1. Problem: Fred was appointed as managing director of a wind-turbine manufacturing company (WTM Ltd) in February 2011.  It owns a factory that makes wind turbines.  Fred is in day-to-day control of the company. During the time Fred is managing director, the Board of Directors comprises:

Fred, who is an engineer and experienced manager.

Gerald, Fred’s stay-at-home partner.  Gerald seldom comes to meetings because he is too busy cleaning their house.  He did not go to any meetings in 2011.

Harriet, a well-qualified accountant.

Ian, a hairdresser who runs a successful chain of hair salons and who sits on several large public company boards.

The board’s function in WTM is to set the policies of the company for Fred to carry out and to approve major transactions

At the time of Fred’s appointment WTM was in a strong financial position.  But by August 2011 it is insolvent.  A liquidator is appointed.  On investigation, the following matters are discovered.

WTM purchased a new yacht worth $10 million in March.  The yacht has experimental sails.  These sails prove to be inefficient and the yacht needs a $1 million refit with normal sails.  As it is, it is only worth $1 million and even after refitting it would be worth only $5 million.

WTM has loaned $1 million to a company which has now gone into liquidation.  The company was well known to be in trouble and perusal of its last set of accountant would have revealed significant cash-flow problems.  The Board of WTM had approved the loan.

Advise the liquidator whether any of the directors has breached their duties of care and diligence.