Commercial and Corporation Law

This assignment discusses the concept of corporate veil and situations where this veil is required to be lifted. It explores the structure of business, the immunity extended to shareholders, and the power of the courts to pierce the corporate veil.

Running head: COMMERCIAL AND CORPORATION LAW
Commercial and Corporation Law
Name of the Student
Name of the University
Author Note

1COMMERCIAL AND CORPORATION LAW
Introduction
A company is generally treated as a separate legal entity and it is a separate personality
from the persons who are empowered or appointed to manage it. This structure of business is
the most popular form of business. This structure is highly acceptable as it accrues several
benefits by virtue of its distinguished features, which other structures of businesses cannot
ensure. This structure extends immunity to the shareholders by way of limiting their liability
to a certain extent and the shareholders cannot be rendered liable for personally. The doctrine
of corporate veil implies that the managers and the owners of a company are separate
personality from that of the company itself (Lo 2017). The owners and managers are not
having any personal liability with respect to any liabilities and rights attributed to the
company. Again, the immunity extend by virtue of the doctrine of corporate veil is prone to
be misused and exploited by the person managing the company. This requires the courts to
exceed this doctrine in order to decipher the actual menace. This assignment will strive to
discuss the concept of corporate veil and will provide the situations where this veil is required
to be lifted.
Corporate Veil
In case of corporation, the structure of the business is a complex one, owned by the
shareholders of the same. The losses incurred and the profits earned by the company by virtue
of the operations needs to be evenly distributed among the shareholders. Contrary to others,
this structure of business is considers the business to be a separate legal identity. This can be
illustrated with the case of Salomon v Salomon [1897] AC 22. In this case, it has been held
by the court that a company when incorporated in compliance with the law needs to be
treated as having a different identity to that of the owners of the same. The corporation
structure extends immunity to its shareholders by limiting the liability of them to the

2COMMERCIAL AND CORPORATION LAW
proportion of wealth financed by them towards the capital of the company and does not
extends this liability to have a claim on the personal properties of the shareholders. A
company has been empowered to effect transactions with a status of a natural person under
the provisions contained in the Corporations Act 2001 (Cth) in section 124. This contention
implies that the corporation can sue and be sued, has the power and status to acquire property
and enter into contracts under its own name. The existence of the company is established as
soon as the registration of the same has been effected under section 119 of the Act. The term
corporate veil generally implies a virtual screen or veil has been laid upon the company by
virtue of its incorporation, which prevents the outsiders from having a glimpse of the
managers and the owners with respect to the company. The inside information regarding the
structure of management and the internal structure of the company are kept confidential to the
outsiders by virtue of the corporate veil (Warren 2016).
Lifting of the Corporate Veil
The courts in certain situation are empowered or more precisely compelled to pierce or lift
such a veil for the purpose of discovering a culprit of a wrongdoing or to prevent the
exploitation and misuse of such a veil. The relation of the corporation and its directors are
that of a principal and an agent, where the directors are treated to be the agents of the
company. The relation between an agent and his principal is a fiduciary one and the same
goes for the company and its directors. The directors of the company has a fiduciary duty
towards the principal namely the company. There are circumstances where the directors fail
to abide by the duties of fiduciary nature towards the company or acts in violation of the laws
prevailing to be applicable to corporation causing detriment to the interested persons and the
company. In such a situation, the court has the power to lift the corporate veil to discover or
investigate the culprit behind the same. It has been made evident by the courts several times
that the company although extends immunity to the directors by virtue of the corporate veil,

