Jetair Ltd. and Contemporary Companies and Securities Law

Introduction In acting as advisors for the Pilots Association Australia and Airlines Union Australia, we seek to look for the legality of the various actions of the Jetair Ltd. s mount of theatre directors which ultimately lead to the hiring of a new staff consistency in New Zealand by JetairNZ Ltd at a lower salary and the subsequent redundancy of Jetair Ltd. s Australian-based of age(p) managers and pilots. The outcomes sought by the various employee associations seek for firstly, the imposition of the Australian-based wage of Jetair Ltd. s former senior managers and pilots upon the New Zealand-based staff of JetairNZ Ltd. The second outcome sought by the employee associations seeks for the retrenchment of the senior managers and pilots made redundant by Jetair Ltd. The third concern is with regards to excessive pay of Jetair Ltd. s board. In examining these concerns, there ar a number of legal areas that must be examined firstly the relationship between Jetair Ltd. and Jeta irNZ Ltd. s a relate body corporate and the various duties owed to twain companies by their instrument panel of Directors the duties owed by the Board of Directors to both companies and the body corporate as a whole and the surmise of conflict of interest the duty of care owed by the Board of Directors to their employees and the society as a whole and finally the exploration of the net of Jetair Ltd. s Board of Directors as a reflection of the current financial situation of the society.The argument for and against the hobby of legal action will be based solely upon relevant legislation and case law therefore the conclusions drawn will be the recommendation for the employee associations in regards to the pursuit of legal action. Related Bodies incorporated Holding and appurtenant Companies Given that conducting business with an Australian-based workforce operations, business proved to be cash-flow effective, but unprofitable Jetair Ltd. has sought to absorb a differentia ted corporate structure. In instal to achieve this, Jetair Ltd. stablished a subsidiary, JetairNZ, in order to gain advantages that were previously unavailable. Incentives for the formation of a subsidiary, foreign or local, are provided for through both the rule of pause entity and limited liability. In the case of Jetair Ltd. the rules listed higher up provide for the existence of JetairNZ as a separate legal entity (although also functioning as part of the body corporate) with all of the same rights and obligations as any other registered company independent of its parent organization.The provision of limited liability as an individual company allows for the pursuit of extensive operations by the body corporate whilst remaining wary of liability in the case of insolvency of the subsidiary. Therefore, Jetair Ltd whitethorn be defined as the belongings company whilst JetairNZ may be defined as a wholly-owned subsidiary. As the majority of the Board, three out of five directors , are controlled by Jetair Ltd. we can construct that the Board of Directors of JetairNZ is controlled by Jetair Ltd.From this we can assume that whilst JetairNZ enjoys the status of a separate entity and the overall corporate group is protected through the principle of limited liability JetairNZ is in effect controlled by Jetair Ltd. Even though it is plausible to assume that Jetair Ltd. is in effect controlling the mind and will of JetairNZ the likelihood of piercing or lifting the corporate veil in order to determine without a doubt the timing, origin and motivation of JetairNZs decision to employ new personnel in conjunction with Jetair Ltd. s decision to effect a mass lay-off is highly unlikely.Indeed a concise summation of this principle may be credited to Rogers J in Briggs v James Hardie & Co Pty Ltd (1989) Even the complete domination or control exercised by a parent over the subsidiary is not a sufficient basis for lifting the corporate veil 1. Given precedence, the Court s would be unwilling to lift the corporate veil given the application of the entity doctrine by the High Court. An encompassing remark made in the case of Varangian Pty Ltd v OFM Capital Ltd 2003 by Dodds-Streeton, that may be relied upon in Jetair Ltd. s case is The cardinal unity of economic purpose, common personnel, common membership and control swallow not been held to justify the lifting the corporate veil2. 1Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549, 588 2 Varangian Pty Ltd v OFM Capital Ltd 2003 VSC 444 at 142 Interestingly, although the issue of redundancy payments is not being questioned by the employee associations the case of Stanborough v Woolworths Ltd 2005 NSEADT 203 at 443, which illustrates a disparity in redundancy payments deep down a corporate group, illustrates the further application of the doctrine of separate entity which may be applied toJetair Ltd. and JetairNZ in terms of the variance of net income offered and the retrenchment of redundan t staff. To argue that the same profits be offered to both previous Jetair Ltd. and new JetairNZ employees would prove to be futile given that although they exist within the same corporate group, Jetair Ltd. and JetairNZ are in the eyes of the law separate entities. JetairNZ Board of Directors Appointment & Control In the formation of JetairNZ, the board of directors appointed by Jetair Ltd. consists of several representatives of Jetair Ltd. and two representatives from the airline industry in New Zealand.As a holding company, Jetair Ltd. is well within the law to appoint its own nominees to the Board of Directors of a subsidiary such as JetairNZ. In fact, this proves to be common practice, with the frequent alignment of interests amongst the company as a whole. Although there is an alignment of interests between both the holding company and subsidiary, in case there is any situation in which a conflict of interests arises the directors of a subsidiary such as JetairNZ are require d to act in the best interests of the subsidiary, not the company as a whole.In this case, the appointees of Jetair Ltd. currently serving as directors for JetairNZ are obligated to act in the best interests of JetairNZ at all times, precedence is given in the case Walker v Wimbore (1976) 137 CLR 14. Given the question of the enforcement of the previous Australian-wage for all JetairNZ senior managers and pilots, this would have to be in the best interests of JetairNZ alone to be passed by the JetairNZ board. Given that maintaining employees based in New Zealand is relatively less expensive 3 Stanborough v Woolworths Ltd 2005 NSEADT 203 at 44 Walker v Wimbore (1976) 137 CLR 1 in terms of remuneration for JetairNZ, employing an inflated level of remuneration would not be in the best interests of JetairNZ. Should the Board of Directors pursue such an action, they would not be acting in the best interests of the company and they would be in breach of duty. Directors Duty of fear Comp any vs. Employees In examining the duty of care owed by the Board of Directors of Jetair Ltd. there exists an inequality of that which is owed to employees and to the company.The first priority of the directors is to maximize the value of the company, in order to maximize the earnings of the shareholders in the short- and long-term. However, directors also owe a duty of care to their employees and other various stakeholders in the company often termed Corporate Social duty. In the case of Jetair Ltd. and the potential action from employees and their relevant associations there exist arguments both for and against Jetair Ltd. s redundancy scheme. The arguments against Jetair Ltd. s action stem from the consideration for corporate kindly responsibility of companies specifically for their employees.However, an examination of CMAC Report The Social Responsibility of Corporations (2006)5 addresses many of the issues arising in the course of companies conducting business whereby vari ous stakeholders in companies concerns are unaddressed or unsupported by current company law. Whilst the declare allows for recognition of the conflicts between companies and various stakeholders it also considered the current company law to be sufficient in granting persons such as the directors of Jetair Ltd. the appropriate powers and obligations to take into account their corporate social responsibility.The report also concluded that any amendment to the Corporations Act 20016 was unsubstantiated. Whilst it is possible to cite 5 Corporations and Markets Advisory committal (2006) The Social Responsibilities of Corporations 6 The Corporations Act 2001 (Cth) Corporate Social Responsibility as an argument for the retrenchment of the former senior managers and pilots of Jetair Ltd. , The Social Responsibility of Corporations (2006)7 has found that the consideration of stakeholders such as employees may prove to be detrimental to corporate decision-makers primary consideration the shareholders.There exists a significant argument against the sublimation of the interests of shareholders to pursue the interests of company employees. Simply put, directors of a company should not place the interests of employees before the interests of shareholders as is illustrated in Parke v Daily News Ltd 1962 whereby we may assume that the fiduciary duties of the directors lie with the shareholders alone. The redundancy payments previously received by former employees are indeed a necessary compensation as they were incidental to Jetair Ltd. carrying on their business, having been a previously agreed contractual obligation.Redundancy payments may also be viewed as a facet of Corporate Social Responsibility, as they frequently app shut up the employee unions and ease the continuance of business. Jetair Ltd. differentiated their corporate structure, through the creation of a subsidiary and a shift in staffing location and remuneration, in order to achieve lowered operational co sts thereby maximizing shareholders value. Jetair Ltd. also upon making the represented employees redundant paid all entitlements, and has not breached the Corporations Act 20019 regarding employee entitlements.From this we may reason that Jetair Ltd. has fulfilled their legal obligation to act in the best interests of the shareholders before their employees and has also fulfilled their legal obligations regarding employee entitlements whilst also pursuing a touchstone of Corporate Social Responsibility through the provision of redundancy payments to facilitate their employment transition and ease tension with relevant employee associations. 