Corporate Law and Employee Rights: Assessment Task 2 Report

This report analyzes a company law case study involving Aussieair and its subsidiary, PNGair. The central issue revolves around the reduction of employee salaries and benefits after the formation of PNGair, raising questions of corporate veil, directors' duties, and compliance with the Corporation Act 2001. The report examines the application of the corporate veil, the legal implications of salary reductions, and the rights of employees. It references relevant sections of the Corporation Act, including those concerning directors' duties, company constitutions, and dividend payments. The analysis considers cases like Hickman v Kent and Automatic Self-Cleansing Filter Syndicate Co v Cuninghame to illustrate legal principles. The report highlights the potential breach of duties by Aussieair's directors and the implications of the company's actions on employee entitlements and legal liabilities. The conclusion considers whether Aussieair is liable for the differences in salary and conditions between the two companies.

Running head: COMPANY AND SECURITY LAW
Company and Security Law
Name of the Student
Name of the University
Author Note

1COMPANY AND SECURITY LAW
Table of Contents
Assessment Task 2...........................................................................................................................2
Introduction......................................................................................................................................2
Issue.................................................................................................................................................2
Rule..................................................................................................................................................2
Application......................................................................................................................................5
Conclusion.......................................................................................................................................9
References......................................................................................................................................11

2COMPANY AND SECURITY LAW
Assessment Task 2
Introduction
The corporate veil is also known as the lifting the corporate veil or piercing the corporate veil
which defines the rights in the corporation for the application of the liabilities of the
shareholders. Sometimes for the beneficial reason the corporate need to operate with separate
legal person then they owned the responsibilities where the debts has been incurred. It provide
the limited liability of the corporation by the sole trader.
Therefore as per the given case study, when Aussieair has formed a new company for the
uplifting the corporate veil, they can able to gain the benefits and reduce the amount of the salary
from their employees then they want to take legal actions against them. The old employee’s also
offered for fresh job on the new company where they get the same amount of salaries. Now as
they want to take legal actions against them for the issues.
Issue
According to the case study, the issue is whether Aussieair is liable for offence with the
employees of PNGair for not paying equal amount of salaries and conditions like Aussieair to
their employees?
Rule
According to the case study the directors of Aussieair has decided to reduce the salary
payment of the employees. Another new company PNGair has appointed same employees with
25% less salary and benefits than Aussieair. The pilots and senior managers were paid in full

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salaries along their redundancy entitlements (Alstadsæter, Jacob and Michaely 2017). Therefore
it can be stated that according to the Corporation Act the Sec- 184(1) defines the breach of duties
of the directors. It is significant with the case studies because while inaugurate a new company
the authorities of the Aussieair appointing the employees and pilots with more benefits and
salaries. Whereas, they are reducing the salaries from the old company’s employees and pilots
while the directors are getting their proper salaries and share bonus. Here the directors has breach
the duties (Grinblatt and Titman 2016).
According to the corporate veil the company can take decision which is lawful for the
company and provides the rights and liabilities of the shareholders. In this process of the
corporate veil the company applies the corporation rules for providing the separate legal entity
where the shareholders will pay the debts and individually it will pay the sole beneficiary
according to the separate legal system. Therefore the limited liability will applicable on the
separate legal entity (Alstadsæter, Jacob and Michaely 2017). The separate legal entity defines a
complete individual debt rather than any other private debts where the company will not interfere
I any private assets. In this part the shareholders can be liable for the separate rights ad liabilities.
The application of the corporate veil is only applicable according to the order by the court.
According to the Corporation Act 2001 section 135 defines the divisible rules of the
companies (Baños-Caballero, García-Teruel and Martínez-Solano 2014). The company has a
particular constitution where is they can replace the rules as per the property companies which is
registered repealed the constitution according the provisions. The section 136 provides the
constitution of a company. According to this section 8 company can adopt a constitution
according the registration of the company and each of the member of the company agrees with
the writing terms of the Constitution before they applied for the company and later after

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registration under the company they adopt another constitution or a court order where the
company itself need to add up the constitutions (Alstadsæter, Jacob and Michaely 2017). The
section 140 of Corporation act provides the effects of constitution and replaceable rules by the
companies. In this section provides the legislations where the company’s constitution and
replaceable rules always make the application between the company and the members or the
company and the directors or the come the members with another members of the company
they've for each of the person of the company should observe the conditions of the rules and
performed according to the constitutions if the members are not agree with the replaceable rules
therefore they can also apply for the modification as per the Corporation Act 2001 (Grinblatt and
Titman 2016).
Therefore in this case study the company has introduced another company the replacing
the rules by reducing the salary and not provide the remuneration amounts to the Employees.
Therefore section 141 provides the legislations about the consequences of breach the section 140.
Company was not bound to force any members to comply with the constitution but members can
force company to comply with the constitutional provision that affect them incapacity as
members because the members are following the constitution and as the company made the
constitution therefore they are found to follow all the terms and functions (Alstadsæter, Jacob
and Michaely 2017). In the case of Hickman v Kent or Romney Marsh Sheep-Breeders’
Association [1915] it has been found that companies are bound to follow their constitutions in
this case the facts are highlighted on the proper interpretation of a company’s articles where
company member is bound by the terms of the constitutions there therefore the High Court has
ordered for a injunction regarding the case facts (Grinblatt and Titman 2016).

