SLP (Essay)( Uolukt) - Sample for company law tutorial. PDF

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Summary

The Corporate Veil is an outmoded concept, it is lifted by the judiciary at every opportunity and certainly whenever justice demands. (100M)Intro The Concept of SLP is one that has been around since 1897 from the case of Salomon v Salomon. This case states that the director/shareholder of a company ...

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The Corporate Veil is an outmoded concept, it is lifted by the judiciary at every opportunity and certainly whenever justice demands. (100M)

Intro -

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The Concept of SLP is one that has been around since 1897 from the case of Salomon v Salomon. This case states that the director/shareholder of a company and the company are two separate entities, one cannot hold the director/shareholder to be personally liable for the company’s debt even if the director had single handedly established the company. Along the years cases have used the above case as precedent, however there are exceptions to the general rule. The above concept has been extended to multinational companies /parent subsidiary companies. The problem is that Multinational companies tend to strategically place their subsidiary companies to absorb risky ventures and if the subsidiary goes insolvent the parent company would rely on the defense of SLP. However the courts are willing to lift the corporate veil if there is o Fraud o Day to day control o Single Economic Entity. o Interest of Justice

Classical Veil lifting Salomon v Salomon (HOL) (1897) -

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Aaron Salomon was a successful leather merchant Salomon decided to incorporate his business as a limited company. At that time the legal requirement for incorporation was that atleast 7 persons subscribe as members of the company i.e as shareholders. Mr Salomon himself was the managing director he owned 20,001 of the company’s 20,007 shares the remaining six were shared individually between the other six shareholders ( Wife, daughter and four sons) He asked the company to issue a debenture of £10,000 to him. Slowdown in business occurred company could no longer pay interests to Salomon Salomon transfers his debenture to Mr Broadrip, but still the company could not pay . B is a secured creditor in relation to the company as he holds security over the company in form of a debenture. B called for a receiver and therefore sold the factory of the company to cover the debts. That led to the end of the business, this left the debt of the general creditors for instance the general suppliers to be covered. The company had to be liquidated and assets were sold of to repay the creditors. COA made a decision in favor of the creditors held that the director of the company was the “agent” of the company. The director makes decisions on behalf of the company as a result the courts should lift the corporate veil and hold the director to be personally liable.

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The HOL held that the company and director are separate entities, the liquidators cannot pursue the director if the sum obtained after liquidation is insufficient. Daimler Co Ltd v Continental Tyre & Rubber Co 1916 HOL

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Lifted the veil to determine whether the company was an enemy during WW2 ,as the shareholders were German and the Court determined that the company was indeed an Enemy They were spies in disguise of a company and created a company as a facade. Mr Daimler did not have to make payment to continental tyres as the shareholders were German and HOL held that just as a natural person can be ill intent so can a company. There was also a law against trading with the enemy.(Offence to trade with the enemy during wartime) Gilford Motors v Horne 1933 COA

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Former employee contracted not to steal its customers, he later established his own company and attracted the initial company’s customers , he relied on the defense of separate legal personality but the courts did not allow this and labelled it as a ‘sham” devise or a mere “façade”.

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Jones v Lipman 1962 (Mr Lipman agreed to sell a piece of land to Mr Jones , however Mr Lipman changed his mind and incorporated a company and sold that land to the company and relied upon the defense of SLP) But the courts referred to this as a mere facade and allowed for judicial veil lifting. Reorganization of group structures

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Creasly v Brecchwood Motors Limited 1993 Here Mr Creasly was wrongfully dismissed he brought an action against the company (Welwelyn) subsequently the company stopped trading and transferred all assets to Breachwood Limited which took over Welwelyn Ltd’s business, in doing so they paid of Welwelyn Ltd’s creditors except for Creasly judgment’s debt. A year later the company Welwelyn ltd was struck of the register and Mr Creasly applied to substitute the Defendant( Welwelyn) to Breachwood motors( This means Breachwood Motors is to pay the judgment debt) Breachwood Motors appealed against it, but was not allowed as the courts held that it was a mere sham by Welwelyn Ltd to evade the JD. The courts allowed the Defendants to be substituted to enforce the judgment. Ord v Bellhaven Pubs 1998 Bellhaven Pubs was reorganized due to a breach of financial crisis as it had insufficient funds to pay its judgment debts.

