SRN: 111180404

Oral Presentation for Law Skill

Portfolio 2

Under what circumstances the

Corporate Veil may be Lifted?

Presented BySultan Muhammad Akash

Overview

• Principle of Corporate Personality

• Statutory veil lifting

• Judicial veil lifting

• Impact of Adams

• Conclusion

Principle of Corporate Personality

• In the eyes of law, if a company is duly

incorporated it has a separate legal entity.

In essence it means that shareholders,

directors and employees are not liable for

the debts of the company.

• When any fraudulent and dishonest use is

made of the legal entity, the individuals

concerned will not be allowed to take

shelter behind the corporate personality.

• In this situation, the Courts will break

through the corporate shell and apply the

principle of “lifting the veil”

• Lifting the veil refers to a situation where

the courts put aside limited liability and

hold a corporation’s shareholders or

directors personally liable for the

corporation’s actions or debts.

Law will lift the corporate veil

• Under statutory provisions

• Under judicial interpretation

Under statutory provisions

• S. 213 of Insolvency Act 1986 (IA 1986)

‘fraudulent trading’ provision requires an

intent to defraud.

• S. 214 of IA 1986 ‘wrongful trading’

provision requires to prove wrongdoing on

the part of directors.

Under judicial interpretation

• Classical veil lifting (1897 - 1966)

> Salomon v Salomon & Co Ltd [1896]

UKHL 1, Lee and Macaura v. Northern

Assurance Co. Ltd

> Daimler Co. Ltd (national security)

> Gilford Motor Co. Ltd (front)

> Jones v. Lipman (facade)

> Re Bugle Press (mere facade for the

majority shareholder)

• The interventionist years (1966 - 1989)

> DHN Food Distributors Ltd v Tower

Hamlets London Borough Council [1976] 1

WLR 852 (group of companies was in

reality a single economic entity)

> Woolfson (the HL disapproved DHN)

> Re a Company (The CA held that veil

should be lifted whenever it is necessary

to achieve justice irrespective of the legal

efficacy of the corporate structure under

consideration.)

> Lowry , Gallagher and Ziegler (criticized

Re a Company, because this approach

casts uncertainty over the safety of

incorporation)

> National Dock Labour Board (The CA

moved firmly against a more

interventionist approach at least where

group structures were concerned.)

• Back to basics (1989 - present)

Adams v Cape Industries

- According to the CA the principle in

Salomon should generally be followed.

However, there are three exceptional

circumstances in which the veil of

incorporation can be lifted.

1) Single Economic Unit (this exception will only be triggered if the court is interpreting a

statute or document and there has first to be some lack of clarity

about a statute or document which would allow the court to treat a

group as a single entity.)

2) the Agency principle (where the subsidiary company is an agent of the company)

3) Facade(where the company is a mere facade concealing the true facts i.e.

avoid taxes & educe liabilities)

Lifting the veil for the interest of

justice> Creasey (A company can be a façade even though it was

not formally incorporated with any dishonest intent. Indeed, just the

fact of breach of duty is sufficient to justify lifting the veil)

> Ord (the CA overruled Creasey held, in legitimate business

transaction the veil will not be lifted. Here in this case, subsidiary

company was closed for minimizing the tax liability of the parent

company)

> Prest (in can only be lifted only if there is no legal method of

achieving an equivalent result)

Conclusion

• Comparatively gives wider scope to lift the

corporate veil by judiciary than statutory.

But judiciary veil lifting is not so much

flexible.

• Recently, Auld J in Ratiu v Conway 2005

re-adopt Lord Denning’s view i.e. Interest

of justice.

Closing the presentation

Thank you!

Any Question?

Your suggestion and comments will be

appreciated!.