Fundamental Principle for the Beginning of Australian Civil Penalty Regime - Case Study Example

CORPORATE ASSIGNMENT Name Tutor: Institution: Course: Date: Introduction Scholars have been paying attention in the structural implications and differences of a dispersed shareholding system of governance and an insider system that has more concentrated ownership structures. International organizations have also been occupied in the dissection and categorization of related corporate governance laws. In as much as outsider systems are specifically associated with a shareholder centered pattern of corporate governance, insider systems are associated to a stakeholder model. An important debate therefore emerges as to whether interests of shareholders and stakeholders other than shareholders paramount to be considered by directors and if these duties need to be changed to facilitate socially responsible behaviors. This paper identifies and explains the nature and extent of this tension in the Australian market particularly as it applies to the plight of stakeholders. Employee interests In the recent years the fallout of companies like, HIH Company, one. Tel and Ansett and the James Hardie episode explain the susceptibility of workers in the present corporate law of structure in Australia that resulted to the shareholders-directors tension. Employees’ interests have been overlooked in many other cases of restructures and corporate failures. Changes to corporate legislations have since been made as a result of these events, and the embracing of planning like the General Employee redundancy scheme and Entitlements (DeMoH, 2000). Imposing personal accountability on directors for behavior that may undermine the interest of stakeholders, dealing with the ethical hazard occasioned through the separate legal entity principle and this helps the directors as the employees of the firm to protect themselves against all the avoidable liabilities that thwart them from their work. These actions though do not go far enough. Employees are still regarded as not existing by law even though their massive investment of human capital contributes much to company the company. The current legal situation requires the directors to act with integrity and in the best welfare of the company. However Common regulation requires directors to give priority to shareholders’ interests. These employees’ interest or other stakeholders can only be considered if 7this would be in the concern of the company. Employee interest cannot supersede those of shareholders. Not even the interest of the company in retaining harmonious industrial dealings would warrant directors to undertake such an action (Herald, 2006). If a company becomes insolvent employees get laid off. These employees need to ally with other company creditors to claim their unpaid salary and other employment benefits. Workers find their due after secured creditors despite them posses the right to priority treatment over other creditors who are unsecured. Nevertheless, in most cases there are no assets left to meet claims of employee after settling of the debts of secured creditors. Business restructuring is widely experienced in the Australian economy over the last two decades leading to lying off millions of company workers. For example closures, relocations, and large-scale job cuts at main firms like Arnott’s, South Pacific Tyres and Coles Myer (M.Fordharizon, 1998). Creditors Creditors are also major contributors to the steadiness of the company and their interest should be upheld, but just like employees, they are also exposed to the risk due payment default incase a company bankruptcy. Even though most creditors are secured or are aware of price-protection against risk, others do not. These are the retail trade creditors who do not have perfect knowledge about the risks to which they are exposed. Some of them also lack the bargaining power to change a premium in order to reimburse for the risk. Directors are required by case law to consider the welfare of creditors when a company is insolvent or is facing insolvency. The cases however lack a duty that is enforceable to the creditors. It is only the company’s Australian Security and Investments Commission and liquidator that can claim for compensation or for the recovery of company finances to creditors. Tort victims Tort creditors are vulnerable due to unawareness of any legal obligations of corporate responsibility. This is because of lack of the ability to self- protecting or any recovery rights as stipulated in the Corporations Act. This problem arises when a holding company has intentionally incorporated an undercapitalized subsidiary to minimize loss of shareholders funds. The separate entity principle as illustrated in the James Hardie case is a hindrance to tort victims who are seeking to be compensated in corporate groups due to undermining of the Compensation Fund and Medical Research that had been recognized for the purpose (R.K, 1999). Special committee of Inquiry in to James Hardie identified loopholes in the Corporate law of Australian and raised questions on whether the existing laws of corporate covering among corporate groups effectively reflect on current public potential and standards. Tort victims are disadvantaged by the adversarial nature of the judicial system when it comes to launching claims against powerful corporations (Mcmark, 2008). The late Mrs. Rolah M cCabe demonstrated this when her allegiance against British American Tobacco was harshly hindered by the devastation of significant information by the company. Consequently, there is need for some form of ethical or moral charter so as to steer decision-making processes in corporations. The susceptibility is mostly affected by the approach of courts to claims against directors who act unlawfully under the company’s name. The law position has not clearly specified the four recognized tests used to determine the circumstances under which personal accountability can be imposed on directors of the company (H., 2000). Some courts also impose the principle of the limited liability to incorrectly