Enforcing Corporate Constitution and Lifting Corporate Veil

Question 1
Answer: In this question, according the Scallop Fishing and Marketing Act, each person has been
permitted to catch only 50 tons of scallops every year. In view of this legislation, Bob is willing
to find out if he can avoid the application of this legislation if a company is incorporated by him
for this purpose. His daughter Alice had told Bob that under the law, a corporation enjoys
distinct identity.
The doctrine related with the separate characteristic of a corporation was presented in Salomon v
Salomon (1897). The courts in Australia also follow this principle. The brief facts are that the
court concluded that the property belonging to the company should be treated as the assets of the
corporation itself and not as a property belonging to its members. In this regard, the court
expressed the opinion that the debts of the company can be imposed only against the company
and not against the members. In view of this doctrine, in case of a limited liability company, it is
not considered that the shareholders of the company can be held personally as possible for the
obligations of the company. The result is that in case the company becomes insolvent, the loss
suffered by the shareholders is limited to the sum put in the company.
However, there are certain cases when the law provides that it is possible for the court to impale
the corporate veil in order to look ahead of the separate identity of a corporation. In order to do
so, the process known as lifting the corporate veil has to be used. This process is connected with
the circumstances where the court may disregard the separate identity of the business. As a
result, in such cases the court is beyond the separate identity of a corporation in order to impose

liability or a right on the member of the corporation. Hence, it needs to be noted that in case of
piercing the corporate veil, it is available to the court to include the structure of the company and
impose liability on a member of the corporation. However, such process can only be used by the
court as an exception that is present in the general rule, which provides that company’s members
cannot be considered personally accountable for the obligations of the company.
By applying the principles mentioned above are particularly the principle of piercing the
corporate veil, it can be said that in the present case, the Scallop Fishing and Marketing Act
provides for a limit according to which one person can catch up to 50 tons of scallops. However,
Bob Beech has the capacity to catch much more scallops in a year. As a result, Bob wanted to
know if there was any way in which he can catch more than the limit that has been fixed by the
Act. Under these circumstances, Bob's daughter Alice tells him that the provisions of this
legislation can be circumvented by incorporating a company. With the help of a company, Bob
may be able to catch double the scallops. The reason given by Alice is that according to the law
of company has its own identity. Therefore it is considered as a separate entity.
But in view of the provisions related with impaling the corporate veil, it needs to be noted that in
such cases, the court may decide to impale the veil and hold Bob personally responsible for the
breach of the provisions of the Act. The reason is that when a corporation has been created only
for the purpose of escaping liability of the members, the court may lift the veil and hold the
members personally accountable.

Question 2
Ans: After considering the facts that have been provided in this question, the issue arises that
certain members of audience are willing to initiate a claim against New Nirvana Ltd. under
negligence. In this case, the negligence was on part of the subsidiary company, Nuclear Blast
Sounds Pty Ltd. The reason is that certain audiences experienced hearing loss on account of the
negligence of an employee of the company, Nuclear Blast. This employee set the sound level too
high as a result of which, certain audience members suffered hearing loss. Now these persons
want to initiate a claim against the parent company as the subsidiary, Nuclear does not have the
money to pay damages granted by the court. Moreover, the corporation does not have insurance
for negligence.
For dealing with this issue, an assessment of the doctrine of separate identity of the corporation
needs to be made. The reason is that in view of this doctrine, generally, the parent corporation is
not held to be responsible for the obligations of the subsidiary (Graw, 2011). The reason that can
be given in this regard is that according to the law, when a company has been incorporated, it is
considered by the law to be a separate entity. Consequently, the obligations of one corporation
can be imposed only against the corporation itself. Therefore these obligations cannot be
enforced against a member of the company or the parent company, in case of a group of
companies (Latimer, 2016). Hence the general rule provides in such cases that in case of a group
of companies, the subsidiary’s obligations cannot be forced against the parent corporation.
However, some exceptions exist to the use of general rule. The consequence is that in some
cases, the court may arrive at the conclusion that it is possible to impose the liabilities of
subsidiary against the parent company (Lipton, Herzberg and Welsh, 2016). Hence the court may
decide in such cases that the corporate veil needs to be impaled. Consequently, it is possible to