Christine, Peggy and Bev are the three directors of a physiotherapy/pilates company called EYV Pte Ltd. Bev is the managing director but has been...

Christine, Peggy and Bev are the three directors of a physiotherapy/pilates company called EYV Pte Ltd.

Bev is the managing director but has been busy looking after her grandchildren. To expand the business the three directors in a Board meeting decided to buy 3 reformer beds at a cost of $35,000 each. This would help attract more patients and therefore generate higher income for the company.

Bev asked Peggy to research suppliers to see which offered the best product.

Peggy's cousin Nicole ran a company that sold the equipment and as Nicole's business was not doing too well, it was in Nicole's interest to get the order.

To "encourage" Peggy to recommend Nicole's business she offered Peggy a free trip to Europe for her and her husband, Kenny.

Three weeks later at the next board meeting which Peggy chairs the meeting as Bev is busy babysitting the grandchildren. This is the 5th meeting Bev has missed in the year. Peggy tells them that Nicole's company is the best and most reliable supplier and that in her opinion EYV Pte Ltd should buy from Nicole.

Peggy rings Bev who is caught in the traffic with the grandchildren crying in the background and Bev just says "Yes just do it" and hangs up.

Christine being more conservative is at the meeting and asks some more questions and wants to know how the company can affords to buy and has there been an independent assessment of the reformer beds.

Peggy says don't worry the accountants will organise the finance for the company. Just approve the transaction.

Christine not wanting to cause problems reluctantly agrees that the company should buy the reformer beds.

The bank agrees to finance the equipment and three months later after the beds have been delivered they continually break down and need maintenance. Also the parts to fix them are not readily available in Australia. Two of the three beds are out of action and EYV Pte Ltd cannot offer the services to customers who have registered with the company.   

The company employed additional staff to run the machines in anticipation of the increase in customers, but because of the continual breakdowns they were not needed.

You are the accountant for the company and Christine comes to you and seeks your advice on what happened.

REQUIRED:

 Advise the company what are the consequences of the above actions by the three directors. What can the company claim back from the three directors?

Do the directors have any defences?

Please refer in your answer to relevant case law and legislation.