Legal Director Duties - Flyaway Property Limited - Case Study Example

Legal Director Duties Name: Institution: Legal Director Duties Issue In the Flyaway Property Limited case, the deliberate acquisition of a loan and the consequent liquidation of the company have affected the jurisdiction meted by the directors. Flyaway decided to borrow up to sum of $10 million in order to rescue the company from going into liquidation. The company has faced a tumultuous period in terms of the profitability and acquisition of business. Some of the factors that facilitated the rapid decline in the business terms included brand image damage caused by unpreventable circumstances. In the first instance, one of the company’s chartered planes disappeared into thin air without a trace. The second one was shot down by a terrorist group. Both incidents deprived the company of any profitable ventures, as the brand was associated with insecurity and safety concerns to the customers. It was not able to meet the improvement in terms of operations and eventual gains made from the proceeds. After borrowing the funds in order to rescue the company, eight months later it goes into liquidation as it tried to expand into wider markets from the previous bases. Among the directors, several factors increased the problems and issues that arose from the proceeds of Flyaway Property Limited Company. Paul was not present at the meeting to discuss the need to seek bailout money from the impending liquidation due to a serious accident. Peter, as it was his custom, did not attend the meeting all together but went ahead and signed the necessary papers that allowed the company to seek liquidation bailout funds from Citibank. Joseph, on his part, was not part of any meeting nor is details given of his role towards the company’s acquisition of the liquidation bailout funds. The three directors out of four had their role towards the eventualities of the company’s fall, as the liquidation funds had been misappropriated. John as the defendant of the case scenario had been approached by Speed Bullet Property limited. The company latter company was under formation as a train service firm aimed at providing the same transportation benefits that Flyaway Property Limited provided to the customers at a lower price. The characteristic company delivery ensured that the time taken to transport the people was halved in order to build a reputation on the growing customers, previously allied to Flyaway Property Limited. On his part, he had been aware of the formation of the rival company to the Flyaway Property Limited’s profitability and it was later revealed that he was a major shareholder in it. The rest of the directors were unaware of the process that had been undertaken by John, through the establishment of a rival company as theirs was undergoing liquidation. At the same time, the funds from Citibank had been acquired by John with the intention of preventative liquidation. A shareholders’ meeting was convened after Mary, who was unhappy with the Flyaway Property Limited’s expansion decision, informed the other members in order to get a resolution. Since the company had acquired the funds from Citibank and the liquidation process had already occurred, the shareholders decided to disapprove of the move and the loan. It helped salvage the company’s ability to contravene default payment of a loan that could not be utilized in the right way. The main issue surrounding the shareholders’ move was the determination of the company’s default in ensuring that it had not gone into liquidation. Secondly. After the eight months of regress, the funds had been used as security cover and caution for the probable collapse. As it was a loan, its repayment is mandatory. The disapproved loan had to be repaid whilst the company’s state was unknown at the time as it could not operate and generate any revenue in the process. Rule In the statutory rules that apply to the directors of a company according to the Corporations Act, they are tasked with the de facto tags on their roles within the companies. It states that breaching of the statutory prohibition rules on the dishonesty or recklessness by any of the director (Geuant and Lehalle, 2013). It also highlights the contravention of the director’s role in any of the company’s proceedings. The rules also affirm to the duty of care to the company, skill and diligence that is required at all times. In the Flyaway Property Limited case, the rule governs the conduct determined by John, as a director of the company. It testifies to the requirements when he helped undertake the loan from Citibank in order to prevent any liquidation. The rule also challenges the role of diligence as well as negligence by any of the directors, especially where the company faces breaches and eventual downturn of its operations and survival. The rule on statutory duty towards best interest of the company affirms the Corporations Act. It covers two issues that are reminiscent of the proceedings in Flyaway Property Limited case. The first issue is that of good faith while the second is on company’s interest. The director should enable the application of general law when required to conduct business and responsibilities within good faith. In addition, the company interests serve to ascertain the roles in an overall basis. Halpin (2007) states that the rule also covers the need to understand the needs of the company, through interests. It allocates the need to assess the proceedings when Speed Bullet Property Limited, which sought to rival the company’s operations and business terms, contracted John. His positional alignment in the company had to be equitable with the