Corporate Law: Flyaway

Each company possesses a set of rules that, along with the laws and regulations issued by the government, governs all aspects of its activity. These rules apply to all team members of the organization together with the shared beliefs. The purpose of their establishment is obvious: the framework of duties set by these rules helps to streamline business processes, improve their efficiency, prevent the development of non-standard situations, and create a single emotional and spiritual space. However, in case these duties are breached, the consequences may be catastrophic. A vivid example of such situation is the case of Flyaway, a company that operates in the Australian market of passenger transport. The stakeholders and managers of the enterprise have to make a decision on the expansion of its activities in the face of increasing competition, financial problems, and the irresponsibility of the firm’s superiors. In such cases, the procedure of analysis must be carried out with utmost care, in a step-by-step fashion. As a result, choosing the IRAC (issue, rule, application, and conclusion) method is the best option (Miller & Meinzinger, 2014). Therefore, the following paper focuses on the analysis of the case of Flyaway through the use of the IRAC method. Additionally, it determines whether the breach of the directorial duties took place as well as providing recommendations regarding the expansion of the company.

Issue

The primary issue presented in the case is related to the feasibility of the expansion of Flyaway in the conditions of increasing competition from the side of other companies engaged in the passenger transportation business. The problem is exacerbated even further by the lowered volume of sales, which was caused by tragic incidents. The first incident was the disappearance of the company’s charter flight whereas in the second incident the plane was shot down by terrorists. As a result, Flyaway has to take a loan from the Citibank to repackage its image and expand its scale of activities. In turn, the stakeholders of the company have raised a question regarding the feasibility of increasing the company’s debt by 10 million dollars, considering the fact that the company may be unable to pay it back. Therefore, they passed the resolution calling for a ban on the loan and thus the expansion. The next issue relates to the fact that one of the company’s directors has become a major stakeholder of the competitive business. Moreover, this information was concealed from the other directors of Flyaway, being uncovered only recently. As a result, the potential consequences of this event for the company are yet to be defined. The final issue relates to the problem of directors’ presence on the corporate meetings. In particular, the case mentioned that at least two of them did not attend the last similar event. It should be noted that one of the superiors was recovering from the injuries, so his absence is understandable. At the same time, there are indications that certain directors skip the meetings on a constant basis, making the important decisions without being in touch with the rest of the managerial staff and the shareholders of the company.

Rule

The rules that are related to the described issues are as follows. First of all, there is the Corporations Act 2001 – a legislation that provides regulation of the activities of the Australian companies. In particular, it covers the problems related to the establishment and operation of the enterprises as well as the duties of their employees. The act is supervised and reviewed by the Ministerial Council for Corporations (“Corporations Act,” n.d.). There is also the National Credit Act that regulates various lending operations (Australian Securities and Investments Commission, 2015). Finally, there is a corporate code of Flyaway that can be used in conjunction with the mentioned Corporations Act 2001. It describes the moral attitude of the organization towards its employees, customers, and society as a whole as well as the company’s expectations regarding the behavior of its personnel (Bainbridge, 2015). These are the primary rules that are related to the case of Flyway.

Application

The expansion of Flyaway requires financial injections worth 10 million dollars that can be acquired as a loan. At the same time, in accordance with the National Credit Act, the Citibank must adhere to the principle of responsible lending. In other words, it must check the background of Flyaway to determine its solvency (Australian Securities and Investments Commission, 2015). As it was mentioned before, the company is perceived as unable to pay its bills. Therefore, should the Citibank lend 10 million dollars to it, it may become subject to the litigation from the side of the Australian Securities and Investments Commission. In turn, Flyaway will be unable to receive the loan, making the expansion unfeasible.

At the same time, the fact that one of the directors of the Flyaway (John) has purchased the assets of the company’s competitor, Speed Bullet, becoming its major shareholder, was revealed. As a result, it is possible to assume that John is interested in the prosperity of this enterprise. The fact that the other directors were unaware of the purchase can be perceived as a concealment of the important information. Moreover, as a director, John possesses the information on the trade secrets of Flyaway, which he may use for his benefit. In turn, such action is a direct violation of Chapter 183 of the Corporations Act 2001 that states that the confidential information of the company may not be used to the employee’s advantage or to damage the firm (“Corporations Act,” n.d.). Thus, he may be perceived as a criminal by the Ministerial Council for Corporations, leading to another litigation, which may hinder the process of expansion. Additionally, the corporate code of conduct describes such behavior as a hidden disloyalty. It is manifested in the formal adherence to the company’s rules and regulations by the executive while his real actions do not comply with them. In turn, the absence of loyalty may threaten the security of the organization, lower its rating among competitors, and contribute to the loss of valuable professionals (Brink, 2011). In turn, the company will suffer from the loss of profits and competitiveness, which will also hinder the process of its expansion.

Finally, the case states that the managerial staff of the company does not follow the corporate code of conduct. As it was mentioned before, the directors’ presence during the corporate meetings is quite irregular, especially in the case of Peter. In particular, he tends to make important decisions, including the one about taking a loan to fund the expansion initiative, without participating in the decision-making process. Such behavior has a negative effect on this process in Flyaway. In turn, it contradicts the code of conduct, which is meant to test the existing management practices in order to correct them, primarily in the field of personnel management and internal communications. However, the actions of top management make it clear that the company’s sail (the ideology of the organization) and its keel (the correlation of the ideology with real-life practice) are not the parts of the same body (Brink, 2011). In other words, the provisions of the code that are related to the internal communication between the staff of the organization are ignored by Peter. Moreover, his behavior has an adverse effect on the corporate culture of the company, its values, and principles of interaction between the people (Brink, 2011). Considering that the company’s top management sets an example for the rest of the team, the corporate identity of employees is likely to weaken, which does not contribute to the productivity of their work and success of the expansion.

Conclusion

Considering all the mentioned facts, it is possible to state that some directors of Flyaway have breached their directorial duties. In particular, the constant skipping of the corporate meetings by Peter not only has a negative impact on the culture and values of the company (i.e. people do not consider themselves a team) but also jeopardizes its future. The company may also cause problems for its lenders, making them violate the National Credit Act, which may lead to lengthy court trials. At the same time, the concealment of information regarding the purchase of the assets of Speed Bullet is unacceptable as it demonstrates the disloyalty of the top manager to the company. Moreover, it makes him care more about the success of the competitor rather than Flyaway, potentially resulting in the leak of the trade secrets. As a result, it is possible to assume that the atmosphere of negligence and corruption dominates in the company at the present time. Therefore, provided the planned expansion is successful, the managerial style will remain the same. As a result, one cannot exclude the possibility that the incidents that took place in the past (terrorist attack on the plane and the disappearance of the flight) will repeat. Considering the fact that the survival rate after a plane crash is extremely low, it is clear that negligence of top management of Flyaway may result in the violation of the corporate law and cost many human lives in the future, provided the company will enter the new markets. Therefore, it would be best for the directors to follow the resolution regarding the refusal of the expansion plan that was passed on the shareholder’s meeting – at least until the mentioned issues and shortcomings of the company are addressed.

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