the algae treatment plan and build a surrounding wall so that the resort will continue to attract wealthy high spending tourists. Financial plans provided by the company accountant to the directors indicate that this should enable the company to trade out of its financial difficulties. A decision is made to obtain a large loan from All West Finance Pty Ltd to pay the past amounts owing to Algae Treatment Ltd to cover the more expensive algae treatment and to build a surrounding retaining wall.

A few months after the renovations are completed the only major airline servicing the Bora Bora Island ceases operations due to the poor demand arising from the publicity of the algae bloom on that Island. Only a small airline offering budget tourist packages is prepared to operate on the Island, but such guests will not pay the higher charges of the resort. Shortly thereafter, Paradise Travel Ltd fails to pay interest due on the All West Finance Pty Ltd loan and a liquidator is appointed to the company.

a) Discuss the following matters [referring to the Corporations Act 2001 (Cth) and cases and the uploaded research material in part (a)].

b) Discuss if the directors of Paradise Travel Ltd (listed company) could be held liable for breach of duty of care and diligence in failing to take steps, including failure in reporting financial risks to the shareholders, in relation to the foreseeable climate-related risks that may have caused harm to the company, including reputational harm.

c) Whether the conduct of Clare or the other directors could make them liable for any of the debts of Paradise Travel Ltd as a result of the company's insolvency and defences they may have against the liability.

Reference no: EM132736791

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