BULAW2629 Managing The Legal Environment

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BULAW2629 Managing The Legal Environment

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BULAW2629 Managing The Legal Environment

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Course Code: BULAW2629
University: Federation University

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Country: Australia

Case Study

Great Adventures Pty Ltd (Great Adventures) operates 20 small hotels in Australia. Ten of the hotels (as well as company headquarters) are in the greater Melbourne area while the rest of the Australian hotels are scattered through other parts of the country. The company has a yearly operating budget of some $50 million, with approximately half of all revenue coming from Government in the form of tourist subsidies. The other half is generated through direct charges for accommodation and food services, recreational services (as agent for local recreational service providers) and tourist transportation services (shuttles to and from transport termini and adventure activities). As its name suggests, the running theme in publicity for the hotels is “stay in luxury; experience excitement” and the hotels encourage customers to participate in risky and challenging activities.
There are 1000 shares in the company, divided equally amongst 10 shareholders. Two of these shareholders are companies and another two are trustees for family trusts. One of those family trusts is the Great Family Trust. Of the other six shareholders, four are members of the Great family. Great Adventures has a constitution that specifies that the day to day decisions are to be made by a committee of four people. This committee must include at least one member of the Great family who holds the casting vote on any issue. For the past three years that person has been John Great (trustee for the family trust). The constitution also specifies that any proposal involving restructuring, sale, purchase or expansion must be approved by at least a 75% majority in general meeting. The shareholders receive an Annual Report each year, which includes a brief summary of the financial statements (which are audited every three years), and are periodically asked for their views on proposals by the committee to purchase another hotel or expand the range of services offered throughout the country. However, unless they come from one of the Great shareholders, the suggestions tend to get ignored by the committee members when making its final decision.
The hospitality sector in Australia is going through a difficult time at present. Profit margins have fallen and with increased regulation, a number of new providers coming into the market and rising labour costs, it is becoming difficult for Great Adventures to do well out of the 20 local hotels. Further, due in part to an unfortunate incident in which a customer was given the wrong directions to one of the hotels, ending up in Sydney instead of Adelaide (because the hotel name information on Great Adventures computer was wrong), questions have been raised as to the suitability of an Melbourne-based company operating hotels elsewhere.
After some discussion with the other Great family shareholders, John has come up with four (not necessarily exclusive) options to tackle the problems that face Great Adventures Pty Ltd.

To sell the poorly performing hotels (three have been identified, one in Hobart and two in Adelaide). He knows that the best price he could obtain for those in Adelaide would be from the only other provider of accommodation facilities in that area. However, he also knows that that provider would immediately close the Great Adventures facilities to enable it to increase prices for its facilities.
To use his influence with travel agents around the country to arrange partnership deals. He thinks it would be a good idea to issue more shares in the company and to give them to important and influential individuals at those agencies as a goodwill gesture. In addition, he would like to give some shares to Brian Fallop, the local Member for the Commonwealth Senate, as a sign of appreciation for the assistance he has given the company in the past in gaining subsidies and development incentives.
To restructure in a way to have most of the hotels operate as separate businesses, with support from Great Adventures but with independent management.
To diversify into New Zealand and Asia as a means of reducing the risks inherent in reliance on one market. He has already been in discussions with several large family-owned companies in Asia, all of which claim that their close ties to government will enable access to subsidies and grants to establish luxury boutique hotels in the countryside as a means of increasing demand.

