Company Securities Law And Corporate Veil

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Company Securities Law And Corporate Veil

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Company Securities Law And Corporate Veil

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Discuss about theCompany Securities Law and Corporate Veil.

The separate legal entity is commonly known as a ‘corporate veil’ which shields the shareholders and the directors of a company from being held liable to the company. The advantage of creating a separate legal personality can sometimes be subject to abuse and lead to a bad situation where the bad people intentionally avoid personal and legal liabilities by conducting business through a company by using the corporate veil in a illegitimate way. This power of the court is commonly referred to as ‘lifting or piercing of the corporate veil
Aussieair Ltd was a company which was incorporated in the year 2009. The objective or duty of the company was to provide air services to some of its clients. The number of clients was very limited in nature and included the Federal Government of Australia. Though the business that was coming from this limited base of client was continuous but it was very profitable. As the company was not into commercial travel, they did not have very large base of customers. So it was a problem to make large profit in such a situation. So the company decided to acquire commercial license (Bagdikian, 2014).
Aussieair Ltd is a company that was originally formed in late 2009 to provide charter air services to a limited range of clients; one of these clients is the Australian Federal Government. The services provided included charter flights for military and the Department of Immigration (therefore transporting illegal immigrants around Australia). The revenues derived from these activities were regular but not profitable. The Board of Aussieair, and its senior managers, had a meeting in January 2011 and decided to attempt to diversify their operations by applying for a commercial aviation licence; therefore a licence to transport the general public on a fare paying basis (Baker, Merkert and Kamruzzaman, 2015).
Facts and Issues of the case
The stipulation under section 157(1) of the CA where a director shall act honestly at all times contains 2 aspects of the duty. The first aspect permits a director to adopt a subjective approach of what he honestly believes is beneficial in a decision of what would serve the interest of the company. The second aspect is determining whose interests must be taken into consideration in that decision.
The CA requires directors to use due diligence in the discharge of duties to all, although it is permissible for a director to be relying on the reports, statements given by employees, professional advisers and other directors of the company if the 3 criteria are met (s 157C CA):

Reasonable grounds to believe is reliable and competent;
Act in the good faith; and
Make an inquiry if the circumstances require

In June 2011 Aussieair obtained a licence from the Australian Aviation authorities that enabled Aussieair to provide normal commercial passenger services both interstate and overseas. As Aussieair is intending to target the discount passenger area it realised that to be successful in the Australian aviation market it must keep the salary structure of the pilots and the senior managers at a minimum, only then would its staff unit costs be competitive in the air travel industry (Borenstein and Rose, 2014). The pilots and senior managers of Aussieair were approached and asked to take a 25% pay and conditions cut to ensure that Aussieair staff unit costs were lower than their competitors. The pilots and staff declined to take the 25% cut in pay and conditions (Whincop, 2017).
In light of this refusal, the Board met in July 2011 and decided to form and register a new company in Papua New Guinea. This company would be called PNGair it would have six directors three appointed from Aussieair and three directors appointed by the PNG Government (Brown, 2016).The capital to run the company would be provided by Aussieair, directions and guidance for running the company would be provided by Aussieair and all of the profits and or losses were to be remitted to Aussieair in Australia. Aussieair would account for them as either dividends or as a reduction in the value of their investment.
The Aussieair Board also passed a resolution that the Australian aviation commercial licence; therefore a licence to transport the Australian general public on a fare paying basis, be transferred to PNGair and that aircraft and facilities owned or leased by Aussieair be sold to or subleased to PNGair as required (Carey, Knechel and Tanewski, 2013).The aviation commercial licence transfer to PNGair was approved by the Australian Federal government in August 2011; this meant that PNGair from that date could operate within Australia as a domestic and international carrier; therefore, a licence to transport the Australian general public on a fare paying basis.
Pilots and senior managers of Aussieair were made redundant in September 2011 and they were paid in full their redundancy entitlements. They were immediately offered employment in PNGair (but they were to be based in Australia and not in Papua New Guinea) under the new salary and conditions applicable to PNGair (the salary and conditions payable by PNGair was based on the exchange rate and comparable salary rates in PNG); however, the new salary and conditions meant that all of the Aussieair pilots and senior managers received, on average, 25% less than the salary and conditions formerly paid by Aussieair. All of the Aussieair pilots and senior managers begrudgingly accepted the new employment wages and conditions of employment (Holderness and Pontiff,  2016).
The employee associations, representing the former pilots and the senior managers of Aussieair, are concerned that their members are being disadvantaged at having to accept these new reduced salary and conditions, whilst still living and operating out of Australia (West and Kale, 2015).
They were even further upset to find out that the Board of Directors, who participated in the cost-cutting exercise and the enforced redundancy, at the October 2011 Aussieair AGM awarded them substantial remuneration increases and share bonuses (Imbun, Duarte and Smith,  2015).
The Corporation Act would attract the case and then the employee association wants to apply to apply to the Court and then commence action against the company Aussierair.They wanted to apply against the company since they were not remitted the salary and the conditions of the employment was not correct and proper. The employees in Aussierair were enforced on PN Gair such as all PNGair employees will receive equivalent Aussieair salary and conditions (Larcom, 2017).
Example of lifting of corporate veil
The company and its shareholders are separate entities in law, with separate legal identities, having distinct rights and obligations.
Case: Salomon v A Salomon & Co Ltd [1897]
Facts: Mr Salomon is a sole proprietor of a shoe business.
He subsequently incorporated a company and bought a shoe business. Mr Salomon was named the majority shareholder for the company, with his wife and children named as minority shareholders. Mr Salomon continued to run the company as he had with the sole proprietorship as before. Then, the business failed and the creditors sued Mr Salomon for the debts.
Issue:  Mr Salomon who was personally liable for the company.
Court held: Mr Salomon was not being sued or is personally liable for the company’s debts because Mr Salomon and the company were separate persons in law. The incorporation for the company that had created a separate person. Even though Mr Salomon had controlled the company and managed the business as before, the company was not an agent of Mr Salomon.
As the result of acquisition of the company the pilots and senior managers were made redundant and they were also given redundancy compensation.Post that they were also given employment in PNGair which was decided and made according to the exchange rates of the country. The new condition of the employment was less than the conditions that were formerly given to them therefore the employees were not satisfied with the acquisition proposal (Máñez, Dandava and Ekau, 2014).
The federal Fair Work Act 2009 describes a employer to understand the industrial instruments that applies to a former employer in respect of the former employer and requires to transfer employee in particular circumstances between the new employer and the former employer. Relevant connections include:
Transfers of employees from one entity to the other and between associated entities.

