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August 7, 2019

Phil is managing director of LightsBright Pty Ltd. Phil has accepted a large order for electrical fittings from CheepCheep Pty Ltd on behalf of LightsBright – Could Robert, the managing director of CheepCheep Pty Ltd be held personally liable for the unpaid debt, and if so why?

Question 2 ( 25 marks)
Phil is managing director of LightsBright Pty Ltd. Phil has accepted a large order for electrical fittings from CheepCheep Pty Ltd on behalf of LightsBright.
The order has been delivered to CheepCheep as per the agreed terms, however CheepCheep have not paid their $75 000 invoice.
CheepCheep is in serious financial difficulty and this was well known or suspected across the industry. Consequently, at the time the order was made, CheepCheep was known generally as a bad credit risk in the industry. Phil was aware of this, however he is a good friend of Robert, the managing director of CheepCheep. Phil decided to provide the order in any event.
CheepCheep has now been placed into liquidation and has still not paid the debt owed to LightsBright Pty Ltd.

Required
Using the IRAC legal problem solving process give your conclusion on whether:
(a) Phil, the managing director of LightsBright Pty Ltd be held personally liable for the unpaid debt, and if so why? ( 15 marks)
(b) Could Robert, the managing director of CheepCheep Pty Ltd be held personally liable for the unpaid debt, and if so why? ( 5 marks)
(c) Will the ‘business judgment rule’ be relevant to either Phil or Robert in these circumstances? (5 marks)

Law

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