Lee is a successful chemical engineer with expertise in petroleum products In November 2010, upon request by, and as a favour to, his friend Alex, Lee became a non-executive director of NSW Service Stations Ltd, a company which owned and operated a number of services stations in New South Wales. Alex is the managing director of the company.
By agreement, Lee did not take a director's fee for sitting on the board of NSW Service Stations Ltd. Lee rarely attended board meetings and relies on Alex, who has qualifications in accounting, for information about the financial affairs of NSW Service Stations Ltd. Lee explained to Alex that he saw his role as non-executive director to be confined to "planning and policy-making" and, besides, Lee also said to Alex that "I'm an expert in chemical engineering, not in financial matters."
Over the last twelve months, from October 2010 to October 2011, NSW Service Stations Ltd experienced several episodes of cash flow shortages in its business operations In November 2011, a liquidator is appointed to NSW Service Stations Ltd. The company has suffered loss in excess of a million dollars An investigation of the affairs of NSW Service Stations Ltd by the liquidator found the following:
•that NSW Service Stations Ltd had to replace petrol pumps at a net cost of over $800,000 due to the board's decision to import these items, from Techno Pty Ltd, which were non-compliant with Australian safety standards The company's contract with Techno Pty Ltd was in the sum of $400,000. An independent expert's report to the Board had earlier recommended, in preference, the purchase of locally manufactured petrol pumps which complied with Australian standards Alex is a major shareholder in Techno Pty Ltd;
•that the interim financial accounts presented at the monthly Board meeting in December 2010 correctly indicated a cash flow problem. The minutes of the meeting records Lee's attendance at this meeting.
The liquidator seeks your advice as to whether any legal action may be taken (and the likelihood of success) against Lee and/or Alex to recover money as a result of a breach of their duties as directors of NSW Service Stations Ltd, other than arising out of insolvent trading, under common law and pursuant to the Corporations Act
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