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Directors’ and Auditors’ Responsibility Towards Company and Shareholders

Question

Swim Pool Ltd has had a difficult year due to the poor work of a number of workers. It seems that the directors have not been properly monitoring the work done by the employees, and the company books show an alarming number of jobs which have had to be redone. The directors of Swim are annoyed that their auditors did not disclose to them the seriousness of the company situation in the last audit and how much money had been lost due to poor work.

The directors have been distracted from their normal tasks because they are considering an alternative business opportunity of changing sea water into drinking water. A large sum of money has been spent on considering the business proposition and an exploratory project comes to nothing for the company.

One of the senior employees believes that an alternative scheme of recycling sewerage water might be successful and convinces Syd, a director, to raise it at the next directors’ meeting. The proposition is rejected outright. The project is in fact successful, partly because the ex-director has contacted all of Swim Pool Ltd clients and made them an offer of cheaper water.

A number of shareholders are alarmed at the performance of the company, the directors and the auditors.

Required

a.    What is the liability (and defences - if any) of the following parties:
The directors
Syd, the ex-director
The ex-employee
The auditors

b.    A number of members want to hold a meeting, what rights do they have to call the meeting? Explain.

Summary

The question belongs to Law and it discusses about a company whose performance has become very low because of the lack of attention of directors. The auditors did not report this to the directors. A shareholders meeting is called and the liability of the directors, auditors, employees, etc is checked.

Total Word Count 300




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