Separate Personality notes PDF

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Separate personality notes...

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Lecture 5 (19/10/18) ● s16(2)- creates the company as a separate legal entity/legal person ● Limited liability- co responsible for own debt and liabilities, but members are not liable for co’s debts; applies even if only one member and where members are also corporate groups ● Corporate group- cannot exercise each others rights (The Albazero ) companies in the group are not responsible for each others obligations or debts (Adams v Cape ) ● Lee and Lee’s Air Farming - ‘logical consequence’ of Salomon that one person can wear many ‘hats’ ● Foss v Harbottle- where there is a wrong done to the company the company is the proper claimant ● Macaura- insurance over timber done in his own name rather than of the company; no claim for insurance because the company owned the property, not the individual, and the insurance was under his name ● Salomon- Even a one man company is a ‘real thing’; incorporation under the act is valid regardless of motive of incorporators ● Lewis’s Will Trusts- farmed owned by co so Lewis had no farm to give to his son ● Short v Treasury Commissioners-  shareholders do not have rights in the co’s business, are not ‘part-owners’ ● Tunstall v Steigmann - the business carried on by the co is not carried on by the co’s shareholder ● Veil of incorporation- a ‘veil’ lies between the company and its members, metaphor for the principle of separate personality Lecture 6 (19/10/18) ● Prest v Petrodel  or Atlas Maritime  use pierce as treating the rights/liabilities of the company as those of the shareholders ● Prest - courts have the right to disturb the veil; even though veil can be pierced where there is evasion it’s only where it is of last resort ○ Adams v Cape- before Prest , explained and limited circumstances in which veil could be pierced ○ VTB- questioned the court's role in veil-piercing altogether before Prest ● There may be other ways of getting around the veil but they are arguably not true veil-piercing ● The evasion principle○ Origins lie in the ‘mere facade’: where the veil could be pierced where special circumstances exist indicating that the co is a mere facade concealing the true facts; what this required was less clear ○ Not improper to take advantage of the corporate form- impropriety required some abuse of the corporate form (Jones v Lipman , Gilford Motors v Horne, Trustor v Smallbone , Kensington v Republic of Congo ) ○ Ord v Belhaven Pubs - no evidence of impropriety, restructuring was legitimate and corporate form was not being abused

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○ Can pierce the veil only where there is impropriety Prest - reformulated the ‘mere facade’ as the evasion principle: Sumption- the veil may be pierced where an existing legal obligation, liability, or restriction is deliberately evaded or frustrated through the interposition of the co (confirmed in Gramsci v Lembergs ) ○ Justification: equitable principle that ‘statute must not be used as an engine of fraud’ ○ Clearer than the ‘mere facade’ but does call into question the basis of some established cases under mere facade Prest v Petrodel - SC subjected veil-lifting to thorough review; accepted the jurisdiction to pierce the veil, but only to prevent abuse of corporate legal personality under the evasion principle; court refused to pierce the veil because the evasion principle did not apply; need to show the company was used to evade his liability (which he hadn’t done); on facts Mr Prest was a beneficial owner of properties and he owned them not the company so an order was made in Mrs Prest’s favour ○ Veil is pierced only where there is deliberate evasion or frustration of liability through the imposition of the co (motive is likely to be highly relevant); mere concealment will not trigger veil-piercing ■ Adams v cape  “where a facade is alleged the motive of the perpetrator is highly material” Only the evasion principle leads to a true piercing of a veil; co used to defeat a legal right against the person in control of the company Concealment principle- does not amount to piercing the veil; legally banal- Lord Sumption, court simply looks behind the corporate facade to discover facts, lifting rather than piercing the veil ○ concealment/evasion distinction not entirely clear, distinction drawn by Sumption and Neuberger Veil-piercing as last resort- only a remedy of last resort, really really difficult to pierce the veil and need to show there is not other way of getting what you need Evasion is the only basis for veil piercing Cannot shift liability from company to shareholder/director even if one-man company (Persad v Singh )