Where there involves a transfer of assets.

In sourcing.

Employers must recognize the continuous service and transfer of employment of associated entity.Unless service is recognized, these benefits must be paid out on termination of employment by the former employer (Michalski and Bearman, 2014).
As per the Corporation Act and relevant statutory regulation which lays that and mergers or acquisition or any kind of amalgamation of the company the companies which acquired the old company , the company PNGair which was established in Australia and which had terms and condition less than that what was paid in Aussieair which means the transferee company shall give the old employee of the transferor company the same rights and the forms of the employment shall rema same as that was given to them in the previous company, if the norms and conditions of the members and the creditors of the company are not same then the new company will have to give compensation or will have to provide any the loss for the jobs. The acquisitions will not be approved by the Court until and unless that the condition and the norms of acquisition was not what they actually got in previous company (Nelson, 2016).
The Aussierair Board also passed a resolution that the Australian aviation commercial license will be passed and the company will be allowed to do the do the work in the name of the company PNGair and they are worried that the terms and conditions of employment is not the are less than what they got therefore they are not happy with the new policy.
At last the former employees association which consist of the former pilot and the senior managers was not happy with the new policy and terms of wages and employment and therefore they claimed an action against the company Aussieair in which they told and advised the company on their chances of their success in having the Australian Salary scheme which they had before and then to implement and enforce the same policy on the PNGair so that the policies of the employee in PNGair will receive equal and equivalent salary conditions and structure as they received in the company Aussierair (Sharp et al, 2015).
The Australian Corporation Act states that in case of transfer, a new employer to recognize industrial instruments that applies to former employer in case of transferring employee in particular circumstances where there is a connection between the new employer and the former employer (Shaw, 2016). The Act states the following conditions fo.
Where there is a transfer of assets.
Employers must recognize continuous service and the above entitlements on the transfer of employment which is transferred to an associated entity (Smith, 2017).When an employee get transferred to a new employer which is not a related or a associated entity, the new employer can choose the service for the annual leave and redundancy pay.
An employer will make the conditions of employment more equal and standardize and thereby help in transferring employees where the business laws do not apply. The new employer will be able to formulate new terms as it will be appropriate so that the company is able to achieve harmonization easily (Tribe, 2015).
In a proceeding requesting the courts to ‘lift the corporate veil’, the creditors or aggrieved third parties who have been aggrieved will need to establish that the business of the company is not been carried on with intent to defraud its creditors or for a fraudulent purpose (s 340(1) CA). Every company has the full capacity to carry on any business or activity and enter into any transaction (s 23 CA). Where there are restrictions on the company’s capacity, section 25(1) of the CA validates any ultra vires transaction. However, the section 25(2) of the CA provides for situations where the ultra vires doctrine may be asserted or relied upon (Tricker and Tricker, 2015).