solvency and separation of the commercial entity. The third rule in connection with the Flyaway Property Limited case concerns the financial assistance to the company when the interests determine the need for it. It gives the general guidelines and principles of financial assistance through loan or a guarantee. It affects the chances of material prejudice with the determination in light of circumstances. It also alienates the exempt status of loan assistance and the role of shareholders in the decision-making process (Light, 2007). It concerns Flyaway Property Limited Company with the acquisition of the loan fro Citibank to a tune of $ 10 million. As a protective cover from liquidation, the financial assistance had to meet the approval of the shareholders before its enactment. It generates the permutations given by possible buy-back options and the member approval functionality of the shareholders of the company. It makes for the member resolution from the onset. Analysis John as a director of the company contravened the corporation act, which forbids carrying out of transactions without the company’s interest. The rival company had already approached him in order to join it as a majority shareholder while Flyaway faced liquidation. The same company was instrumental in minimizing the profitability of Flyaway as it took to wooing the customers and gaining the same environmental operations that it had before. McLeod and Macintosh (2005) argue that the law institutes that the director should be diligent and that he has a duty of care to the company at all times. John also contravened the financial assistance law, which requires the authorization and permutations given by all shareholders in terms of seeking financial assistance. He had not sought consent from the shareholders when acquiring the financial assistance from Citibank in order to prevent liquidation. In addition, his follow-through on the director’s approval for the liquidation cover was not in line with any convened meeting quorum and jurisdiction. The four directors contravened the corporation act of duty towards their roles and requirements. It stipulates that no directors should be negligent in their avails of responsibilities to the best interest of the company (Rolea, 2014). Paul’s absenteeism from the meeting was due to the accident, but his role, required consultation on the consent of the company’s interest towards the financial assistance. Peter did not attend the meeting, as it was his routine. He even further signed the required documentation for acquiring the loan. In his part, he was negligent and careless as a director of the company’s operations. Joseph, though not mentioned in the process of the meeting aimed at acquiring consent for financial assistance, was negligent in his role too. He did not institute the need for quorum and standard procedures before giving the green light for the documentation process in regards to getting the loan from Citibank. Due to the process of liquidation cover as consent by the negligent directors, Flyaway Property Limited has an obligation towards the repayment of Citibank loan. The duration termed for operation as preventative had been more than eight months. The shareholders realized the process after the due date and commenced on overturning the approval. Trevethan, Riordan, Dick and Lansley (2006) are of the idea that despite the combined effort of reversing the decision, there is a statutory obligation of repaying the financial cost and loan to the bank. Under the corporations act with statuary requirements with financial assistance, it covers the buy-back options or reclamation of the company. In this case, the shareholders require an immediate plan to source for the required financial outlay in order to offset the loan from the bank. The law does not permit the revocation of the contract after it has been cleared and put into use by the two parties. It also protects the interest of the bank’s allocation according to the agreement. Conclusion Flyaway Property Limited should dismiss the board of directors with immediate effect, as they are negligent and incompetent. They did not attend the required meeting for declaration of the approval necessary for acquiring financial assistance from Citibank. It has cost them the proceeds and general stature of the company as it is in solvency. They also have to look for means of repaying the loan from the bank according o the agreement as their revocation contravenes the terms of the contract. The shareholders have the power to sell the assets of the company in order to meet the financial obligation as it is under liquidation. In addition, John as the director responsible for the documentation of the loan application should be sued in a court of law for his part in the wrongful and negligent conduct of his duties. His part in becoming major shareholder to the direct rival of the company is suspect. Reference Guéant, O., & Lehalle, C. (2013). General Intensity Shapes in Optimal Liquidation. Mathematical Finance, 25(3), 457-495. http://dx.doi.org/10.1111/mafi.12052 Halpin, A. (2007). Rights, Duties, Liabilities, and Hohfeld. Legal Theory, 13(01). http://dx.doi.org/10.1017/s1352325207070036 Light, M. (2007). The Strategic board. New York: Wiley. McLeod, A., & MacIntosh, I. (2005). British Columbia Business Corporations Act and commentary. Markham, Ont.: LexisNexis Butterworths. Rolea, A. (2014). The Company Liquidation - A Path to Avert the Accrual of New Liabilities. EJBM, 11-16. http://dx.doi.org/10.15604/ejbm.2014.02.03.002 Trevethan, R., Riordan, G., Dick, J., & Lansley, A. (2006). The Corporations Act. 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