Part 1 – Précis / Short Essay (30% of assignment)
The case Salomon v Salomon & CO. Ltd indicates the ‘Corporate veil’ which refers to distinct the company as a separate legal entity from its shareholders. It can protect the shareholders from not taking liability personally for the company’s debts. However, in some situations the ‘Corporate veil ' could be lifted if the shareholders do not follow the proper procedures. Lifting corporate veil is aim to "see through" the company and let its members take directly liability for the company 's legal position.
The statement points many situations in Corporations Act (“CA”) listed can lift the veil of corporate, which is true. Under s588G the directors will breach the duty by failing prevent the company incurring debts when the company is suspected insolvent. And s588FB is aimed to preventing insolvent companies from disposing of assets prior to liquidation through uncommercial transactions. And also corporate veil can be lifted if company provide the financial assistance in contravention and avoid the taxation legislations. Court may lift the veil based on these sections of CA that fit the actual situations. Generally, in the absence of specific legislation, Australian courts do not to depart from the principle in Slomon 's case and lift the corporate veil. However, these does not means the concept of lifting veil of corporate is no important in Corporation’s law.
However, there may have differences and changes made by common law; the concept of lifting corporate veil is still important and arguable. Under Common Law the courts will lifted the corporate veil generally in four situations: where a company is used for fraud, avoidance of legal obligations, breach of director’s fiduciary duties and attributing mind and will of company. The case of Gilford Motor Co. Ltd v Horne shows that the courts will not allow a company to be used as a device to mask the carrying on of a business by a former
References: Northside DevelopmentsPty Ltd v Registrar- General (1990) 170 CLR 146 Salomon v Salomon & CO Story v Advance Bank Austrlia Ltd (1993) 11 ACLC 629 Sunburst Properties Pty Ltd v Agwater Pty Ltd [2005] SASC 335