The organization is run by its directors by applying their efforts and the decisions they take in favor of the company. If a company suffers a loss due to any wrong decision of the directors then the directors will be responsible for it.

1. Responsibilities and Liabilities of the Directors:

2.  Research Assignment: 10%
 Length: 2300-2500words
 Due Date: Week 10 –
 Submission: Electronic submission – Word .doc or .docx to be uploaded toTurnitin plus hard copy
submission to Lecturer withTurnitin Originality Report attached.


 The board of directors of LP Pty Ltd (LP) is made up of six individuals (Andy, Brian, Chris, David,
Evan and Faith) all with differing degrees of education and experience. Andy manages the
company's day-to-day operations. LP is a company that makes children’s costumes. Given the
downturn in the economy and entry of new companies into the market, competition is becoming
increasingly difficult.The directors feel that it would be prudent to restructure its operations to
reduce costs so as to become more competitive. Andy also thinks that LP should move to larger
premises in a different area. Without consulting the other directors, he starts looking for new
premises and he decides the first place he inspects is perfect, although the price is more than LP
can comfortably afford.Andy does not think this will be a problem, because there is no
competition nearby and he expects that profits will recover immediately. Andy calls a board
meeting and tells the other directors that moving will solve all the company's problems and that
this property he has seen is absolutely perfect for LP. He says they will have to act quickly as there
is another interested purchaser. Andy does not tell the other directors that he only looked at this
one property. He is so enthusiastic that the other directors agree to the proposal even though the
other directors are doubtful, feeling that they are being rushed into making a decision without
being given time to consider other alternatives.
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3.  The other directors agree to Andy's proposal without really understanding the financial
implications. LP purchases the new premises. During this time, the board of directors also
appoint a business operations consultant to suggest the best way to organise the different
departments and operations in the company. After a few weeks, the operations consultant
prepares the report and submits it to the board of directors of LP for review. Three of the
directors (Andy, Brian and Chris) read the consultant’s report and support it completely.
These three directors have a business background and business degrees from Sydney
University.The two other directors (David and Evan) do not read the report but adopt it on
the advice of the first three directors.These two directors have no formal education past
High School and have no business background. The last director (Faith) reads the report
and realises that it is poorly prepared, full of spelling mistakes and makes ridiculous
recommendations like: ‘LP should consider organising its operations in alphabetical order
because it’s more pretty that way’.This director does not support the adoption of the
consultant’s report. After the move to the larger premises and the changes are adopted, LP
unsurprisingly becomes more dysfunctional, loses lots of money and eventually has to be
wound up. Advise on the liability of the directors in relation to the reorganisation and
purchase decisions taken.
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4. The main aim of this report is to find out
whether all the directors of the company “LP
Pty Ltd” has provided their consent regarding
a particular decision willingly or was there any
sort of influence provided by Andy.
The second question is to find out that in a
case like this are all the directors equally
responsible for the decision they took? or is
there someone more responsible than the
others?
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5. Identification of the main
problem.
Restoring the status of the
company as it was previously
before the incident took place.
All losses and damages must be
restored and all the directors
must take the initiation to do so.
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6. NAME
• LP Pty Ltd
BOARD OF
DIRECTORS
• Brian
• David
• Andy
• Faith
• Chris
• Evan
NATURE OF
THE COMPANY
• Production of
costumes for
children
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7. Problem
• Due to high
competition in
market the
company was
facing loss
Chief
Operating
Officer
• Andy was the COO
of the company and
he had the authority
to look over the daily
affairs of the
company.
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8. “Idea”
• Andy had two ideas
which he wanted to
implement in the
company.
• First was to relocate the
company so that it can be
away from the high
competition which might
help the company to sustain
longer
• The second idea was to
restructure the company
which might lead to a
fruitful solution and give
back the status the company
had previously
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9. • Andy bought the premises which he initially thought to shift the
company without the knowledge of other board of directors.
• Andy had to buy it in a hurry as there was someone else who
was competing for the same plot.
Andy’s
decision:
• The other directors were not at all happy with the decision of
Andy as they were not informed about it previously.
Reaction of the
Board
members:
• Though they were unhappy still they gave their decision in favor
of Andy.
Decision of the
Board of
Directors:
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10. Financial Loss
Damage to
their Good-
Will
Degradation
in their
Status
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11. Every director has the responsibility to restore all losses as
well as all damages suffered by the company. The
directors are believed to be the brains of all organization,
despite, there are unrelated legal elements in the company
as per law a company cannot run on its own.
The organization is run by its directors by applying their
efforts and the decisions they take in favor of the
company. If a company suffers a loss due to any wrong
decision of the directors then the directors will be
responsible for it.
The director who opposed and did not gave his consent for
a decision and informed the board in writing about his
decision or moved to the court stating that he does not
support the decision would make him not liable for any
loss or damage resulting from the related decision.
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12. Amalgamated Society of Engineers
vs. Adelaide Steamship Co. Ltd
• If any decision had been
incorporated without the consent of
all the directors then the director
who has not provided their consent
might go to the court before the
implementation of such decision or
they can also state their objection to
the other directors by giving a
written letter.
• If no such initiations are taken by
the director then it will be
considered that the director has
given his consent in an implied
manner.
Clyde Engineering Co. Ltd vs.
Cowburn
• A director is eligible to express his
consent towards a certain decision
in an implied manner. Once the
consent is given by any director in
any manner then the personal view
of the director will not matter
anymore and he shall be equally
liable for all the actions as the other
directors who gave their consent,
despite the fact that according to the
provisions stated in the Corporation
act 2001, that the consent that a
director provides regarding a
decision must be a free consent.
• The act actually states that the
decision taken by any director must
not be under any kind of pressure, it
should not be misinterpreted or
there should not be any undue
advantage. If the base and other
consequences of the decision have
not been examined properly then
there would be no ground for
exemption or liability of the
directors.
Murphy Ores Inc Pty Ltd vs.
Commonwealth
• All the directors are responsible
equally for every bad decision
implemented in favor of the
company.
• If any director expresses his
objection with relation to the said
decision then that director may be
free from any liability which is
subjected to the circumspection of
the court.
• The company can take strict actions
against the position of those
directors whose decision caused the
company to suffer a loss.
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13.  By the law all the directors of LP Pty Ltd Company are liable
equally for the loss suffered by the company though the decision of
relocating the company and changing its infrastructure was Andy’s
idea.
 The application of the Corporation Act 2001, is mandatory for all
companies in all its affairs.
 In the case of LP Pty Ltd the directors had a chance to appear before
the court and apply to stop the decision before the decision was
implied, but none of the directors did this instead they gave their
consent to Andy.
 Faith is the only person who will be held less liable in relation to
restructure of the company because he was the only person who
refused to accept the reports given by the experts, but cannot be free
from his liability as he was one of the directors who provided their
consent to Andy’s idea.
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14. All the directors of LP Pty Ltd
are responsible for the loss
suffered by the company.
The only director who is
less responsible and less
liable than the others is
Faith because of his
expression of rejecting the
report produced by the
experts in relation to
restructure of the
company.
Andy was the actual
culprit who should be
responsible for this but as
all the directors gave their
consent to Andy hence he
cannot be held as the
solely responsible.
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