Legal Issues and Applicable Laws in Corporate Law

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Contents
Solution 1....................................................................................................................................................2
Relevant Issue..........................................................................................................................................2
Applicable law.........................................................................................................................................2
Application of law...................................................................................................................................3
Conclusion...............................................................................................................................................3
Solution 2....................................................................................................................................................4
Relevant Issue..........................................................................................................................................4
Applicable law.........................................................................................................................................4
Application of law...................................................................................................................................5
Conclusion...............................................................................................................................................5
Solution 3....................................................................................................................................................5
Relevant Issue..........................................................................................................................................5
Applicable law.........................................................................................................................................6
Application of law...................................................................................................................................6
Conclusion...............................................................................................................................................7
Reference List.............................................................................................................................................8

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Solution 1
Relevant Issue
Whether Bob’s action of formulating company in order to increase the catch of scallops is a valid
action?
Applicable law
The Corporation Act 2001 is an enactment that is formulated in Australia to guide the framework
of a company. A company is described under section 124 of the Act, as an entity which has its
own existence and has the capacity to act on its own behalf. The officers who represent the
company are the directors and as per section 198A and 198E, the directors can indulge into day
to day acts of the company and such acts are carried on company’s behalf and will bind the
company alone. (Incorporation. 2007)
The separate legal personality of the company implies the separate existence of the company
from its officers and directors. A thin line of distinction or a veil exists according to which the
officers/directors are not same as of a company. The acts by company are its own and no
consequences of the same will fall upon the officers to hold them liable. The leading case of
Salomon v Salomon & Co Ltd (1897) signifies that the company has its own capability that it can
make contracts on its own. But, since a company is an individual person, thus, it has also has to
face the consequences that is normally faced by a normal human being, that is, the company also
has to comply with the rules and regulations and non – compliance of the same will impose
consequences. Because of the distinction amid the officers and company, a company has the
capability to employ people who are not part of the management of the company and is held in
Lee v Lee's Air Farming Ltd [1960]. (Ramsay & Noakes 2001).
Now, the rule of Salomon v Salomon & Co Ltd (1897), that is, Separate Legal existence, of a
company is not a permanent rule. There are exceptions to the same which includes fraud, façade,
sham, agency principle, etc. When the exception applies then the veil which brings a distinction
amid company and officers is diluted and there is no difference that remains. The officers who
are acting for the company and held to be acting for themselves and the consequences that were
initially to be faced by the company will be borne by the officers and is held in Donnelly v
Edelsten (1994). In Gilford Motor Co Ltd v Horne [1933], if any fraud is incurred by the

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company in order to avoid any tax and civil liabilities, the, it is an act of fraud which requires
piercing the veil of the company and the directors will be then held personally liable. (Cassidy
2006)
Application of law
Bob is a fisherman and carries the acts of catching scallops. But, the scallops were limited and so
legislations are framed by the Scallop Marketing Authority according to which the maximum
limit of catching scallop is 50 tonnes in 1 year and the fisherman are not allowed to sell the
scallop to any other person except Scallop Marketing Authority. Penalties of $100,000 will be
imposed on the violators.
Bob being an individual person is thus capable to catch 50 tonnes of scallops in one year. But,
now he wanted to increase his catch, so, on the advice of his daughter, Alice, he forms a
company. Now, formulating a company by Bob resulted in the creation of an artificial legal
person. So, the company in itself is capable to catch 50 tones of scallops by employing people.
Bob can be the majority shareholders of the company and thus he cans double the catch.
But, the acts are not carried out with good motive but to deceive the legislations tat are framed
by Scallop Marketing Authority. The acts of Bob are clear acts of fraud on Scallop Marketing
Authority so that he can double hi scallop catch.
So, as per Gilford Motor Co Ltd v Horne the veil should be lifted considering the company of
Bob and Bob himself as one and thus deliberately breaching the rules framed by Scallop
Marketing Authority.
Conclusion
Bob has full authority to catch 50 tines of Scallops as the same is permitted by Scallop
Marketing Authority. By forming the company, wherein Bob is the majority shareholders, the
company is also capable to catch 50 tonnes of scallop in one year. But, the act of forming the
company is an act of fraud by Bob so that he can double his catch. Thus, by applying Gilford
Motor Co Ltd v Horne the veil between Bob and the company should be lifted and Bob is held
liable for breaching the rules framed by Scallop Marketing Authority and so he must be
penalized for $100,000.