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Lifting Corporate Veil Company Law 1

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Lifting Corporate Veil Company Law 1

  1. 1.  Lifting the veil Judicial exceptions Statutory exceptions Company‟s liability in crime and tort
  2. 2.  Refer to circumstances where the law or the court disregard the corporate entity by looking behind it to determine the reality of a situation.
  3. 3.  To determine the residence/nationality of a company, the court will look to the residence/nationality of the person who control the company.
  4. 4.  F: Con Tyre was incorporated in England. Directors and all shareholder (except one) were German residents. The secretary resided in England and was a British subject.
  5. 5.  F: 90 shares of a company were held by an American director and 10 shares were held by a British. The company sought to register its film “Monsoon” as a British film. The Board of trade refused because in reality it was made by an American company.
  6. 6.  When a company was incorporated to evade or avoid a legal obligation
  7. 7.  F: H was employed as a managing director in the P‟s company. There was a covenant… not to solicit customers of the company after leaving his employment. When H left the company, set up his own company and in contravention with the covenant solicited the P‟s customers. P applied an injunction against H.
  8. 8.    H: Injunction granted. „Of course in law the Def. Co. is a separate entity from H but the reason for the creation of the company was the fear of H that he might commit breaches of the covenant‟ „The company was formed as a device, a stratagem, in order to mask the effective carrying on of a business of Mr Horne‟
  9. 9.  F: L agreed to sell his house to J.L changed his mind, to avoid transfer he set up a company and transferred the house to the company. The company was wholly owned and controlled by L.
  10. 10.  Russel j: „….the company was a creature of L, a device and a sham, a mask which he holds before his face in an attempt to avoid the eye of equity‟.
  11. 11.   Respondent company had applied an injunction against Lorrain who was once a director of the respondent company. R alleged L had channeled certain secret profits into Aspatra which he controlled to prevent R from recovering those proceeds
  12. 12.  F: The shares- in Bugle Press were held by S & J – 4500 shares each and T-1000 shares. S & J wanted to buy T‟s shares. For this purpose they incorporated a company which made an offer to purchase all the shares in Bugle Press. S & J agreed except T. Thus, they invoked Sec 209 (equiv. To Sec 180) i.e. if a co. acquired 90 %, it could compulsorily buy out the remaining 10 %.
  13. 13.    Court of Appeal: Rejected the application of sec 209. “the section had been used…for the purpose of enabling majority shareholders to expropriate or evict the minority”
  14. 14.  F: There was a dispute between P & D. Injunction was granted restraining the D from interfering with the P‟s business until the action went for trial. One night the P found the premise was locked, so he sought an order for contempt of court.
  15. 15.  A company may act as an agent of another company. In such situation based on the agency principle, the principal will be liable for the act of the company
  16. 16.  F: Birmingham Waste Co. Ltd (the waste company), carrying on business on premises belonging to SS. The waste company was a subsidiary of SS. When BC acquired the premises, SS claimed compensation. BC refused because in law SS and the waste company were distinct entities.
  17. 17.   H: Compensation claimed by SS was granted. Atkinson J: The question is whether the subsidiary was carrying on the business as the holding‟s business or as its own
  18. 18.      Six requirements must be established: The profits of sub. Must be treated as the profits of the holding The person conducting the business must be appointed by the holding The holding must be the head and brain of the trading venture ….
  19. 19. Tay Tian Lian v Hong Say Tee & Ors   F: P purchased all the shares in Wato from D. Wato owned Hotel Wato Inn. In the S & P it was agreed that D would indemnify P for tax payable prior to the date of the agreement. Later Wato and Wato Inn were taxed, P paid and claim to be indemnified by D.
  20. 20.  Held: The corporate veil of Wato would be pierced to reveal the existence of Hotel Wato Inn as a subsidiary of Wato for the sole objective of achieving justice.
  21. 21.   PS Gill J: …. That the corporate veil should be lifted in order to ascertain who was the main beneficiary of the loan. It is clear from the documentary evidence and the relevant affidavits that the loan, although taken out in the director‟s name was for the beneficial interest of the P. The director was merely an alter ego of P.
  22. 22.       Sec 36 Sec67 (5) Sec 169 Sec 121 Sec 304 Sec 140 of Income Tax Act
  23. 23.    A company as an artificial person function through the human beings In crime-mens rea and actus reus A company will be liable for crime when there is mens rea.
  24. 24.   The mens rea of the directing mind and will of the company. Thus when the directing mind and will has the criminal intention it will be attributed to the company and the company may be guilty for the criminal offences.
  25. 25.   HOL: „….the mental state of a person who is the directing mind and will of the corporation may be attributed to the corporation itself‟
  26. 26.   Depend to the circumstances of a case Board of Directors, members, managing director etc,
  27. 27.  Lord Denning:… Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind & will. Others are directors and managers who represent the directing mind and will of the company & control what it does….
  28. 28.  F: Tesco- a chain of supermarket. Charged under the UK Trade Description Act; offer goods at one price and sell them at a higher price…unless by mistake of other person. One of T advertised a good at an offer price but sold at a higher price because…Shop assistant failed to inform the manager.
  29. 29.   HOL: F for the branch manager did not represent its directing mind and will but were merely a subordinate. Thus the company could not be liable because the mistake was done by the manager of the store.
  30. 30.   A company cannot be sentenced to imprisonment, only fined. Thus in certain criminal cases a company cannot be convicted.
  31. 31.   A company may be vicariously liable for the negligence acts of its servants in the course of employment. A company may also be liable for torts committed by its directing mind and will.
  32. 32.   A company will not be liable either in crime or tort if the person who represents the company‟s directing mind and will is acting in fraud of the company. His knowledge/intention will not be imputed to the company.