Reference no: EM132943355

Question - Assume that, in view of all of these events, the parties agree that the directors of No-Tax Agents Pty Ltd should be Ms Avoider's mother (Mrs Evader) and Mr Marginal's trustee (Ms Ethical). The shareholdings are as follows:

Ms Avoider 20 x $1.00 shares

Mr Shifty 60 x $1.00 shares

Ms Ethical 20 x $1.00 shares

(as trustee for Mr Marginal) 100

The company commences its taxation advice business. Mr Shifty visits the company's business office on an almost daily basis, and has recently told both directors that they must provide free tax advice from now on to Wink Wink Pty Ltd, a client of the company which operates a Statewide chain of secondhand electrical appliance stores. Mr Shifty is a majority shareholder in Wink Wink.

The directors of No-Tax Agents Pty Ltd are very worried about Mr Shifty's request. The company's business is doing very well at present and Wink Wink is their largest client. If they provide free advice to Wink Wink, revenues will drop significantly. Both directors are somewhat intimidated by Mr Shifty. They do not want to upset him, particularly because he is the company's majority shareholder, and also because his elder son, Sam, is a close personal friend of Ms Avoider.

(a) Advise the directors.

(b) Does Mr Shifty run any risk if the directors act on his advice (both on this issue and on some other matters), and the company subsequently becomes insolvent?