3COMMERCIAL AND CORPORATION LAW
but whenever such an immunity has been exploited or misused causing undue benefit to the
directors and detriment to the company and the person interested, the court has the power to
lift the corporate veil exposing the culprits.
In the case of Green v Bestobell Industries Pty Ltd (1982) 1 ACLC 1, the senior manager
of the Bestobell Industries namely Mr. Green was aware of the fact that the company will be
submitting tender to avail a construction contract. This information has been utilised by Mr.
Green and he formed a company of the name Clara Pty Ltd. to compete with the Bestobell.
Being aware of the tender quotations, it was convenient for Mr. Green to set a quotation,
which is quite little compared to the tender quotation of Bestobell. Owing to this misconduct
of the Manager, the tender has been awarded to Clara and the Bestobell has come in the
second position. This situation has been brought before the court and the conduct of the
Senior Manager has been considered under the light of the laws relating to the corporations.
In this regard, the court is of the opinion that Mr. Green has contravened the his duty relating
to conflict to interest and has violated his duty of not to use information that he has received
by virtue of his position in the company. He carried this violations out for serving his
personal benefits and thus caused detriment to the company. Hence, the court ordered a
piercing of the corporate veil to hold Mr. Green Liable for the detriment and injury that he
has caused to Bestobell by way of his actions.
The corporate veil of a corporation can also be lifted if the company has been created to
serve the personal benefits of the owners and not having any actual purpose. A company,
which has been created by the owners, to aid an evasion of any legal obligation that the
owners might have incurred, will be subjected to the lifting of the corporate veil, in order to
expose the owners and hold them liable for the fraud or sham that they have been planning to
commit with the assistance or under the name of the company. This can be illustrated with
the case of Gilford Motor Co Ltd v Horne [1933] Ch 935. In this case, the court has lifted the

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corporate veil in order to expose the evasion of the legal obligations that the owners were
planning to effect. The same contention has been extended in the case of Creasey v
Breachwood Motors Ltd [1993] BCLC 480. These cases has made it quite evident that the
court is justified in lifting the corporate veil to decipher the wrongdoings of the owners and
managers company and hold them liable for the acts they have committed under the name of
the company.
It has been held in the case of Re Darby, ex parte Brougham [1911] 1 KB 95, that the
courts has the power to lift or disregard the corporate veil if a company has been created for
the sole purpose of instrumenting a fraud or pretend. In case, the purpose of a company is to
dicey, and the court is of the opinion that the same has been incorporated to cover a huge
fraud or pretention, the court will initiate to lift the corporate veil.
The Corporations Act 2001 (Cth) also provides for certain situations that might empower
the court to lift the corporate veil and hold the managers to be liable. These includes insolvent
trading, serving personal benefit utilising the power as a director, providing assistance of
financial nature. A director may also be held liable for any breach, which has incurred a debt
to the company (Tang, Wan and Hofmann 2019).
Conclusion
Hence, it can be concluded that a company is generally treated as a separate legal entity
and it is a separate personality from the persons who are empowered or appointed to manage
it. The losses incurred and the profits earned by the company by virtue of the operations
needs to be evenly distributed among the shareholders. This structure of business is considers
the business to be a separate legal identity. This structure extends immunity to the
shareholders by way of limiting their liability to a certain extent and the shareholders cannot
be rendered liable for personally. The doctrine of corporate veil implies that the managers

5COMMERCIAL AND CORPORATION LAW
and the owners of a company are separate personality from that of the company itself. The
owners and managers are not having any personal liability with respect to any liabilities and
rights attributed to the company. The courts in certain situation are empowered or more
precisely compelled to pierce or lift such a veil for the purpose of discovering a culprit of a
wrongdoing or to prevent the exploitation and misuse of such a veil. The relation of the
corporation and its directors are that of a principal and an agent, where the directors are
treated to be the agents of the company.

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References
Creasey v Breachwood Motors Ltd [1993] BCLC 480
Gilford Motor Co Ltd v Horne [1933] Ch 935
Green v Bestobell Industries Pty Ltd (1982) 1 ACLC 1
Lo, S.H., 2017. Piercing of the corporate veil for evasion of tort obligations. Common Law
World Review, 46(1), pp.42-60.
Re Darby, ex parte Brougham [1911] 1 KB 95
Salomon v Salomon [1897] AC 22
Tang, C.H., Wan, J. and Hofmann, C., 2019. Piercing the Corporate Veil: Historical,
Theoretical & Comparative Perspectives. Berkeley Business Law Journal, 16(1), p.140.
The Corporations Act 2001 (Cth)
Warren, M., 2016. Corporate Structures, the Veil and the Role of the Courts. Melb. UL Rev.,
40, p.657.