Lecture 7 (26/10/18) ● Prest - piercing the veil only occurs “when a person is under an existing obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control” (Sumption); the court cannot pierce the veil just because it thinks it appropriate to do so, even if the outcome seems unfair ● The ‘single economic unit’- historical approach; has since been rejected in Adams v Cape ● Polly Peck- we are not concerned with economics but what is happening in law ● Using agency to get behind the veil- in agency relationship, the principal is liable for acts of the agent (within the scope of agency)

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Salomon- co is not agent of its members just because it is carrying on business for its members ○ SSK- agency relationship found; held subsidiary was carrying on business as agent of parent; parent could get compensation for compulsory purchase; 6 factors were relevant: who was really carrying on the business, were the profits treated as the profits of the co, were the persons conducting the business appointed by the parent co, was the co the head and brain of the trading venture, did the co govern the venture, did the co make the profits by its direction, was the co in effectual and constant control: then the subsidiary is the agent of the parent ○ Re FG Films agency also found: subsidiary had no staff, premises, or capital ○ A finding of agency is not likely though: Adams v Cape and Yukong Line (need to show a pretty clear agreement that the parties intended for there to be an agency, not just about the factors in SSK) Tort- often very serious medical problems or damage; if co is insolvent should the victim be left without a remedy; can’t simply go behind the Salomon principle, but can hold an individual directly responsible ○ Chandler v Cape- in appropriate circumstances the law may impose direct liability on the parent company (health and safety of subsidiary); Arden- not piercing the veil, parent company had duty of care and breached it ■ Direct duty of care to the subsidiary employees ○ Provides a possible route for tort claims but unlikely to be common as is difficult to establish ○ Personal liability of directors in tort- Williams v Natural Life: only liable personally if had assumed personal responsibility for advice Trusts- property can be held in trust by the company; unusual to find a trust; Prest found a trust (veil couldn’t be pierced but the property was held in trust by the company) Lifting the veil by statute- statutes create veil so can therefore remove it; examples: ○ Taxation and accounts ○ Landlord’s business, etc ○ Or where there is abuse to limited liability Post-Prest landscape: evasion is now the only ground for piercing the veil, but the veil can still be lifted under the concealment principle ○ Prest ensures certainty (those dealing with the co can be confident corporate structure will be observed; maintains SP save in exceptional circumstances (protects shareholders personal wealth and encourages investment and entrepreneurship); creditors to absorb risk (only pierce hte veil if deliberate abuse of company form in relation to creditor’s claim, some involuntary creditors, statute that offers protection is limited in scope); potentially more reliance on other legal principles

Griffiths 2006- phoenix companies and how it is easy for business owners to misuse limited liability

Corporate personality- the separate legal status of a registered company, which provides it with an identity that is separate from that of its members, shareholders, and employees Company can sue and be sued Company can be party to contracts Company can continue to function after death of shareholder Salomon v salomon - debenture took priority over the debts of the company because it was a separate legal entity distinct from its members Limited liability is the accepted position in law (do not need to prove LL and corporate personality exist) the question is whether any of the recognised exceptions will apply Veil of incorporation- barrier between the assets of the company and those of the members Lifting the veil- the exceptions are designed to prevent the protection of LL being abused to perpetrate fraud or other wrongdoing, and they apply only to members of the company who actually created the situation Statutory exceptions- fraudulent trading (Insolvency Act 1986 s213), wrongful trading (Insolvency act s214) Common law exceptions- sham or facade companies (Prest p  ara 16-36 read) Groups of companies- use of the corporate veil to reduce risk; courts have adopted different views at different times

The company has become ‘an organisation with a life of its own, swiftly mutating from one shape to another, with government usually unable to restrain it’ (Micklethwait & Wooldridge) Kahn- salomon  is a calamitous decision S.16(2) CA: creates company as separate entity from its members...