After the acquisition of the commercial license as the company formed a strategy to target the discount passenger area, they faced some issues. In doing so they came to a conclusion that in order to attract customers by given discounts, they need to minimize their expenses, which at that moment was very high due to high salary paid to their pilot and other staff members. This was a great hurdle towards achieving their desired target. In order to do so the company decided to reduce the salary and other perks of their staff members by 25 percent. This move was suggested so that they can reduce the expenses that is being currently incurred by the company. This reduction according to them will help greatly in reduction of the fare of the flights, which will be helpful for the company to attract customers.
As the proposal for reduction of the salary got rejected by the staff members of the company the directors who initially participated in the substantial increase of the salary of the pilots and workers in the Annual General Meeting held in October 2011 at Aussieair are now after the acquisition are participating for cost cutting techniques to enforce redundancy thus the situation are making the employee association and the pilots and the workers tensed  since they have to accept the pay even when they  are living and also operating out of Australia (West and Kale, 2015).
Bagdikian, B.H., 2014. The new media monopoly: A completely revised and updated edition with seven new chapters. Beacon Press.
Baker, D., Merkert, R. and Kamruzzaman, M., 2015. Regional aviation and economic growth: cointegration and causality analysis in Australia. Journal of Transport Geography, 43, pp.140-150.
Borenstein, S. and Rose, N.L., 2014. How airline markets work… or do they? Regulatory reform in the airline industry. In Economic Regulation and Its Reform: What Have We Learned? (pp. 63-135). University of Chicago Press.https://myassignmenthelp.com/uk/law-assignment-help.html
Brown, A., 2016. Reporting issues challenging the National Roads Authority of Papua New Guinea: the case for using local indigenous mechanisms. Public Money & Management, 36(2), pp.97-103.
Carey, P., Knechel, W.R. and Tanewski, G., 2013. Costs and Benefits of Mandatory Auditing of For?profit Private and Not?for?profit Companies in Australia. Australian Accounting Review, 23(1), pp.43-53.
Holderness, C.G. and Pontiff, J., 2016. Shareholder nonparticipation in valuable rights offerings: New findings for an old puzzle. Journal of Financial Economics, 120(2), pp.252-268.
Imbun, B.Y., Duarte, F. and Smith, P., 2015. “You are not our only child”: Neoliberalism, food security issues and CSR discourse in the Kutubu oilfields of Papua New Guinea. Resources Policy, 43, pp.40-49.
Larcom, S., 2017. Natural Resource Contests and Precolonial Institutions in Papua New Guinea. Journal of Agrarian Change, 17(3), pp.612-629.
Máñez, K.S., Dandava, L. and Ekau, W., 2014. Fishing the last frontier: The introduction of the marine aquarium trade and its impact on local fishing communities in Papua New Guinea. Marine Policy, 44, pp.279-286.
Michalski, D.J. and Bearman, C., 2014. Factors affecting the decision making of pilots who fly in Outback Australia. Safety Science, 68, pp.288-293.
Nelson, H., 2016. Black, White and Gold. Goldmining in Papua New Guinea 1878–1930. ANU Press.
Sharp, T., Cox, J., Spark, C., Lusby, S. and Rooney, M.N., 2015. The formal, the informal, and the precarious: Making a living in urban Papua New Guinea. Australian National University.
Shaw, S., 2016. Airline marketing and management. Routledge.
Smith, K.W., 2017. KWSnet Intelligence/National Security/Secrecy Index [AI].
Tribe, J., 2015. The economics of recreation, leisure and tourism. Routledge.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
West, P. and Kale, E., 2015. The Fate of Crater Mountain: forest conservation in the Eastern Highlands of Papua New Guinea. Tropical Forests of Oceania: Anthropological Perspectives’.(Eds J. Bell, P. West and C. Filer.) Asia-Pacific Environment Monograph, 10, pp.155-178.
Whincop, M.J., 2017. Corporate governance in government corporations. Routledge.

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