Question

44.The Suds Corporation has just suffered significant losses of revenue for three quarters in a row, and the shareholders are furious. Much of the loss can be attributed to the board's decision to change from their traditional lager beer to a lighter and smoother brew. Unfortunately, the new recipe alienated current customers and failed to bring in new customers. Although Suds has announced that it will return to its original product, the shareholders are claiming the board violated its fiduciary duty of care, and they are suing the directors personally for their significant losses. What must the shareholders prove to win their lawsuit? What defense is available to the directors, and what must they prove to prevail?

Answer 1

Answer :

Board of Director's fiduciary duty of care:

• In a company, board of directors owe fiduciary duties to its shareholders. As shareholder's are the actual owners of company, and board of director's are acting on their behalf.
• Duty of care require that director's keep themselves reasonably informed ,when making decisions on behalf of company.
• Directors must act with a level of care and act with prudence, while making any crucial decisions regarding company's operations and affairs.

Present case :

• in reveiwing whether directors have satisfied the duty of care, courts look into the information avalable to directors and process followed by them in making decision.

Requirement for shareholder's to win the present case:

• In present case , Shareholder's should prove that director's have not taken a well informed decision.
• and that the decision of directors to change from their traditional product to new product was taken without due thinking and care .

Requirement for Directors to defend their case:

• Director's must prove that they have made the decision on basis of adequate information and market research .
• that they have applied prudence on their part , and taken due care at the time of making decision , as any person would have use in similar circumstances.

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