Company Law: Directors' duties?

Question

Food Company is engaging in an expensive research on genetically engineered food. X Co. lends $20million(interest free, and without obtaining security) to Food Company. Michael (director of X Co.) states that it is a very good use of the money because any successful research by Food will be of substantial benefit to X Co. All other directors vote in favour of the loan.
Is there a breach of duty by the directors of X Co.?

Answer 1

Based on whatever info you've given, it would appear that there is dereliction of duty on the part of the directors of X Co. In the first place, there should be policies in place relating to loans (due diligence, terms of the loan like interest, security, repayment terms, penalty, etc) and those policies should be followed. 2ndly, they seem to have just taken Michael's word for it that it's a good investment. Where are the due diligence reports? What are the odds that this experiment will be successful? Feasibility studies? Is there a market for genetically modified foods? Etc etc. Basically, not enough is known about the viability of the project and not enough care taken to safeguard the company's $20m, not to talk of ensuring adequate return on capital and opportunity costs.