Instruction: Answer ONE (1) Question Only.
1. The decision of the House of Lords in Salomon v Salomon & Co LTD (1897) AC 22 has been described as “calamitous” by Otto Kahn Freund. To what extent do you agree with such a view?
2. Critically assess the various provisions under the Companies Act 1965 under which the corporate veil may be pierced, highlighting their shortcomings, if any, and suggest improvements to those provisions for greater efficacy.
3. Though the Courts have, in a number of situations, lifted the veil of corporation to ensure that the grant of the corporate status is not abused, more could be done to ensure justice, especially to make holding companies liable for the debts of their subsidiaries. Discuss.
4. The common law doctrine of ultra vires has no place in Malaysia in view of the provisions of the Companies Act 1965.
Critically consider the accuracy of the above statement.
Mr. Aron Salomon made leather boots and shoes in a large Whitechapel High Street establishment. He ran his business for 30 years and "he might fairly have counted upon retiring with at least £10,000 in his pocket." His sons wanted to become business partners, so he turned the business into a limited company. His wife and five eldest children became subscribers and two eldest sons also directors. Mr. Salomon took 20,001 of the company's 20,006 shares. The price fixed by the contract for the sale of the business to the company was £39,000. According to the court, this was "extravagent" and not "anything that can be called a business like or reasonable estimate of value." Transfer of the business took place on June 1, 1892. The purchase money the company paid to Mr. Salomon for the business was £20,000. The company also gave Mr. Salomon £10,000 in debentures (i.e., Salomon gave the company a £10,000 loan, secured by a charge over the assets of the company). The balance paid went to extinguish the business's debts (£1,000 of which was cash to Salomon). Soon after Mr. Salomon incorporated his business a decline in boot sales, exacerbated by a series of strikes (organised by the National Union of Boot and Shoe Operatives) led the government, Salomon's main customer, to split its contracts among more firms. The government wanted to diversify its supply base to avoid the risk of its few suppliers being crippled by strikes. His warehouse was full of unsold stock. He and his wife lent the company money. He cancelled his debentures. But the company needed more money, and they sought £5,000 from a Mr. Edmund Broderip. He assigned Broderip his debenture, the loan with 10% interest and secured by a floating charge. But Salomon's business still failed, and he could not keep up with the interest payments. In October 1893, Mr Broderip sued to enforce his security. The company was put into liquidation. Broderip was repaid his £5,000, and then the debenture was reassigned to Salomon, who retained the floating charge over the company. The company's liquidator met Broderip's claim with a counter claim, joining Salomon as a defendant that the debentures were invalid for being issued as fraud. The liquidator claimed all the money back that was transferred when the company was started: rescission of the agreement for the business transfer itself, cancellation of the debentures and repayment of the balance of the purchase money. Introduction
1. The decision of the House of Lords in Salomon v Salomon & Co Ltd  evinces the accuracy of Gooley's observation that the separate legal entity doctrine was a "two-edged sword". At a general level, it was a good decision. By establishing that corporations are separate legal entities, Salomon's case endowed the company with all the 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...
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