Corporations Law Coursework Paper (Coursework Sample)

Corporations Law
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The directors of Flyway Pty Ltd would have breached their duties if they were obliged to act on behalf of the shareholders. The directors of Flyway Pty Ltd were subject to duty of care and duty of loyalty. Directors act on behalf of shareholders and have a liability to perform and make decisions that are to the best interest of the company. Though the directors are given power to make decisions regarding the continuity of an organization, they are answerable to shareholders and can be penalized under Schedule 3 of 2001 Australian Act (Richard and Trefor 2012). Breaching of duty in making any decision regarding the welfare of an organization is illegal and it is for the interest of shareholders that such decisions be discontinued.
In the case of Flyway Pty Ltd, the three directors, John, Peter and Paul breached their duties of care and loyalty.
Whether the directors breached their duties by letting the company go into liquidation depended on whether they were obliged to ensure the company was a going concern even in the midst of calamities.
The directors had the obligation of ensuring that the shareholders value was upheld and necessary steps to be taken to ensure the company didn’t go into liquidation. As the directors, they were supposed to take any immediate steps that ensured the survival of the organization.
Since the company was facing liquidation due to the unfortunate happenings on its flights, it required strict policies to pull the company out of the financial crisis. Emergence of a competitor in the middle of the company’s problem necessitated the need for directors involvement in ensuring the company didn’t fall. Though the directors managed to take up a loan for expansion purposes, the company wasn’t able to withstand the competition from Speed Bullet Pty Ltd and it went into liquidation.
The three directors breached their duties by letting the organization go into liquidation.
Directors are liable for negligence if they had the capacity to act on in ensuring competitors do not outdo the company but did not act.
The directors had complete jurisdiction to take steps that would ensure that the company was not overtaken by Speed Bullet Pty Ltd when they learnt of its existence. Speed Bullet Pty Ltd was offering cheap transportation at a high speed hence attracting even the loyal customers from Flyway Pty. The company not only lost its market share but public image. It was for the directors of Flyway to act in a way that the company would survive the turmoil. Instead of the three directors been keen on how to exercise their duties in restoring the company, they were negligent and didn’t carry out their duty of care and loyalty. It is evident that the directors were negligent as they let the competitor take over the market.
Whether Paul breached his duty of care and loyalty to the company was highly dependent on whether he was allowed to miss company meetings. Directors are expected to attend all meetings unless there is a good reason that has been communicated in writing.
Paul acted negligently when handling the decision for Flyway’s expansion. It was his duty to be present during discussions on the expansion project. He didn’t contribute in making the decision and left the matter to John since Peter was in hospital at the time of the meeting. Paul had a duty to focus on preserving the value of the organization by attending and participation in board meetings. As a director he had a duty to ensure he is well informed on all information pertaining to getting a loan and the status of the company.
Paul breached his duty as the company’s director by not attending meetings.
Compensating the shareholders with own assets would have resulted if the person acted negligently while handling the matter at hand. Since Peter knew that the company was facing liquidation and did nothing, he had breached his duty and had to compensate the shareholders using his own assets under CA 2001 section 588g. He should have requested further information from the management and ask questions pertaining to the matter at hand before signing the document. Peter was also aware of the new company that was being set up which would lead to Flyway becoming insolvent if the financial situation wasn’t handled carefully. If he had taken time at the meeting, alternative courses of action would have come in handy as well as the need for expertise advice. As a director, Peter breached his duty by being negligent and was supposed to compensate the shareholders.
Though John was the one who attended the meeting on behalf of the other directors, breaching of his duty would occur if he didn’t involve other directors in making the decision to expand the company. As a director he had a duty of loyalty and care to the company. Since John used his own judgment in making the final decision he was liable to the shareholders (Jane 2012). The company was insolvent and did require the contribution of the other directors as well as information from the company management in order to make informed decision. Taking the loan and expansion was not the only alternative especially with the coming up of a new company that offered better services at subsidized price. When a company is facing liquidation, it is imminent that all available alternatives as well as resources and information are analyzed since any rush decision would affect the company negatively (Gilbert 2015). If he excised his duty of care properly, he should have made sure the shareholders were informed of the situation. He didn’t have the ability to make proper judgment on the situation without his partners. He should have made sure the other directors were present and if one didn’t want to attend with no proper reason, he should have notified the shareholders beforehand since the matter was very sensitive to the future prospects of the organization. John breached his duty by not involving all of the directors in making the decision to take up a loan for expansion purposes.
Breaching director’s duty by taking lump sum of money was determined by whether the shareholders had given the directors a right to take up the loan.
Articles of Association contain provisions that put restrictions on borrowing huge sums of money (Richard 2012). $10 million was such a large amount of money to borrow for a small private company especially since it wasn’t generating any profits at the time. To borrow the amount, it required both the directors and the shareholders to discuss and approve. Section 180 of the company law claims that directors are not liable if they have taken the necessary steps to take appropriate action regarding the subject in question and they believe that the taken action is the only one available and it is the right one. As seen in the text, John didn’t take all the necessary steps to gain relevant information about the expansion and prospects of taking the loan since he didn’t discuss with the other directors hence he breached his duty.
Did the directors have a conflict of interest?
Australian corporate law under CA 2001 section 193 claims that directors are liable to an organization if they have conflict of interest. John knew about the new company that was setting to act as Flyway competitor. It was his duty to do all he could to ensure that the company was not overtaken by the competitor. Shareholders put trust in him as one of the directors to make decisions that ensured profitability and growth of the organization. He should have make sure the shareholders were well informed before making the decision to take extra debt that would otherwise jeopardize the company as it did eight months later.
Also, John didn’t not act in favor of the shareholders or the company as pursued his own personal interests by buying shares from the company’s competitor. It was a conflict of interest for John to own shares in a rival company since he wouldn’t give his devoted attention to Flyway Company. Corporate law calls for directors of a company to inform shareholders of activities that they may also have an interest in (Jane 2015). As a start-up company and in the same industry as Flyway, the shareholders may have had the interest of investing in Speed Bullet in order to increase their returns. As a director, he wasn’t supposed to become a shareholder of a competitor since it acted against the responsibilities of directors in exercising the duty of care and loyalty. John bre...