The fundamental principal of company is well established by the Solomon case, where a company is an independent legal entity and separates from its management and its shareholders. The judgment in Solomon was seemed to be influential towards company law in the following century. It was widely accepted by the court in case like Lee v Lee, where a sole owner of a business is allowed to claim compensation against a company that is wholly controlled by him. However, the court in certain circumstances will try to depart from the Solomon rule to counter illegality and fraud that is committed by the business owner, who deliberately escapes from liability. Subsequently, the judgment in Malyon is opposed against final decision of Solomon, but is corresponding to the Court of Appeal decision in Solomon. The court in Malyon is finding a way to look behind the fact of the case in relation to human and commercial reality of the situation and deny the absolutism of the corporate principal. Thus, Veil of incorporation will be lifted by the judiciary or by statute. Nevertheless, the application of this principal is lack of consistency due to there is not a precise guidance informing the removal of veil. It is further rejected by the court in Adams v Cape, where the court held “there is no general principal that all companies in a group of companies are to be regarded as one. On the contrary, the fundamental principal is that ‘each company is a group of companies is a separate legal entity possessed of separate legal rights and liabilities”.
The Term Paper on Company Law In Malaysia – Separate Legal Entity
In a modern capitalist market economy, companies are a familiar part of everyday life. Companies own supermarkets, supply water, gas, electricity and petroleum products we are depending on. They publish the newspapers and provide our Internet services. We deal with companies so often as purchasers and users of their products and services that the image ‘company’ brings to mind is usually of an ...
The above statement made in the Adam case is supported by the recent cases VTB Capital Plc v. Nutritek International Corp and Others and Prest v Petrodel Resources Limited and others. Following the VTB case, a company VTB lent US$225,050,000 to a Russian company, Russagroprom LL C (“RAP”), under a Facility Agreement. The advance was primarily to enable RAP to buy six Russian dairy companies and three associated companies from Nutritek International Corp (“Nutritek”).
RAP subsequently defaulted on the loan. It was VTB’s case that it was induced to enter into the Facility Agreement in relation to the loan, and an accompanying interest rates swap agreement, by misrepresentations made by Nutritek for which other Respondents were jointly and severally liable. The Supreme Court has unanimously rejected VTB Capital Plc’s (“VTB”) case that the corporate veil of their contractual counterparty could be pierced so as to render those controlling the counterparty jointly and severally liable under their contract. In the leading judgment of Lord Neuberger in respect of corporate veil issue, he emphasizes the corporate veil was “contrary to high authority, inconsistent with principle and unnecessary to achieve justice”. As Lord Nutritek stated,” the right approach seems to me to follow from one of the most fundamental principles on which contractual liabilities and rights are based, namely what an objective reasonable observer would believe was the effect of what the parties to the contract, or alleged contract, communicated to each other by words and actions, as assessed in their context…” Although the VTB is claiming there is a misrepresentation made by the Nutrltek, the court is tending to retain the Saloman principal, instead of looking into the true sense of terms, even there is jurisdiction to pierce the corporate veil.
The rigidity of the principal is severely criticized by the academics and judges. Roskill LJ indicated controversy may arise when there is separate personality of companies in a group. He stated,” it is long established and now unchallengeable by judicial decision… that each company in a group of companies… is a separate legal entity possessed of separate legal rights and liabilities so that the rights of one company… cannot be exercised by another company in that group even though the ultimate benefit of the exercise of those rights would ensure beneficially to the same person or corporate body.” Also, Otto Kahn – Freund in ‘Some Reflections on Company Law Reform’ demonstrates a challenging attitude towards the Saloman principal, as stated “Is it conceivable that Salomon’s case can be abrogated by legislation? Could the interests of outside creditors be protected by a general clause under which persons owning a controlling interest in a company would be liable for its debts? Or could there be a provision according to which a company would be deemed to act as agent for the owners of controlling interests’
The Research paper on Company Case Study of Technics SL Ltd
BackgroundThe company that I have chosen to look at is Technics SL Ltd, a subsidiary company of Technics Ltd, which is now owned by Panasonic. Technics main purpose of business is home entertainment systems but Technics SL Ltd concentrate their efforts toward turntable production. They currently produce 2 products, the SL1200MK2, SL1210MK2. (Appendix 1)•Technics announced the world's first direct ...
By analogy to the majority cases, there are number of circumstances where the courts are willing to lift the corporate veil. The principal can be disregarded if there is a public interest to be served. However, the last application of this reasoning is the case Re FG (Films) Ltd, which is 1953. Besides that, the court will lift the corporate veil if there is an evasion of legal obligations or to commit fraud. This category of exceptions is supported by various statues including, liability for use of prohibited names in s.216 Insolvency Act 1986, Fraudulent Trading in s.213 Insolvency Act 1986 and wrongful trading in s.214 Insolvency Act 1986.
On the other hand, in the group company scenario like VTB Capital Plc v. Nutritek International Corp and Others and Prest v Petrodel Resources Limited and others, it has always come under most of the attack due to the disadvantage of Solomon principal, where allows the parent or holding company to prevent the claiming from creditors of the subsidiary. Consequently, the judgment in DHN Food Distributors Ltd v London Borough of tower Hamlets becomes a critical exception in the company case law. Lord Denning expressed the view that it was unnecessary to imply an agency relationship between the parent and subsidiary companies. Lord Denning observed if a parent company owns all the shares of the subsidiaries who are bound hand and foot to the parent, there is a tendency in law to ignore the separate legal entities of various companies within a group, and instead to look at the economic entity as a whole. However, the significance of DHN has been limited by the judgment in Woofson v Strathclyde Regional Council, where the court held DHN will only applies in case with the same fact.
The Research paper on Ford Motor Company Case Study
Question 1. During the year 2006, Ford Motor Company suffered its biggest operating loss to date at the cost of $12.6 billion. A year later in 2007, things didn’t improve much as Ford posted a $2.7 billion loss. This corresponded with increasing deterioration in market share, with the majority of these losses being captured by other competitors. Ford had seemingly fallen down a slippery slope, and ...
In Prest v Petrodel Resources Limited and others, an appeal is made by a wife concerning properties vested in several companies and whether they could be treated in ancillary relief proceedings as beneficially belonging to the husband. The Supreme Court allows the appeal by Yasmin Prest and declares that the seven disputed properties vested in the companies are held on trust for the husband on the ground that the principle only applies when a person is under an existing legal 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. It emphasizes the court pierce the corporate veil but only for the purpose of depriving the company or its controller of the advantage which they would otherwise have obtained by the company’s separate legal personality. The decision in the case of Prest is seemed to be an extension of Malyon case, where it is not an absolute to apply Solomon principal but look at the fact and circumstances. However, it is still difficult to find a consistency through judgments from which to draw firm principles regarding when the courts will lift the veil.
