Director’s responsibility

Chatterjee, Corkery and Sukhveer are the directors of Digital Solutions Ltd. The Board of the company decides to approve a contract for the provision of advertising by PR4U Ltd. PR4U Ltd requires a substantial deposit and this is paid by Digital Solution Ltd.

Corkery, a marketing graduate and experienced market researcher, undertook to research the merits of the proposed contract. He prepared a report recommending that it be approved. Based on Corkery’s report. The contract appeared to be very competitive at the time it was approved. However, one month later it became clear that PR4U Ltd could have offered its services at a much lower price than it did, and that Corkery had been rather careless in his assessment of Digital Solutions Ltd.’s ability to pay.

Sukhveer believed that the contract was in Digital Solution Ltd.’s best interests, although he wondered if the company would be able to afford to pay for the advertising.

Chatterjee was fairly sure that the company would not be able to pay PR4U Ltd, and that the payment of deposit would also mean that it would not be able to repay an outstanding loan of $100,000 to Kelly Finance Ltd. He believed, however, that this was not really a problem, as the principle of limited liability would protect him and other directors from liability, and that the contract was therefore worth the risk. He was also supremely confident that, no matter what the outcome of this transaction, his exceptional management ability would prevent the company failing.

The company was subsequently able to meet the full cost of the advertising contract.

(a). How and by whom have any of the statutory directors’ duties been breached?

(b). To whom are these duties owed, and how many may they be enforced?

(Use Company Act 1993, New Zealand legislation for reference to answers )