Anna, Lisa and Jenny are directors of Diva Fashions

This is the third of four workshop questions which students are required to answer and submit online for assessment purposes. Ensure you have read the instructions for completing and submitting your answer to the workshop question which can be found under ASSESSMENT on Learning@ Griffith. There is an opportunity for students to ask questions about their workshop submission answer but only where students have drafted an answer to the question and only at the workshop.

Anna, Lisa and Jenny are directors of Diva Fashions Ltd (Diva). Jenny is managing director and chief executive officer of Diva, which is a company incorporated in Queensland whose core business is the manufacture of boutique clothing. Diva owns land and a factory in Molendinar. The land and factory were purchased over thirty years ago and until recently was where the companyâs clothing line was manufactured. However, manufacturing of Divaâs product line now takes place overseas, so that the factory has not been used for the last 18 months. After reading several articles in the Gold Coast Bulletin Property Section, Jenny is aware of the landâs value for residential purposes.

Jenny sets up a company, Blue Sky Pty Ltd (Blue Sky). The shareholders of Blue Sky are Jennyâs family, including herself (51%), husband Alan (25%), her daughter, Mary (12%) and son, Rod (12%). Jenny and Alan are directors of Blue Sky.

Jenny approaches Diva, recommending the Board sell the land to Blue Sky. The Board is unaware of Jenny or her familyâs interest in Blue Sky. As part of her presentation, Jenny produces a report that values the land (unimproved value) at $4 million. Jenny had her sister Lyn, a real estate agent, prepare the valuation report. Jenny emphasises to the Board that the directors lack the necessary skills to develop the land themselves and so that it would be in the best interests of Diva to sell the land and use the proceeds from sale to expand their marketing of the companyâs clothing line overseas. Without obtaining any further valuations, and convinced by Jennyâs comments and recommendation, the Board of Diva (including Jenny) unanimously approves the sale of the land to Blue Sky for $4 million. In reality, Lynâs valuation is substantially understated: the true unimproved value of the land is $18 million. Having purchased the land, Blue Sky then mortgages the land with Z Bank for $10 million to fund the landâs development.

While visiting the land development site, Jenny meets Kevin, the site supervisor. They fall madly in love, and leave Australia for the Bahamas. Before leaving, Jenny arranges for $8 million to be transferred from Blue Skyâs bank account into her own personal bank account. Blue Skyâs bank account is reduced to $2 million.

The creditors of Blue Sky, including Z Bank are now seeking repayment. Alan is understandably upset as he at no stage has taken part in the management of Blue Sky, as he has always followed Jennyâs instructions. Alan has never seen any financial records, including any balance sheet or profit and loss statement for Blue Sky.

Kevin dies in a diving accident in the Bahamas and Jenny returns to Australia.

Advise ASIC whether Jenny has breached s181 and s182 of the Corporations Act 2001(Cth). Please do not discuss remedies.

In answering the above questions please use the ILAC method, making reference to case law and relevant sections of the Corporations Act 2001(Cth).

Word Count: 1500 words maximum