Francine is the newly appointed director of Motor Trader (Pty) Ltd (“Motor Trader”). When the company needed to appoint a new marketing agent to advertise its products in Gauteng, Francine persuaded the Board to appoint New Millennial Marketers (Pty) Ltd (NMM), a marketing and advertising agency, by convincing them that NMM would be the best company to do the job. However, Francine did not disclose the fact that her sister owned a substantial interest in NMM. A few months after NMM was appointed, it became clear that Motor Trader had suffered substantial losses in Gauteng because its products were not being advertised efficiently, since NMM had no experience in this type of work. The shareholders of Motor Trader want to hold the company’s directors liable for breach of their duty to act in the best interest of the company and their duty of care, skill and diligence by appointing an inexperienced company as their marketing agent. Q.4.1 Explain to the board what the business judgment test entails. Q.4.2 Briefly discuss the conflict of interest that Francine should have disclosed.

Francine is the newly appointed director of Motor Trader (Pty) Ltd (“Motor Trader”). When the company needed to appoint a new marketing agent to advertise its products in Gauteng, Francine persuaded the Board to appoint New Millennial Marketers (Pty) Ltd (NMM), a marketing and advertising agency, by convincing them that NMM would be the best company to do the job. However, Francine did not disclose the fact that her sister owned a substantial interest in NMM. A few months after NMM was appointed, it became clear that Motor Trader had suffered substantial losses in Gauteng because its products were not being advertised efficiently, since NMM had no experience in this type of work. The shareholders of Motor Trader want to hold the company’s directors liable for breach of their duty to act in the best interest of the company and their duty of care, skill and diligence by appointing an inexperienced company as their marketing agent. Q.4.1 Explain to the board what the business judgment test entails. Q.4.2 Briefly discuss the conflict of interest that Francine should have disclosed.