As John is a little concerned at the possible reaction of the non-Great family shareholders to any of these proposals, he thinks it would be a good idea to issue a large block of shares to the Great Family Trust. This would give John as trustee considerably more voting power in general meeting and, combined with the votes of the other Great shareholders, a sufficient majority to carry any of the proposals. This would also have a longer term benefit in reducing the power of shareholders from outside the Great family.
Before John is able to organise a meeting of shareholders to discuss these proposals, several events further convince him that something has to be done to rationalise and improve practices and structure. The first event is gleefully reported n by the Mercury (the Hobart daily newspaper) and involved a Ms Jones, Manager Reception and Bookings at Hobart Great Adventure Hotel. Great Adventures have a contract under which TopPing Recruiters is charged with locating and assessing applicants for management positions in its various hotels. Ms Jones had come highly recommended by TopPing Recruiters. In this instance, after Ms Jones followed up a series of unpopular decisions (including cramming families of 6 into single rooms while upgrading single travellers to 2-room suites, putting disabled residents in rooms reached by a flight of stairs and providing vegan-only breakfasts) with double booking most of the rooms in the hotel and evicting some occupants in the middle of the night because someone more important wanted the room, the hotel finally dismissed her. The Mercury revealed that she had purchased her diploma in hospitality via the internet and named three friends as referees. Its investigation further revealed that TopPing Recruiters had failed either to check on the so-called university that had issued the diploma or contact the so-called referees.
The second event involved Lee Han, who stayed at the Great Adventures hotel in Melbourne Central after flying from Beijing. According to a complaint that was filed on his behalf, he was promised a large room in a quiet part of the hotel for his stay, a large desk (as he was holding a series of important meetings in his room with prospective business associates in Australia) a television and, because the hotel is in a black spot for mobile phones, an ordinary phone with a direct outside line. However, he was instead placed in a room beside the lift and over the corridor from the gym and pool complex. The television in the room was inoperable, the desk tiny, nowhere other than the bed for his visitors to sit and the cost per call for the phone significant. The air conditioning in the room was extreme and he was not able to increase the temperature. Shortly after arriving home from Melbourne he was diagnosed with pneumonia. Consequently he missed out on a lucrative business deal. He also maintains that his prestige in the business world was damaged significantly by the poor facilities and layout of the room. This has jeopardised his ability to arrange high level associations and collaborations.
On investigation, John finds that the promise about the room was made by Dina, a new staff member, even though she had been told quite clearly not to make such promises.
The third event involved Sunni, one of the shuttle drivers. John knows that several of the shuttle drivers are not licensed to carry passengers. They are also paid per ride rather than per hour. This means that during the quiet times they often earn less than $200/week for 3 12 hour shifts over 3 consecutive days each week. They can work elsewhere on other days although not much is available. During peak times they can easily make around $1000/week in driving the shuttles for an average over the year of $600/week. (Information: Under the Passenger Vehicle Transportation Award, minimum award rates range from $725.70-896.10/week). Sunni always takes the passengers to a particular restaurant where she gets a free meal from the grateful owners. John was concerned to find that Mari, the Human Resources Manager, knew about this and took it into account when setting Sunni’s wages.
Finally, John is concerned about the feedback he received on a trip organised for customers by the Adelaide hotel (the actual tour being provided by Coastal Adventures Pty Ltd). The customers were expecting a two-day tour taking in Mount Gambier (on the South Australia/Victoria border), a tour of the Great Ocean Rd and a sightseeing flight by helicopter from the 12 Apostles. Coastal Adventures, assuming the group was made up of the “normal” thrill-seeking Great Adventure customers, booked them instead on a four day adventure experience. The customers (retired Japanese with limited English) were driven to the Grampians for abseiling, put on bicycles to ride part of the Great Ocean Rd and ended up tandem skydiving above the Apostles. The passengers were not prepared for this, struggled to communicate their discomfort and as well as suffering muscular and other injuries, some missed their flights and other travel arrangements because of the extra two days.
When he investigated, John discovered that Shane, the Adelaide Hotel staff member had left a message for Coastal Adventures asking for the tour to be booked. In the message, he was not precise on the length of the tour or characteristics of participants. He had instead merely said:
“Hi mate, we have some rich oldies for a tour. They want some exciting places along the coast. Don’t speak much English so can you sort that? Any questions, let me know. Thanks”   
No-one, either at the hotel nor Coastal Adventures, had followed up to check the details.
Case Discussion

1. Whether is the company responsible?
2. Whether is the employee responsible?
3. Who has the power to issue shares at law? (the board of directors)
4. Whether to issue shares in this case, any breach of the duties?

