Lecture notes
notes on corporate responsibility
- Module
- Company Law
- Institution
- Cardiff University (CF)
notes summarising corporate responsibility with tips on problem question and case laws
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Company LawTb- Mayson, French n Ryan
Corporate Personality
Ch 5
PQ
Imp cases
Lee v lee’s air farming ltd (1961)
Macaura v northern Assurance co ltd (1925)
Prest v Petrodel resources ltd (2013)
Saloman v A salomon and co Ltd (1897)
VTB Capital plc v Nutritek intl corporation (2013)
Key terms
Piercing the corporate veil- A company’s separate personality (SP) is ignored if its property,
rights or obligations are treated as the property, rights or obligations of its members.
Evasion principle- allows a court to pierce through the corporate veil where an individual
interposes a company so as to evade or frustrate the enforcement of an existing legal
obligations, liability or restriction.
Concealment principle- to deal with a company that’s being used as a device or façade to
conceal the true facts and avoid or conceal the liability of the individual controlling the
company.
Salomon case
• Salomon had conducted his bootmaking business as a sole trader.
• Sold his business to a company incorporated as A Salomon and Co Ltd
• Company’s only members were salomon, his wife, daughter and 4 sons.
• 7 individuals (min number of members of a company) were the subscribers of the
company memorandum and took £1 share each.
• Business sold to company for over £39,000.
• Part of the purchase price was used by Mr S to subscribe for 20,000 further £1 shares in
the company, but £10,000 of the purchase price was not paid by company.
• Instead, the co. issues S with debentures for £10,000 and gave him a floating charge on
its assets as security for the debt.
• Company failed and went into liquidation.
• Went co. goes into liquidation as a holder of a floating charge on the co.’s assets is
entitled to have the assets covered by the charge applied to the payment of the debt
secured by the charge, upon the liquidation.
, • If S had been able to enforce his floating charge, co. other creditors would have got
nothing.
• co.’s liquidator took a stand on behalf of the other creditors.
• He resisted S’s claim and suggested that rather than take money from his co., S should
be made responsible for paying all its debts, just as he would have if he had continued to
conduct his business as a sole trader.
• L wanted to ignore the fact that S had sold his business to a separate person, A Salomon
and Co Ltd and that S now only had limited liability to that co instead of the unlimited
liability he had when he conducted the business as a sole trader.
At first instance
Held that co. had conducted the business as agent for S, so he was responsible for all
debts incurred in the course of the agency for him.
HOL rejected this approach.
Lord Herschell said-
o A business may be said to carry on business for and on behalf of its shareholders,
but this certainly does not in point of law constitute the relation of principal and
agent b/w them or render the shareholders liable to indemnify co. against the
debts which it incurs.
Court of Appeal
held that S had incorporated co. contrary to the intent and menaing of CA 1892, and
cause of S’s fraud, co. should be declared to have operated the business as a trustee
for S, who should therefore indemnify co. for all debts incurred in carrying out the
trust.
HOL- also rejected the argument.
Said there was nothing in the Act to show that what S did was prohibited.
Lord Macnaghten said-
o Co at law is different person altogether from the subscribers to the
memorandum and though it may be after incorporation the business is precisely
the same as it was before….the company is not in law the agent of the
subscribers or trustee for them.
Lord Halsbury LC at pp 30-1
o Seems impossible to dispute that once the co is legally incorporated it must be
treated like any other independent person with its rights and liability
appropriate to itself and the motives of those who took part in the promotion
of the company are absolutely irrelevant in discussing what those rights and
liabilities are.
A company’s business is its business
1. Saloman case recognised that a company’s business is conducted by the co. as a
separate person
2. Co. as a separate person owns the co’s property and enters into contracts and inx=curs
debts
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