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JKL Co is a shareholding company. On 1 February the board of management met to consider the company’s trading difficulties. The company was faced with a cash flow crisis. Although the company’s financial position was a cause for serious concern, the board agreed that there was a genuine prospect of recovery if cash could be raised quickly.
They, therefore, agreed to sell a warehouse belonging to the company for this purpose. Despite the warehouse having an estimated value of $225, the highest offer to the real estate agency was $120. The board reluctantly accepted this figure and the property was sold on 1 May.
On 1 June the company’s cash flow had improved and the board of directors decided to repay a loan of $300 ahead of the scheduled repayment date. The loan had been backed by a guarantee given by Jack, a member of the board of management.
On 1 August the company was declared bankrupt by the court.
Required:
(a) Explain whether there will be any legal consequences to the board of management of the decision to sell the warehouse.
(b) Explain whether there will be any consequences to the board of management or to Jack personally of the decision to repay the loan ahead of schedule.
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