Corporation and Partnership Law

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Assignment
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 employee. And the former employee break a valid covenant in restraint of trade contained in the contract under which he was formerly employed. In the case the employee covenanted that after the termination of the employment he would not solicit his employer’s customers. But after the termination of his employment he formed a company and sent out circulars to customers of his former employer. An injunction was granted against the ex-employee and the company. If the reality is that the entity status of corporations has almost nothing to do with shareholder limited liability. A court would look beyond the legal fiction to the reality of the situation. Although a shareholder's limited liability emanates from the view that a corporation is a separate legal entity. This situation may not cause the problem by statute if the company is reality and ran well. But under common law even if the aim of the company formed is not for avoiding the legal obligations, the corporate veil could be lifted. Overall, many situations can lift the corporate veil defined clearly in Corporations Act the concept of lifting ‘corporate veil’ is still important for Corporation’s Law, court need look beyond the legal rule and find the actual situation.

Part 2 – Problem Solving (70% of the assignment)

Issue:
Whether Mr Smith had authority to act as agent of Ace and can Super Bank Australia Ltd relies on section 129 assumption and enforces the contract?

Rules:
A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by: 2 directors of the company; a director and a company secretary.

A person may assume the document has been duly executed by the company if the company’s common seal appears to have been fixed to the document in accordance with subsection 127 (2); and the fixing of the common seal appears to have been witnessed in accordance with s 127 (2).

Application:
The Super Bank can only enforce the...
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