Reference no: EM131682915

Question: George, Harry and Ian are the only shareholders and directors of No-Waste Furniture Pty Ltd (No-Waste) which makes and sells furniture from recycled hardwood. They each have 1,000 shares in No-Waste. George runs the workshop which makes the furniture while Harry and Ian jointly run the business side of the company. The business has been very successful and it is clear that No-Waste needs to upgrade its office equipment. On Harry's strong recommendation, No-Waste agrees to buy a new "state of the art" computer system from AceComputers. Harry says this is the most suitable system available and will make it much easier to expand the business. Harry does not tell Ian and George that he and his sister control AceComputers. Ian knows that Harry has an interest of some kind in AceComputers but does not ask for any details and does not mention this to George.

Early last year, No-Waste was approached by Top Timber Pty Ltd (Top Timber), suggesting that the two companies enter into a joint venture to recycle a very large quantity of timber from a big inner city demolition project. After a lengthy discussion, George, Harry and Ian decided that No-Waste did not have the facilities to handle such a large amount of timber and rejected the proposal. Shortly afterwards, Ian, acting on his own behalf, and Top Timber formed a new company which successfully recycled the timber from the demolition project and made a very large profit.

George has recently married Clare. Clare thinks that No-Waste is badly run and George, who is not interested in business matters, is happy to agree to transfer half his shares in the company to her. Without giving any reasons, Harry and Ian refuse to register the transfer of the shares to Clare.

George and Clare have found out about Harry's interest in AceComputers and Ian's involvement in the project with Top Timber. They seek advice on the following matters:

(i) Have either Harry or Ian breached their fiduciary duties or any provisions of the Corporations Act in respect of the contract with AceComputers?

(ii) Has Ian breached his fiduciary duties or any provisions of the Corporations Act in entering into the project with Top Timber? Has No-Waste any claim to the profits he has made?

(iii) Is there anything Clare (and George) can do regarding Harry and Ian's refusal to register the transfer of the shares to Clare?

What, if anything, should Ian have done to ensure that he did not breach any of his duties as a director in entering into the project with Top Timber?