Eco Ltd Contractual Agreement And Its Chances Of Success

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Question :


Eco Ltd is a company that owns a large tourism resort on Tasmania’s Wilderness Coast. Eco Ltd employs 200 people who work in the catering, cleaning and the hospitality outlets of the resort. The company and its employees have had a long history of industrial disputes involving wages and unsatisfactory work conditions. 

After the most recent dispute in January 2018, Eco Ltd and its employees came to a contractual agreement, on 1 February 2018, under which it was agreed that all its employees were to be paid wages and receive improved work conditions that are more than other employees working in similar resorts in Australia. 

One month after the agreement was made, in March 2018, a new company was incorporated which is a wholly owned subsidiary of Eco Ltd. The new company is called Greenery Ltd. It has four directors, all of whom are appointed from the Board of six directors of Eco Ltd. It is agreed that all the profits of Greenery Ltd will be distributed as a dividend to Eco Ltd.

The incorporation of Greenery Ltd was preceded by a meeting between the Board of directors and the senior managers of Eco Ltd where the reason for the creation of the new entity was discussed. The senior managers of Eco Ltd devised a strategic plan which called for a new corporate structure which will take into account that the catering and entertainment services of Eco Ltd has the potential to become a significant operation in its own right, both within and outside the resort. 

The directors of Eco Ltd were genuinely impressed with the business plan and believed it was in the long-term interests of the company. They passed a board resolution that the management of Eco Ltd put into place matters that will allow Greenery Ltd to pursue this new strategic business objective. 

The redevelopment of the current resort was central to the management plan approved by the board of Eco Ltd. This meant the closure of many of the restaurants within the resort and the redundancy of 100 employees. These 100 redundant employees were then offered new, but identical, positions working for their new employer, Greenery Ltd. 

Faced with the choice of an uncertain future, all 100 of the redundant employees accepted the new job offer with Greenery Ltd. As a result, the redundant employees no longer work under the previous 1 June 2018 contract of employment they had while working for Eco Ltd. Instead, they now work under conditions and wages that are not as favourable as they had when they worked for Eco Ltd. However, their current wages and conditions of employment are comparable to people who work in similar industries. 

The trade union, on behalf of the 100 employees now working for Greenery Ltd, is concerned about the practical effect of this corporate reorganization on employment conditions. 

Assuming that the 1 June 2018 contractual agreement between Eco Ltd and its employees is valid and that Greenery Ltd has been validly incorporated, advise the trade union as to its chances of success in getting that contractual agreement to apply to all 200 employees as originally intended. End of Question 2 


Students are expected to apply relevant provisions of the Corporations Act 2001 (Cth) and relevant principles of company law and precedents in support of their answers. If more information/facts are required to that given in the stated question, students may make reasonable assumptions, and state the need for assumptions, if any. 

Do not consider any law that relates to Industrial and Employment Law, nor any legal issues dealing with directors’ duties.

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Answer :




Eco Ltd owns a large Resort facilitating tourism at Tasmania’s Wilderness Coast employing 200 people in different sectors. Eco Ltd has been in news due to industrial disputes concerning employee dissatisfaction particularly unsatisfactory working conditions and wages. On March 2018, greenery Ltd was established owned subsidiary of existing Eco Ltd. Pursuing the new strategies over business, meant a closure of existing restaurants within the governance following redundancy of 100 employees. The redundant individuals were granted identical positions at Greenery Ltd. The initial contract of 1 June, 2018 is now replaced with new work conditions and wages, that employees find unfavourable. The trade union delves into the practical effect caused of new employment conditions. The paper questions how successful can it be to hold on of 1 June, 2018 contractual agreement as originally intended. The study ensures extensive examination of cases, resources, articles and necessary validations enlarging success and profit that contractual agreement can have on 200 employees. 

Understanding Corporations Act 2001

Australian Securities and Investments Commission (ASIC) has been administering set of legislation regulations made under it. It includes administering of Corporations Act 2001 and Business Names Registration Act 2011. The corporation law of Australia has derived its sources heavily from UK company law. The Australian legal structure includes single, national statute, advocating Corporations Act 2001. It is examined by national regulatory authority, that is AISC (F and D, 1985). It helps companies to form separate legal entity with limited liability and national registration. Under the regulations of the Act, the greenery Ltd is able to establish itself as a separate entity doctrine from Eco Ltd. It provides the company with independence declaration that is submitted to directors inclusive of director’s report reducing conflict of interest. It is here where the authority of Greenery Ltd can participate in decision-making without affecting the business undertaken. It broadens the capacity of business activities allowing strong financial standing. However, each of Eco Ltd and Greenery ltd is required to comply with recognition and measurement requirements within Accounting Standards (Blumberg, 2004). 

Analysing Cases in Australian Counterpart 

One of the leading cases is Salomon v Salomon & Co Ltd (1897). It adheres to the fact that there are separate principles for the incorporated company that acts as a distinguished legal entity from its founder.  In reference to Eco Ltd and Greenery Ltd, greenery acts as a separate entity performing activities different from its founder and directors. It is important to examine and understand various decisions culminating in establishing of a new company, acting as subsidiary. According to Salomon’s case, ‘single person company’ cannot be considered as an active agent of the founder but exists quite anonymously with its employees while separated from its shareholders and directors. It is important thereof, Eco Ltd is required to prepare its consequences alongside with greenery Ltd of acting as separate legal doctrine screening its own ‘corporate veil’ (Blumberg, 2004). The consequences can create distinction between private debts and company debts and assets of private and that of company assets. Besides, it also allows contracts active between members allowing a person to participate in multiple capacities (as an employee or sometimes a shareholder). Besides, it will allow Greenery to be liable in tort to any member that is existing within. However, in securing the older contractual agreement, Eco Ltd and Greenery Ltd can disregard corporate veil at certain circumstances.  It can be used within existing legal obligation put forth by employees towards unfavourable working conditions and wage reduction and to trade along the grounds of public interest (F and D, 1985). 

