Barbell Ptd Ltd (“Barbell”) is a company that manufactures gym and home fitness equipment. It was started by two brothers, Rocky and Ham. Both of them invested $50,000 each in the business for an equal number of shares and became Directors of the business. They wanted to have an equal say in the running of the business. The business began to experience an improvement during the COVID-19 pandemic as many people began to take an interest in home fitness.

To further expand the business, Barbell decided to bring in more investors, some of them being friends of Rocky. Due to the issuance of new shares in the company, and Ham’s inability to invest further in the company, Ham’s shareholding was diluted, and he ultimately held only 30% of the total shares in the company, the other 70% being owned by Rocky and the other investors. Two more directors were added to the Board of Directors, also friends of Rocky, to which Ham and the other shareholders were in agreement (assume there were no irregularities in the appointment of these directors and all relevant provisions under the Companies Act and other regulations were complied with).

As the business was doing well, Rocky wanted to expand into the fitness nutrition area, manufacturing and supplying low-calorie snacks and food. As more capital was needed to be injected into the company, Rocky had to find more investors. As such, Rocky ‘persuaded’ the company’s in-house accountant to better present the accounts of the firm such that the company would look more attractive to a potential investor.

The accountant thus inflated the value of certain assets and took some existing liabilities off the books. This was known only to Rocky and the two directors. Rocky kept Ham in the dark about what was done.