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The COA held the act of restructuring the company to keep the company afloat and not evade liability is fine. So in this case the corporate veil can be lifted of, as there is no sham. But a mere reorganization to keep the company afloat

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Group Structures DHN Food Distributors Ltd v Tower Hamlets (1976) COA a subsidiary company owned a property that was used by the holding company, the subsidiary did not carry out any business when the property was compulsorily purchased, compensation was paid to the subsidiary as a legal owner and the holding company claimed compensation for disturbance of business. The COA held that “ a group of companies was in reality a single economic entity and should be treated as one” so the compensation sum can be given to the parent company as it is regarded as a single economic entity. “ Subsidiary is bound to the Parent Company by Hand & Foot “ Woolfson v Strathclyde Regional Counci 1978 where the HOL disapproved of Denning’s views on group structures in finding that the veil of incorporation would be upheld unless it was a mere façade. Limited company A carried on a retail business at a shop comprising of five premises. Three of the premises were owned by Wolfson and another two by a limited company called B .Wolfson was the sole director of A and owned 999 shares of the 1000 shares of company A. The remaining shares was owned by the wife. Woolfson also owned 20 of the 30 shares owned by the company “ B” with the other 10 owned by his wife. When the premises were compulsorily acquired by the local authority both Woolfson and company “B” jointly sought compensation from the Lands Tribunal which held that they were not entitled to such compensation. Held as the company that carried out the business had no control over the owners of the land. They could not be regarded as single economic entity. Adams v Cape (1996) COA

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Cape mined and marketed asbestos and had a US marketing company called NAAC. NAAC was in Texas and it was sued for personal injury over 200 claimants. A JID was given against Cape( The parent company in London) The Courts did not allow the claim to be in London. For the Parent Company to be liable, the Parent must have had a fixed place of business in the area of the subsidiary. 1) Single Economic Entity. The act of Cape was to minimize its presence in the US for tax purposes and other liabilities. Courts held- Whilst it is immoral there is nothing illegal of it” So there is no Single Economic Entity. 2) Mere Façade A subsidiary company was created with the sole purpose of deceiving the world at large. 3) Agency Principle Proving Day to Day Control. 4) Interest of Justice Courts ruled it recognizes parent subsidiaries however even though they are under the control of the parent they will generally be treated as separate entities with all the rights and liabilities which would normally attach to separate legal entities

Lubbe v Cappe 2000(HOL) -

There was a subsidiary company in South Africa mining asbestos which lead to injuries . Over 3000 claims were brought against the parent company in London for death and personal injury. HOL London was the most appropriate forum as it was easier to establish evidence and had better expert evidence to substantiate claims. But here the parties decided for an out of court settlement for £ 21 million. Conelly v RTZ (1997) (HOL)

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Mr Conelly worked in a subsidiary company of RTZ in Namibia of Uranium Mines , later developed health problems ( Cancer) wanted to sue RTZ ( Parent Company)in London as it owed a duty of care to its subsidiaries. Courts held that the matter could not be heard in Namibia as there was an issue of complexity, cost and evidence. London was held to be the best forum. Lord Hoffman : Dissenting Judgment ( If this was allowed every Multinational Company which has a parent company in the UK would want to bring an action in the UK) As much as the courts were able to establish jurisdiction when it came to a claim in the English Courts the action was time barred under the Limitation Act 1980. Chandler V Cape 2012 COA Duty of care ( Parent company has a DOC towards the Subsidiary) 1) Parent and subsidiary same line of business 2) Parent ought to have known that it would be held liable 3) Parent knew that the working practices of subsidiary was unsafe Multinational Gas & Petrochemical & Multinational Gas 1983 COA

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There were 3 oil companies, they set up a company in a joint venture known as P co in Liberia. The three oil companies were appointed shareholders in P companies and Directors were from the three oil companies. The Subsidiary company made negligent decisions which caused it to sell their assets. It was held that the 3 oil companies were different entities and could not be liable for the mistake of the parent of the parent company. J.H Raynor ( Mining Lane) Ltd v Department of Trade and Industry 1990 COA

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Collapse of International Tin Council in 1985, left the Tin Council owing millions to banks. The council had been formed by a few states, later the creditors sues to recover its debts from Member States.

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HOL- Council was a separate body from its members. The members could not be liable for its debts.

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Prest and Petrodell Resources 2013

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This concerned financial settlement for a divorce between a Nigerial Oil trader Micheal Preest and his wife Yasmin. Mr Prest wholly owned and controlled (directly or indirectly through intermediate entities) a number of non UK resident companies which between them owned seven residential properties in the UK. The question was whether it could order the properties to be transferred to the wife as part of the financial settlement on divorce given that legally belonged to the companies and not Mr Prest. SC: The court can only “pierce” the corporate veil that is disregard the SLP of company if there is some impropriety. In the event one evades legal liability. Or the creation of a scheme to avoid liability. The courts will not pierce the veil unless wife can show that the property was beneficially owned by the husband. Here the courts used the concept of resulting trust. It will look at the true intentions of the actor. The courts used the concept of Resulting Trust and reverted those property to the ex-wife.

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Peter Muchilinski –“ Holding Multnationals to Account” -

The idea of limited liability is to be limited to Directors and Companies, why extend it to Multinational Companies? This allows Parent Companies to deliberately place its subsidiary companies for risky ventures. This allows for a sharp practice Some Judges may allow the placing of Subsidiary Companies in a risky venture. Lord Hoffman- “whilst it is immoral there is nothing illegal of it”...