for a proper purpose
in good faith and in the best interests the company

5. Protection to the minorityshareholders

Oppressive conduct

6. Breach of duty of care passenger? 
7. What is the staff’s wrong?

The Great Adventures Pty Ltd is one of the largest hotel chains in the country, and is scattered over the whole of Melbourne. In the given case we see how some of the decisions taken by the directors of the company to take the company out of certain financial crisis affected the company in the growth and development sector. And the various laws and the rules of the same got breached. We will do further analysis of the whole issue to justify the decision taken by the directors and the steps taken by the employees, and how the same was detrimental for the growth and downfall of the company in any which way possible (Government, 1998)
1. Now the first and the foremost proposition is whether the company was responsible in the overall scenario in any of the decisions taken by the same. The directors are the main authority of the company, who are entrusted with substantial powers for operating the company. In the given case after applying the relevant case laws, as per section 180 of the corporation Act, A director must performs his duties by applying the highest level of care and due diligence possible.  The director should make sure that while taking decisions he should see that  the judgement is in good faith,  and there is no personal interest of the director involved in any of the case. In the given case we see that John tried to block the shares of the Great Family Trust, which would give John considerable voting power that will eventually help him in getting the proposals executed. It would also have a longer term benefit in reducing the power of shareholders from outside the Great family. So the action taken by John was against his duty as the director of the company, because his personal interest was involved in his actions.  As per section 181and 182 of the Corporation Act, if any of the director doesn’t act in good faith, they will be penalised and will be made to pay the required amount of penalty. Also in the given case , there is a certain example of MS Jones who was recruited because she was recommend by the agency with which the company had business relations. She took many disadvantageous decisions and affected the goodwill of the company to a large extent. All this was against the proposition of the laws of the Act, because the directors of the company failed to act in good faith and had their own personal interest involved in their decisions (Commonwealth acts, 2001)
2. The employees of the company are also responsible in many ways, we see how the employees of the company ,w ere working against the same, exploiting the overall growth and demands of the company and the needs of the customer, for the own advantage. In the given case study we see that Ms Jones who was an employee of the company worked against the policies of the company and also acquired her certificate through fake internet policy, which was against the ethical rules. We also have an example of Dina, a new staff member, who made promises to the customer about certain type of rooms and facilities, even though she was told thousand times not to indulge in the same. Third there is an instance about the cab driver Sunni, who is not licensed to carry the passengers. Sunni always takes the passengers to a particular restaurant where she gets a free meal from the grateful owners. John was concerned to find that Mari, the Human Resources Manager, knew about this and took it into account when setting Sunni’s wages. Also he found that Shane who was the Adelaide Hotel staff member, never informed the Coastal Adventures about the intricate details about the tour and the demands of the customer, because of which the customer had a very bad experience with the company. These were few of the instances where the employees were wrong on their part while serving the company and doing their job. They must be penalised for the same and the directors should try to take the matter in their own hands, when they come across any such situation of the company’s employees working against their policies (Club)
3. As per the provisions of the company’s law, in case of issue of shares by the directors of the company. It has been stated, that If the company has only one class of shares, the directors have authority to allot shares of that class unless there is a restriction in the company’s articles. In cases where there are more than one class of shares, the directors cannot issue shares unless there is a provision in the company’s articles or by a special resolution. It must state the maximum number of shares that can be allotted, and also the time period during which it can be valid to issue shares of the company, as given in the company law.  There may be several restrictions on the share price and the number of allotted, that can be imposed by the company law in this regard. So in many cases the directors must be given power by the shareholders to allot new shares. Even anywhere the directors and the shareholders are the same people, these procedures must be complied with. This is the procedure that must be followed by issuing shares by the directors of the company
4. In the given case, even if the shares are issued in good faith, or in any other terms for the betterment of the company. It is important that the same is done as per the relevant provisions of the company law. If the director doesn’t follow the same it will be breach of duty on his party and penalty can be imposed.
5. In cases where the minority shareholders feels that they are exploited or their rights are not fulfilled, they can bring their claim, that the company is being managed in a way that is detrimental to their interest and steps can be taken by the court of the law, of the claims are found correct. Even in case of joint venture of merger, to is important that the rights of the minority shareholders must be fulfilled. No provisions of the company must be against their good faith. The minority shareholders can take actions against any kind of oppression that they go through.
6. The care passengers who are travelling by the shuttle drivers that are provided by the company  have utmost trust and faith in the same, and in cases where the shuttle drivers are not having license and are taking the passengers to such restaurants so that they can fulfil their personal desires then that is against the faith that the customer has in the company with their live and wellbeing, so in this way the company had breached the trust of the care passengers and mist be penalised for the same (Management and administration, 1965)
7. The staff were also wrong in their actions, they promised facilities to the customers, that they failed to arrive. They failed to provide proper details of their demands to the hotel, because of which the customers had to suffer, they failed to perform their duties properly , they failed to provide the comfort an the hospitality that the customer expected out of the restaurant and the services that they promised in their sites, In this way they acted  against the policies of the company and also mishandled the trust of the customers. This is the wrong doing on part of the staff (Legal vision, 2015)
(1965). Management and administration. Retrieved from https://www.ssm.com.my/acts/fscommand/act125s0132D.htm
(2001). Commonwealth acts. Retrieved from https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s183.html
(2015). Legal vision. In Directors duty of care. Retrieved from https://legalvision.com.au/directors-duty-of-care-and-diligence/
Club, C. L. (n.d.). Issuing shares. Retrievd from https://www.companylawclub.co.uk/issuing-shares
Government, Q. (1998). Corporation Act. Queensland. Retrieved from

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