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Assignment ID: FG133233107

Question: Sit Pty Ltd is a Melbourne-based company that sells furniture from stores throughout Australia. Betty is a director of the company and Carl is a non-executive director. Alan is the managing director.

In January 2022, the company is in deep financial difficulty. At a board meeting that month, a decision is made to pursue a major sales drive. Alan proposes that the company purchases $300,000 worth of stock from Relax Ltd, a furniture wholesaler. He makes this proposal based upon a voice which he heard in a dream. This conflicted with advice from the company’s chief accountant to trade conservatively. Alan believes that dreams are helpful in making business decisions.

Betty is happily surprised to hear this proposal – she is a shareholder in Relax Ltd. She votes in favour of the proposal, but at no time mentions her stake in Relax Ltd to the other directors.

Carl was unable attend the board meeting because he suffered serious head injuries while skiing at Mount Buller.

Although sales of the company increase during the sales drive, losses accumulate due to narrow margins and rising costs. The company goes into liquidation in September 2022. Creditors for the company claim the directors should pay for money owing.

Advise the liquidator of Sit:

b) Whether the directors (Alan, Betty and Carl) are liable for insolvent trading. In your answer, address any relevant defences. DO NOT discuss the other director duties!