7 Corporations and Markets Advisory Committee (2006) The Social Responsibilities of Corporations 8 Parke v Daily News Ltd 1962 Ch 927 Corporations Act 2001 (Cth) Jetair Board of Directors Remuneration When addressing the issue of dissention of former employees and their associations with the level of remuneration of the board of directors of J etair Ltd. , it is necessary to exempt the procedures regarding directors remuneration to ascertain if there has been any illegal action. There are several key discussion points as follow the company constitution, the corporate governance principles, and lastly current opinion regarding high levels of directors remuneration.Firstly, a director is not permitted to receive any remuneration from their company unless approved by either the companys constitution (replaceable rules included) or the shareholders. If we assume that Jetair Ltd. s constitution provides for the ability of the board to decide their own remuneration this, although in direct conflict with corporate governance, is not in fact illegal. The assignation of large bonuses in addition to the usual remuneration was awarded at the AGM in November 2011, and therefore was disclosed to shareholders and passed by a vote either by the shareholders or the board of directors.According to the Corporate Governance Principles and Recommendations10, Jetair Ltd. must pursue a directors remuneration policy of remunerating fairly ad responsibly. In order to prove any wrongdoing by the board of Jetair Ltd. the following must be proved excessive remuneration leading to oppressive or unfair conduct leading to no/reduced shareholder dividends deviation from company policies regarding the companys murder and its effect upon directors remuneration or a lack of disclosure of the remuneration of each individual director. 0 ASX Corporate Governance Council(2010) Corporate Governance Principles and Recommendations In recent years there has been a shift in public perceptions regarding level of executive and non-executive directors remuneration more often than not due to the poor performance of many companies throughout the Global Financial Crisis. This has led to a strengthening of the framework relating company performance to directors remuneration through the Corporations Amendment (Improving Accountability on Director and administrator Remuneration) Act 2011 (Cth)11.Pursuing action regarding the excessive remuneration or bonuses of the directors of Jetair Ltd. , in the case that any of the above was substantiated would lead to the return of the excessive remuneration to Jetair Ltd. The pursuit of such an action would prove to return value to the company, but would in no way promote in the retrenchment of former employees. Conclusion & Recommendations To conclude it is not recommended for the Commercial Airlines Union and the Pilots Association to pursue legal action against either Jetair Ltd. r JetairNZ. This report has sought to outline any potential courses of action available to the employee associations representing the recently terminated Australian-based senior managers and pilots of Jetair Ltd. The arguments against pursuing legal action are based in case or legislative law and provide legal reasoning for the actions of Jetair Ltd. Although the employees and their associations may at th is time feel that the situation is unfair there exists, at this time, no apparent legal wrongdoing on the part of Jetair Ltd. n their establishment of a subsidiary company, termination of current employees, the imposition of a lesser wage for employees of JetairNZ or the recent award of large bonuses in addition to remuneration of the Board of Directors of Jetair Ltd. Word Count 2,164 11 Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 (Cth) Sources Cited oASX Corporate Governance Council (2010), Corporate Governance Principles and Recommendations oBriggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549, 588 oCorporations Act 2001 (Cth) Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 (Cth) oCorporations and Markets Advisory Committee (2006) The Social Responsibilities of Corporations oParke v Daily News Ltd 1962 Ch 927 oLipton, P. Herzberg,A. & Welsch,Michelle (2012), Understanding Comp any Law (16th Edt. ), Corporate Education Services Pty Ltd. oStanborough v Woolworths Ltd 2005 NSEADT 203 at 44 oWalker v Wimbore (1976) 137 CLR 1 oVarangian Pty Ltd v OFM Capital Ltd 2003 VSC 444 at 142