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The Sec- 254A defines the payment of the dividend amount to the shareholders where
the directors has the duty to issue bonus, partly paid, preference and redeemable shares to the
shareholders. The 254B of the Corporation Act defines the terms of the shares and Sec- 254C
defines the no par value shares (Baños-Caballero, García-Teruel and Martínez-Solano 2014).
The Sec- 254W defines the rights of dividend to the shareholders. Therefore according to the
case study here, the board of the company has cut on the salary of 25% whereas; the new
company employees are getting the same amount of salaries. It has been also found that the
board of the directors is joining in the cost-cutting exercise and the enforced redundancy but they
get their substantial remuneration increases and share bonuses. Therefore the pilots and other
employees are bound to get the salary amount as per the company’s constitution (Alstadsæter,
Jacob and Michaely 2017).
The directors can change their decisions in an Annual General Meeting. They can reduce
the salary but must pay their dividend amounts. When the Board of Directors are getting their
salary along with the dividend amount then it us the duty of the company to pay the dividend
amount to the employees. In Strong v Brough & Son case it was found that the directors have
exercised their powers in the Annual General Meetings. Whereas, in the Automatic Self-
Cleansing Filter Syndicate Co v Cuninghame case it was found that the shareholders are
override the management decisions to get their share amounts. John Shaw & Sons (Salford)
Ltd v Shaw is another case which is similar to the Automatic Self-Cleansing Filter Syndicate
Co v Cuninghame case (Baños-Caballero, García-Teruel and Martínez-Solano 2014).

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Application
According to the case study, the Aussieair is a company which gives services of the
charter flights for the military and the Department of Immigration of Australia. Recently they
have applied for the commercial aviation license which will be providing the serves to the
general public. Therefore after they get their license they register a new company named PNGair.
Now the new company has appointed six directors where three of them from the old company
and other three are new. The new company is following the guidelines of Aussieair along with
every accounts detail and other guidelines where the old company interferes with the decisions.
Now the pilots and senior managers now offered new jobs in PNGair along with new salary
which is almost 25% less than the old company (Alstadsæter, Jacob and Michaely 2017).
The corporate veil defines such process of paying the debts under a separate legal entity.
The sole proprietor therefore pays the debts amounts separately. It is mostly affective where the
business will entitles with the corporation according the limitation of the business, number of
share holders, limited assets and the recognition of separateness of the corporation always helps
to the shareholders when they will find any fraud.
Now the pilots and senior managers are complained about that the new company has
paying more rather than the old company and recently they has redundant in their salary.
Therefore they make the claim that they are not paid equal with the new company employments.
Now the issue arises whether Aussieair is breaches their duty towards the employees. It has been
also found that the board of the directors is joining in the cost-cutting exercise and the enforced
redundancy but they get their substantial remuneration increases and share bonuses. Redundancy
is where an employee is dismissed from their employment because their employer no longer
wishes the employee’s role to be done by anyone (Grinblatt and Titman 2016).

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Redundancy can occur even if the work of the dismissed employee continues to be
performed by other employees, as long as the position that the former employee occupied has
been eliminated. There is no redundancy where a worker is seconded to work for another firm,
but is still employed by the same employer and performs the same duties (Grinblatt and Titman
2016).
In the case study the main fact was found that the area introduced a new company where
they are offering the employment in PNGair where the constitutions applied according to the
Aussieair companies constitution where is when they are paying the salaries and condition to the
employees of PNGair’s rate of the salary has best according to the salary rate in PNGair
(Alstadsæter, Jacob and Michaely 2017). The company is using two ways where they are not
applying their constitutions equally. When the company redundant the Pilots and senior
managers they paid their full redundancy entitlements but when company immediately offer
employment in PNGair they are providing new salary 25% less than Aussieair employment
salary (Baños-Caballero, García-Teruel and Martínez-Solano 2014). According to the section
136 of Corporation Act stated the legislations of the Constitution of a company where company
can adopt a registered the company as per to their own rules and regulations where the each of
the member the company should agree with the constitution terms (Alstadsæter, Jacob and
Michaely 2017).
When a company is operating through a particular constitution then the salary and other
wages and dividends are also required to be paid according to the company’s rules and
regulations. Here the question has arises that two different constitution and the company’s rule
has been applied because the section 140 of Corporation Act states the provisions of the effect of
constitution and repressible rules by the company. Therefore the replaceable rules always

