(a) The directors of Happy Trails are keen to purchase a blockof land next door to the company’s business premises for $150,000which will allow the company to expand. They set up a subsidiarycompany to purchase the land with the intention that Happy Trailswould become the sole shareholder of the subsidiary. Happy Trailscontributed $10,000 capital as a deposit to the subsidiary with theintention that the balance of the purchase price would be raised byway of a bank loan. However, the bank wanted $40,000 deposit andHappy Trails did not have enough cash to make up the shortfall. Thethree directors of Happy Trails decide to contribute $10,000 eachpersonally in order for the sale to proceed. By doing so, theybecame shareholders of the subsidiary. One year later Happy Trailsdecides that they don’t need to expand, and the land is sold for$300,000 and the directors who had put in their own money tofinance the deal made a large profit. Miss Eli and Mr Wu argue thatthe whole of the profit belonged to Happy Trails and that the threedirectors should not be allowed to keep their profit. Advise MissEli and Mr Wu. (b) The three directors recently had a seriousdisagreement about the direction the company should take and as aresult they are hardly speaking to each other. This means that itis very difficult for any business decisions to be made and thecompany is suffering financially. Mr Wu is very concerned as ashareholder. Advise Mr Wu. Attached
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