Courts Do not Look Beyond the Shareholders in the Veil of Incorporation

"Factors considered by the court in determining whether to pierce the corporate veil include failure to

Corporations Legislation 2008, Thomson Lawbook Co., 2008. Annotations by Harris, J. and Annual Review by Baxt, R.

The question then, is whether TV Treats can escape liability arising from the fact that the Seven Network should have known Philippa did not have authority to sign as company secretary. Considering again the relevance of Turquand’s case[10] to the doctrine of

The Appellate and trial court decisions were affirmed and the Court found for the Defendant. The Court held that ‘piercing the corporate veil’ is invoked to ‘prevent fraud or to achieve equity’. In this case the Court found no evidence of fraud, misrepresentation nor illegality. Although the defendant controlled Westerlea’s affairs, Westerlea maintained an outward appearance of aDseparate corporate identity at all times. Further, the creditors were not misled, there was no fraud, and Defendant performed no act to cause injury to the creditors of Westerlea by depletion of assets or otherwise.

2. Why was Bram Enterprises Ltd. and Jamb Enterprises Ltd.’s (hereinafter ‘the Plaintiffs’) claim for intentional interference with economic relations unsuccessful? (1 mark)

“Piercing the corporate viel” refers to the judicially imposed exception to this rule by which courts disregarded the separateness of the company and consider a shareholder responsible for the company’s action as if it were the shareholder’s own. A fundamental rule of corporate law is that shareholders in an organization are not liable for the obligations of the enterprise beyond the capital that they contribute in exchange for their shares.

This paper describes the impact of the decision made in the case of Tesco Stores Ltd v Brent LBC on the law and its effects on the corporate world, and the comparison between the doctrine of vicarious liability that it outlines and the doctrine of identification that was used earlier to determine the liability of corporations in cooperate crime.

First and foremost, it is critical in the pursuit of a full understanding of the principle of the corporate veil for the reader to appreciate that no strict and clearly defined rule for its application exists. This is evidenced from the manner in which it is employed, in our courts and abroad. Smith and Keenan in recognition of this state of affairs note that it is difficult to presume a specific formula exists. They further hold that the piercing of the veil can be viewed as a “tactic used by the judiciary in a flexible way to counter fraud, sharp practice, oppression and illegality.”

Choosing a Corporation/Company Structure - the business structure of a company/ corporation is highly recommended, it has the flexibility to gain more capital, or credit capability and assets used as security. Based on the Corporation Act 2001 (Cth) AC 22, a corporation is another legal entity with their own legal rights, duties and responsibilities separate to the individual or owner of the company (Harris, Hargovan & Adams, 2013, pp 229). The risk and consequences are one of the principal considerations of choosing a company structure (Harris, Hargovan & Adams, pp 50). Based on the “Corporate Veil” Liability is owned by a separate legal entity and not to the extent of the owner, for instance, the debt of the company is not a personal liability, but the company. This is further explained in the case below.

There is no clear framework of the rules that would cover the contingencies of a ruling to pierce the corporate veil Idoport Pty Ltd v National Australia Bank Ltd. The corporate Veil usually protects owners and shareholders from being held liable for corporate duties. Yet again a decision made by the court to lift that veil and would place the liability on shareholders, owners, administrators, executives and officers of the company without ownership interest. The purpose of this essay is to conduct an analysis on the concept of lifting the corporate veil and to review the different views on its fairness and equitability to present a better understanding of the notion, the methods used was throughout researching the numerous scholars views on the subject, case law and statutes examples, and the evidence provided by the empirical study of Ramsay & Noakes. When we discuss the lifting the corporate veil the first case that pops out is the case of Salomon V A. Salomon & Co Ltd, since the decisions of applying the corporate veil were first formed as a consequence of this case. The idea covers all of company law and distinguishes that a company is a separate legal entity from its members and directors. Furthermore, spencer (2012); have indicated that one of the core principles that followed the decision in Salomon v Salomon was the wide acceptance one man company’s. However In order to form a

The Court of Appeal also ruled against Mr. Salomon, on the grounds that Mr. Salomon had abused the privileges of incorporation and limited liability, which the Legislature had intended only to confer on "independent bona fide shareholders, who had a mind and will of their own and were not mere puppets". The lord justices of appeal variously described the company as a myth and a fiction and said that the incorporation of the business by Mr. Salomon had been a mere scheme to enable him to carry on as before but with limited liability.

The 'veil of incorporation' can be described as being the separation between a company and its members. Due to the separate legal status of a company from its members this is usually very strictly maintained. However, there are certain circumstances when the courts will deny the people who run the company the advantage of hiding behind the corporate veil. In these instances the veil of incorporation is said to be 'pierced' or 'lifted', i.e. the barrier between a company and its members is removed so there is no legal separation between them.

This doctrine has been seen as a “two- edged sword,” reason being that at a general level while it was seen as a good decision in that by establishing that corporations are separate legal entities, Salomon 's case endowed the company with the entire requisite attributes with which to become the powerhouse of capitalism. At a particular level, however, it was a bad decision. By extending the benefits of incorporation to small private enterprises, Salomon 's case has promoted fraud and the evasion of legal obligations.

This essay will explain the concepts of separate personality and limited liability and their significance in company law. The principle of separate personality is defined in the Companies Act 2006(CA) ; “subscribers to the memorandum, together with such other persons as may from time to time become members of the company are a body corporate by the name contained in memorandum.” This essentially means that a company is a separate legal personality to its members and therefore can itself be sued and enter into contracts. This theory was birthed into company law through the case of Salomon v Salomon and Co LTD 1872. This case involved a company entering liquidation and the unsecured creditors not being able to claim assets to compensate them. The issue in this case was whether Mr Salomon owed the money or the company did. In the end, the House of Lords held that the company was not an agent of Mr Salomon and so the debts were that of the company thus creating the “corporate Veil” .

A company in itself is an entity. It can operate independently but only through individuals who serve as agents of the company. This individual, the director, has been described by legal scholars as one of the most visible and important persons within the company because he/she serves as the face of the company. With this much responsibility to the company in one person’s hands, the legal powers available to directors have come to question. In the first reported case of its kind, Lord Hardwicke held the directors in question guilty of “breach of trust”, tagging them as trustees to the company. Since then directors powers have been likened to that of a trustee. In Re City Equitable Fire Insurance Co. (1925), Romer J opined that addressing directors as trustees is strictly incorrect, but rather they are agents of companies . Sealy (1967) agrees to this. He notes that the origin of this concept of trust principles possesses no concrete evidence and is therefore irrelevant in modern law. As agents of the company, directors carry are subject to fiduciary duties to the company, also the principal. Fiduciary duties are the highest standard of care. The director is therefore expected to carry out his/her activities in the best interest of the company. Further, the companies Act 2006, an intricate combination of rule derived from judicial precedence and statute developed over time has vested reformed duties, roles and powers in directors to meet the demands of the