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establish the relationship between the company employees or other members and the
constitution. Therefore in this case, no rules are following as per the Corporation Act. The
Aussieair employees are concern. The Pilots and senior managers were not happy with their
reduction of 25% amount of salary but the redundant employees when appointed in PNGair. they
are accept the new employment wages and condition of employment. Aussieair is providing the
new salaries which are the savings on average 25% less than the salary and conditions formerly
paid by Aussieair. The Pilots and senior managers also find that the board of directors who are
performing on the cost cutting exercise and the in forced redundancy are awarded with
substantial remuneration increases and share bonuses. According to the Corporation Act 2001
which defines that the employees are bound to paid their dividend amount but the dividend
amount only paid to them when company will get benefited and after the profit they will pay
extra bonuses to the Employees (Baños-Caballero, García-Teruel and Martínez-Solano 2014).
The Sec- 254A defines the payment of the dividend amount to the shareholders where the
directors has the duty to issue bonus, partly paid, preference and redeemable shares to the
shareholders (Grinblatt and Titman 2016). The 254B of the Corporation Act defines the terms of
the shares and Sec- 254C defines the no par value shares. The Sec- 254W defines the rights of
dividend to the shareholders. Therefore according to the case study here, the board of the
company has cut on the salary of 25% whereas; the new company employees are getting the
same amount of salaries. It has been also found that the board of the directors is joining in the
cost-cutting exercise and the enforced redundancy but they get their substantial remuneration
increases and share bonuses. Therefore the pilots and other employees are bound to get the salary
amount as per the company’s constitution.

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The directors can change their decisions in an Annual General Meeting. They can reduce
the salary but must pay their dividend amounts. When the Board of Directors are getting their
salary along with the dividend amount then it us the duty of the company to pay the dividend
amount to the employees (Baños-Caballero, García-Teruel and Martínez-Solano 2014).
The director of Aussieair has breached their duties because when they are announced
about the reduction of 25% salary of the Pilots and the general managers are not accepted the
offer. However in there board meeting they took the condition of the reduction of salaries. The
employees are not even paid by the dividend amount while it is the right of all the employees and
the member of the company that they should paid by their dividend amount. Here according to
the situation the company Aussieair has formed PNG for gaining the profit therefore as per their
constitution of providing salaries to the Employees and the Pilots and the general managers they
are not following their duties while there is a reduced of salary amount has occur. Therefore the
director of board has breaches the duties because they are not following the constitution of the
companies. The section 140(1) provide the legislations where a company constitution if breach
towards the employers of the company then they can claim for the remedies of the damages
because they are not paying them (Baños-Caballero, García-Teruel and Martínez-Solano 2014).
The PNGair employees has the reduction of their salary before their employment which is less
than 20% salary cut as per the salary of Aussieair company here (Alstadsæter, Jacob and
Michaely 2017).
Conclusion
Aussieair Ltd has formed a new company for their beneficial purposes. Therefore the
shareholders of the company along with the other employees are not getting their accordance

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salary and reduce the amount also. Therefore the corporate veil defines the only exists according
to the personal assets of the shareholders then the personal liability will apply for paying the
debts to the corporation. The corporate veil defines such process of paying the debts under a
separate legal entity. Now they can ask for the alteration of the constitution of the company.
They can also ask for the injunction or other declaration as per the corporation act. Through the
alteration of the company Aussieair can able to relocate all the opportunities towards their
employees and related shareholders (Alstadsæter, Jacob and Michaely 2017).

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References
Alstadsæter, A., Jacob, M. and Michaely, R., 2017. Do dividend taxes affect corporate
investment?. Journal of Public Economics, 151, pp.74-83.
Automatic Self-Cleansing Filter Syndicate Co v Cuninghame
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital
management, corporate performance, and financial constraints. Journal of Business Research,
67(3), pp.332-338.
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital
management, corporate performance, and financial constraints. Journal of Business Research,
67(3), pp.332-338.
Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press.
Grinblatt, M. and Titman, S., 2016. Financial markets & corporate strategy.
Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 88
Hiller, J.S., 2013. The benefit corporation and corporate social responsibility. Journal of
Business Ethics, 118(2), pp.287-301.
John Shaw & Sons (Salford) Ltd v Shaw
Knepper, W.E., Bailey, D.A., Bowman, K.B., Eblin, R.L. and Lane, R.S., 2016. Duty of Loyalty
(Vol. 1). Liability of Corporate Officers and Directors.
Strong v Brough & Son

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Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.
Young, S. and Thyil, V., 2014. Corporate social responsibility and corporate governance: Role of
context in international settings. Journal of Business Ethics, 122(1), pp.1-24.