Piercing the Corporate Veil in Australia

The highly controversial case of Gambotto v WCP Ltd not only reduced the ability of companies to acquire shares compulsorily through an amendment to their constitutions, but also stimulated debate around the topic of share acquisition itself . The High Court decision in Gambotto was recognized immediately to be extremely important in the corporate world, with one headline stating it had “radically altered the balance of power within corporate Australia” . Despite the significance of the ruling, responses to Gambotto have generally been negative. Courts have almost uniformly chosen not to extend the principles in Gambotto to situations in other cases, with the result that the principles have stayed narrowly confined to the

“The idea that a corporation is a legal person with constitutional rights is, of course, a controversial one. Some commentators argue that it's bad policy. In my view, however, it is a well-settled principle of US constitutional law and justifiably so. The legislative history of the Fourteenth Amendment suggests that Congress substituted the word ''person'' for the word ''citizen'' precisely so that the provisions so affected would protect not just natural persons but also legal persons, such as corporations, from oppressive legislation.”

671 [2d Dept. 2010], internal citations omitted). "Additionally, the corporate veil will be pierced to achieve equity, even absent fraud, [w]hen a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator 's business instead of its own and can be called the other 's alter ego '" (Id. at 671-672, internal citations omitted). "[A] party seeking to pierce the corporate veil must establish that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in the plaintiff 's injury" (Superior Transcribing Serv., LLC v Paul, 72 AD3d 675, 676 [2d Dept. 2010], internal citations omitted).

“A corporation is an artificial person separate and distinct from its owners.” Briefly explain this statement.

It seems understandable that a business should exist as a separate legal personality as it would be impossible for an individual’s motives and goals to be perfectly in line with that of the company as is demonstrated above in Salomon. Following this theory the idea that the rights and duties of a company are not that of its members and shareholders as demonstrated in the case of Lee v Lee Air Farming .

Although courts are reluctant to hold an active shareholder liable for actions that are legally the responsibility of the corporation, even if the corporation has a single shareholder, they will often do so if the corporation was markedly noncompliant, or if holding only the corporation liable would be singularly unfair to the plaintiff. The ruling is based on common law precedents. In the US, different theories, most important "alter ego" or "instrumentality rule", attempted to create a piercing standard. Generally, the plaintiff has to prove that the incorporation was merely a formality and that the corporation neglected corporate formalities and protocols, such as voting to approve major corporate actions in the context of a duly authorized corporate meeting. This is quite often the case when a corporation facing legal liability transfers its assets and business to another corporation with the same management and shareholders. It also happens with single person corporations that are managed in a haphazard manner. As such, the veil can be pierced in both civil cases and where regulatory proceedings are taken against a shell corporation.

This thinking began the conception of the corporation as a person, albeit for the purposes of protection of the property and contract interests of the entity’s shareholders.

2. Is it possible to lift or pierce the corporate veil of corporate groups on the basis that:

The ideas that corporations are viewed as people in the eyes of the law seems like a farfetched idea. However, with closer examination one cannot help but wonder if this is truly becoming the case. Since the 1950’s the rights of corporations have been expanding through multiple court cases that have charted the way for more recent cases like Citizens United v. FEC and Burwell v. Hobby Lobby Stores . To better understand the notion that corporations are sometimes viewed as people it is important to understand the definition of a corporation. In the dictionary, a corporation is defined as a number of persons united in one body for a purpose . Even though it is hard for many to view a corporation as a “person”, it is undeniable that corporations

The Australian Security and Investments Commission (ASIC), is an independent government body that acts as Australia’s corporate regulator. The organisation is responsible for regulating Australian companies, financial markets, financial services organisations, and professionals working in investment, superannuation, insurance, deposit taking, and credit . ASIC administers a number of laws, most notably the Australian Securities and Investments Commission Act and the Corporations Act , from which it derives the majority of its powers. According to the ASIC Act the organisation should strive to improve the performance of the financial system, promote the confident participation of investors and consumers within that system, and administers the laws that authorise its functions and powers effectively and with the least possible procedural requirements . However ASIC achieves only partial success in fulfilling its organisational goals, and thus only fulfils its role in society to a limited extent. For example, ASIC was slow and unproductive in handling allegations of fraud and incompetence amongst financial planning advisers working for the Commonwealth (CBA). Although ASIC was able to identify negligent parties, the processes of ASIC’s investigation were long-drawn-out and enforcement action did not adequately account for the scope of misconduct suggested by their investigation. Situations such as this indicate ASIC’s inability to work effectively as a corporate regulator.

The concept of a company being a separate legal entity is the most striking illustration in separating the company from its owners. A paramount principle of corporate law is that no shareholder or member of a company is made liable for the obligations incurred by such incorporations A company is different from its members in the eyes of law. In continuations to this the opposite also holds true in the sense that neither can the company be held liable for the acts of its members. It is a fundamental distinction that a company is distinct from its members.

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

Insider trading refers to the trading of a listed company’s stock or other financial securities by individuals who has access to non-public material information about the company. This action often occurs within employees/ex-employees of the listen company. Information is considered to be non-public material information if making it public would affect the price of securities, and using such information in decisions to buy or sell financial securities would be unfair to non-insiders (Bainbridge, 2013). Insider trading is treated as a mischief in more than 90 countries, and defendants are imposed with penalties (Beny, 2012). Specific insider conduct regulations in New Zealand were first enacted in 1988, followed by amendments in 2002, 2006 and 2008. The insider conduct regimes between 1988 and 2008 are often considered as a failure due to weak enforcements. Thus in 2008, the regulator introduced a new regime, which was a close model to the Australian insider conduct legislation. Both regimes are expansive, meaning it could be applied to any person in possession of insider information. However, while the Australian laws were aggressively enforced (more than 26 prosecutions were brought since then), no prosecutions have been launched under the new legislation in New Zealand. In addition, New Zealand also had no convictions secured prior to 2008, illustrating a clear enforcement deficit in the New Zealand

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.

Corporation origin from the Latin word Corpus which means body. It is formed by a group of people and has separate rights and liability from those individual. In any means, corporation exists independently from its owner and this principle is called the doctrine of separate personality. Doctrine of separate personality is the basic and fundamental principle in a Company Law. This principle outline the legal relationship between company and its members. Company’s assets belong to the company not the shareholders as assets are the equity for creditors. Company must use up all its assets to pay off the creditors if it became insolvent. The same applies to the corporation’s debts. For limited liabilities company, the shareholder liability is limited which means that the shareholder is restricted to the number of shares they paid and not personally liable for the corporation’s debts. If the company does not have enough equity to pay off debts, the creditors cannot come after the shareholders. However, limited liability company can be very powerful when in hands who do fraud and on defeating creditors’ claims. Courts then can ignore the doctrine for exception cases and lifting the corporate veil. Lifting the corporate veil is a situation where courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s debts.