Similar to Andar Transport Pty Ltd v Brambles (2004), the issue of corporate employer’s duty of care, can be applied to Greenery Ltd, wherein, the 200 employees can be brought back by providing safe system of work. And that it cannot be imposed both on employer and employee. The employer of Andar experienced continuous complains from employer of not having safe system of unloading and loading causing injuries and thereof the company needs revision on working conditions (Baxt, 2001). In order to retain 200 employees as intended and increasing work labour efficiency, it is important for greenery and eco Ltd to develop liability for negligence. It is important to confine to legal liability and insurance arrangements safeguarding the requirements of employees.  Assuming the granting of 1 June, 2018, contractual agreement, it is important to examine judicial observation. It is said that, sue of corporate veil in insulating shareholders and directors from legal liability cannot be referred objectionable (Baxt, 2001). However, it needs to be illegitimate of biased purpose. Employee development and favouring profitable working conditions can help evade legal obligation for Greenery and Eco Ltd. The High Court drafted a clear decision in regards to Andar Transport case. It declares the consequences paving path from intersection between legal principles within the structures of corporate law and the employer’s duty of care towards the certainty of safe working system and align with employment law. The case helps in understanding non-delegable duty of care that administers employer (Tess, 2017). It is important for employer to check share within the conduct of the operations. It is important to structure business activities and how is it formed or structured

Altering Solutions

The corporate group can be strengthened further through employee compensation, security and protection. Initially the founder of Eco Ltd aimed at asset partitioning through limited liability. It further responds to risk management by diversifying business activities that is operated by Greenery Ltd. It helped in conducting joint ventures that is further operated by Greenery without involving rest of enterprise. It helps with tax benefits through favourable tax treatment (Anil et al. 2009). The trade union is required to undertake special resolution, providing freedom and protection undertaken by general law. Directors need to draft written agreement to take up extra shares and contribute towards the protection of employees and increasing wage structure. According to Section 232-234, it is commendable of protecting employees of unfairly biases and offer remedies, that employees earlier were concerned of. It is important for Eco and Greenery to examine the corporate capacity, whereby engaging in lawful business activities, effectively conducting contractual capacity (Tess, 2017). The trade union can successfully undertake examination on practical effect. It is stated under ss 129-129; common law can reinforce outsiders making necessary assumptions within the contractual agreement that is subjected to statutory limitations. The Indoor Management Rule help outsiders dealing with a company having good faith to assume activities that can be duly performed without causing any limitations (Ian and David, 2001). It seeks to examine acts of internal management and agreement among members and how far it has been regular. The outsider herein, examines that there are no procedural effects and that board meeting is held regular and properly called ensuring detailing of approval. The trade union is granted assumption of acts of internal management, authorial positions of officers, apparent authority, agreements, and check if document are genuine and that company ahs complied with employee act and Directorial Duties (Redmond, 1997). 

It is important to examine long-established corporate law principle that is identified as separate entity rule. Simultaneously, employment law principle needs to be administered by Greenery Ltd where every employer holds responsibility and duty of care to provide a safe system of work for their employees. In conferring to 200 employees, assuming 1 June, 2018, contractual agreement, it is permissible of an employer for an injured employee to sue or setback company for its negligence (Ian and David, 2001). This is evident in The High Court in Nicol v Allyacht Spars Pty Ltd (1987) 163 CLR 611 that allowed an injured employee to recover damages. It stands for in negligence against the corporate employer (Harris et al. 2016). It was charged against the failure of providing safe system of work and lack of favourable working conditions.  The employee can be either the worker or a director/controller of the business. The court of Australia granted the verdict of injured employee, one of three directors of corporation. Besides, it was examined that the director will not be held solely of such act. Later, derogatoriness was reduced as withholding the negligence of injured employee. This came into the term of negotiation. 

It is Eco Ltd’s failure of neglecting any reasonable steps to provide adequate equipment and a safe working conditions for its employees. The constant complaints could have been reduced. The cumulative decision needs to be made strong and a revision of redundancy is required limiting failure of company (Harris et al. 2016). The redundant individuals were granted identical positions at Greenery Ltd. The initial contract of 1 June, 2018 is now replaced with new work conditions and wages, that employees find unfavourable. Besides, a recovery statement can be made against employees if they fail to take reasonable care for safety. To this the employer of the company and its subsidiary can be discharged the obligation (under legal obligation). 


It is important for Eco Ltd and Greenery Ltd to have proper structure. Greenery Ltd need to be controlled by one person without affecting status as a separate legal entity. It is important to examine any obligation that will help provide a safe system and how it works for employer and employees. It is important to coalface owning, managing, administering and working for corporate commercial entities developing employee value and protection. Greenery Ltd as a subsidiary is owned of its own premises and trading. It needs to get strongly engaged with employees, allow higher employment ratio. The profits owned by Greenery needed to be beneficially owned wholly by it without being distributed to the parent company Eco Ltd by way of dividends.