Lifting the Veil

Topics: Corporation, Legal entities, United Kingdom company law Pages: 6 (2068 words) Published: January 8, 2013
Veil Lifting
The general reasoning of the Court in this area of Veil Lifting the Corporate veil has been confusing and, at times, contradictory: Discuss
The question requires an analysis of whether the parent company (A); will be liable for the claims against its subsidiary, (b): in other words, whether the corporate veil can be lifted in this group structure. Both the parent company and its subsidiary are incorporate which have been legally formed. A company once incorporated, is a separate, and distinct legal entirely from the people who set it up: The Veil of incorporation is created by the principle of separate legal personality and that limited liability which are established in Salomon v Salomon & Co Ltd (1897) A company, once incorporated is a separate and distinct from the people who set it up. In a company limited by shares, a member’s liability for the company debts is limited to his subscribed shares. The courts are very protective of the Salomon principle and only lift the Veil in a small number of exceptional cases at common law and by statute. As there are no clear rules or guidelines for lifting the corporate veil, it is correct argued that this area of law is confusing, contradiction and difficult to rationalize. Example: in Solomon v Solomon& Co Ltd (1897):

In a company limited by shares, a shareholder is not liable for the company’s debts. As (A) hold shares in (b) , it enjoys the protection of limited liability in respect of debts of (b), if the corporate veil could be lifted and the separate legal personality of (b) be ignored, (a) would be liable for claims against (b). The court may lift the corporate veil if the corporate group structure is used as the: example in Adam v Cape Industries plc [1990] Cape Industries plc (cape) was an English mining company and its products were marketed through its subsidiary companies in the United State. A number of workers suffered from inhaling asbestos. The question can Cape mother company in England be liable for the subsidiary in the state. The judgment in Adams v Cape Industries Plc [1990] has significantly narrow the ability of the court to lift the Veil in case, subsidiary companies were incorporated in the United States of that the parent company in the United Kingdom could avoid future asbestosis claims in the United State. The Court of Appeal reviewed this complex area of law and concluded that the Veil could only be lifted in three circumstances.. The only way that the veil of incorporation would be lifted by the Court was only in thee circumstances, (i) view cape group as a single entity, (ii): find the subsidiary as a mere façade, (iii) the subsidiary were agents for cape. The Court exhaustively examine all the three possibility (i): find the subsidiary as a mere façade

First, the veil may be lifted when the corporate structure is a mere sham or façade concealing the true fact. It is difficult to clearly define mere façade or decided whether the arrangements of a corporate group involve a façade. In Adam v Cape the Court of Appeal held that the company structure was a façade when it had been used by a defendant to evade limitations imposed on his conduct by law or when it had been used to evade rights which third parties already possessed against him. In Gilford Motor Co v Horn [1933]

A former employee who was bound by a covenant not to solicit customer from his former employers set up a company to do so. The defendant formed the company as a device to avoid liabilities in breach of his pre-existing legal duty and the Veil was lifted . Jones v Lipman [1982]:

The Veil was lifted when the company was set up by the defendant to avoid specific performance in relation to transfer of land. The Court described the company as a device, a sham, a mask which he hold before his face in an attempt to avoid recognition by the eye of equity. The defendant formed the company as device to avoid liabilities in breach of his pre...
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