rebuff tort victims their claims against a director of the company in his capacity as an administrator whereas it is important to protect shareholders. Environmental interests Rapid universal economic growth has left the natural environment vulnerable to corporate abuse. Rapid increase of human population and the western consumption routine due to industrial uprising has resulted to supremacy of the Earth’s ecosystems by human. This exceptionally includes crisis and water shortages and increased species destruction rates according to the vision of irreversible change climate. This shows clearly the current international concern on structure of universal agreements and national norms to safeguard the environment. Particularly the Company law explains the broader responsibility of the directors on how to operate in the best welfare of the company. It further stipulates that directors may only forfeit profits for fortification of the environment if the profit-making aims of the company coincide with it. (I., 1997 ) Control and commands has been the conventional model of environmental law. It has been based on strict government possession of natural resources. This move has become ineffective as a result of broad micro-economic laws that govern privatization, globalization, and deregulation of government-owned enterprises. These reforms have significantly reduced government mismanagement over the exploitation of natural resources. The conventional model is ineffective, due to increase in basic nature of environmental tribulations, on local industrial contamination which has been overcome by the universal concerns dealing with the extreme resource exploitation of under-developed countries, and alteration of climate resulting to loss of biodiversity. The responsibility of directors as stipulated by the Corporations Act requires directors to operate genuinely for the best welfare of the company. It should be amended to permit directors to consider the welfare of external stakeholders. Thus, changes corporate decision making and admission process by ensuring for all corporations superlative practice on environmental and social accountability (Graigs, 2010). To implement this civil rule punishment the following discussion will be comprehensive to provide for suitable non-shareholder stakeholders to seek redress which include civil penalties, declarations and injunctions. The new duties would incorporate the following elements. A liberal aspect having common application In this case it is stated clearly that directors should consider the wellbeing of consumers, creditors, environment, employees, and other stakeholders during the normal course of company decision-making, yet it would conflict the wellbeing of shareholders and their profit maximization goals. The legislation requires to providing some guidance to directors on when stakeholder welfare may be prioritized before those shareholders (R., 2001). This would be essential to guarantee the company certain its obligations under other related laws like occupational and employment health and safety standards. A mandatory aspect having specific application This requires directors to prioritize stakeholder welfare over those of shareholders; in case of the stakeholder welfare suffering adverse dealings is heightened. The stakeholders could thus be able to demonstrate that their wellbeing were substantially intolerant by the directors’ planned actions or dealings in order to explain violation of this phase of the new duties of directors. Reflection should be considered to ensure the acknowledgment of employee welfare when a company is performing restructure or reorganization that may have negative impact on employees like large-scale proprietors. This can be completed through the consideration of a explicit duty as stipulated in the Corporations Act, where directors could opt out of by considering lasting structures for continuing discussion with employees about most important venture and business decisions that has been recognized by the company (Company Act 1985 section-317, 1985). For example formation of specially-constituted panel of committees with employee representative’s councils that has privilege of accessing company confidential information relating to planned business decision. Therefore it will make it possible for the company to implement the opt out from the responsibility to prioritize employees welfare in reorganization situations. Conclusion Even though part of the fundamental principle for the beginning of Australian civil penalty regime which was largely to create clarity between non-criminal and criminal conduct, boundaries between civil penalties and criminal accountability has become indistinct. This blurring is evident in the remarkable increase in the quantum of common punishments against companies and administrators. The High Court petition relating to One.Tel, the blurring event worked in favor of corporate executive. The High Court in Australian rejected an order sought by ASIC for finding of documents relating to civil trials against the earlier CEO of One.Tel. References Company Act 1985 section-317, 2357c (New York Suprime court September 5th, 1985). DeMoH, D. A. (2000). Shareholder challenges to execative remuneration. Melbourne: FT Pitman Publishing. Graigs, P. (2010). Company and its environment. New York Times , 40-55. H., M. (2000). Corporate Governance and Workplace Partnership. Industrial Relations Journal , 200-207. Herald, S. (2006). Maintainig Harmoniours industrial Relations in the company. News limited journal , 26-45. I., F. (1997 ). The power of the competative board. FT Pitman Publishing: Melbourne. M.Fordharizon. (1998). Introduction to company law. Carlifonia: Coles Myer Publishers. Mcmark, B. K. (2008). How to minimise the shareholders funds. Free Management Library journal , 120-150. R., K. S. (2001). Partnership and control:The impact of corporate Governance on Employement relations. Carmridge: Carmbridge university press. R.K, M. (1999). An investigation of stakeholder Altributes and silence. Academy of management journal , 507-513. Read More