1314297012 coco misc lifting the veil of incorporation 1
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“In spite of the obvious economic connection between companies within the same group, English company law has steadfastly maintained its policy of treating such companies as distinct legal entities.”
Explain this statement. Consider the need for reform.
Salomon v Salomon 4
Lifting the veil of incorporation 5
Façade or a sham 5
Groups of Companies 7
Adams & Others v Cape Industries plc 10
Is there a need for reform? 12
In order to explain the statement this essay will explore the background to treating companies as distinct legal entities; review certain cases trying to pierce…show more content… Once the company is legally incorporated it must be treated like any other independent person with rights and liabilities of its own.
Lifting the veil of incorporation
There are exceptions to the principle in Salomon’s case, where the veil is lifted, or pierced, and the law disregards the corporate entity and pays regard instead to the economic realities behind the disguise. Exceptions can be classified into those expressly provided by statute (such as in section 214 of the Insolvency Act 1986 which makes directors liable for wrongful trading10) and those under judicial interpretation11. To ‘lift the veil of incorporation’ simply means to ignore or set aside the separate legal personality of a company.
Creditors have tried to pierce through this concept of a company being a separate legal entity. However Courts are very reluctant to let them do so unless there is evidence of fraud or a sham.
The corporate form cannot be used for the purposes of fraud, or as a device to evade a contractual or other legal obligation. Where there is fraud or a deliberate breach of trust the courts show a willingness to set aside the corporate form. They pierce the corporate veil in order to achieve justice. Standard Chartered Bank v Pakistan National Shipping Corporation12 established that reliance upon fraudulent representation was in