Corporate Veil and Misrepresentation in Slater and Gordon Case

This article discusses the issue of corporate veil and misrepresentation in the Slater and Gordon case. It analyzes the relevant legal provisions of the Corporations Act 2001 (Cth) and the potential liability of the directors. The article also explores the circumstances under which the corporate veil can be pierced.

Running Head: BUSINESS LAW
BUSINESS LAW
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Author Note

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Introduction
The law firm Slater and Gordon has faced class action from the shareholders. The law firm faced
class action from thousands of shareholders after the law firm faced allegations that it had known
its financial position. The class action involving 3,000 members and an amount of 250,000
dollars had been led by the Rival firm Maurice and Blackburn. It had been alleged by Andrew
Watson from the Maurice Blackburn that the law firm Slater and Gordon had mis represented the
financial prospects after the firm acquired a division of company Quindells in April 2015. It had
been accused by Mr. Watson that the company had given false statements about the financial
standings of the company. It had been alleged by the plaintiff Matt Hall that he had lost almost a
illion dollars and that the company had known that it was going to lose money.
Issue
The issue that has been identified in this reported case is whether the Law Firm Slater and
Gordon had misrepresented its financial prospects.
Rule
It has been provided in section 728(1a) the Corporations Act 2001that a person must not offer
securities by a disclosure document which has a deceptive and misleading statement. Further it
has been provided in subsection 728 (2) a person who gives any statement about a future matter
without sufficient grounds for making the statement will be held to be giving a misstatement.
According to subsection 728(3) it can be stated that a person commits an offense if it is found
that such person has contravened the provisions that has been provided in subsection 728(1), if
such person gives a deceptive and misleading statement or if such person omits a new
circumstances in the statements.

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It has been provided in section 674 of the Corporations Act 2001 (Cth) every business
organization has the obligation to make continuous disclosure of material facts according to the
listing rules. It has further been provided in subsection 1041 A that a person must not carry out
or take part in any business transaction that might affect the creation of artificial price for trading
in a financial market or financial products.
According to article 1041 B a person engaged in business must perform any act or omit to do any
act if such act or omission is likely to create a misleading or false appearance. Further in
accordance with section 183 of the Corporations Act (Cth) 2001 it can be stated that it is the
duty of the directors to act in good faith
Application
Thus it is evident in the chosen case that the directors of the Law Firm Slater and Gordon failed
to disclose to the market the statements about its financial prospects. Further it can be stated that
the directors had given misstatements about the how the company was performing. Therefore,
the law firm Slater and Gordon had violated the provision as provided in section 728 of the
Corporations Act 2001 (Cth).
However, in this case Slater and Gordon had misrepresented their financial prospects and many
shareholders had relied on the miss representation and invested in the law firm. The company
presented a false image of how it was performing.
However in this case, the directors did not act in good faith as they did not disclose the true
picture of their business
Conclusion

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Thus to conclude, it can be stated that the firm Slater and Gordon had will face actions for
engaging in the act of providing misleading and deceptive statements.
Answer Two
Issue:
The issue that has been identified in the given case study is what avenues are open to the law
enforcement agencies and the directors for the issues that have been discussed above
Rule
The Australian Securities and Investment Commission(ASIC) is an independent government
body Australia which is in charge of regulating the conduct of the companies of Australia. The
ASIC is the responsible for administering the provisions of Corporations Act 2001 (Cth) It can
be said in accordance with section 1317e of the Corporations Act 2001 (Cth) that if a court is
convinced that a person has contravened a civil penalty provision, it has the power to make a
declaration of the convention. Such declaration of the convention must contain the name of the
court , the civil penalty provision that was contravened and the name of the person who
contravened the civil penalty provision.
Further in accordance with the provisions as provided in section 1041H it can be stated that a
person must not engage in any conduct that is misleading or deceptive in relation to disclosure to
financial product or service. It has been provided that any person fails to comply with this
section will incur a civil liability.
In accordance with section 206 of the aforementioned Act, it can be stated that the court may
disqualify a person from acting as a director or managing a corporation for a period of time

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which is considered to be appropriate b the court upon being notified by the ASIC. The court for
the purpose of determining whether a person should be disqualified will take into consideration:
 The conduct of the person in relation to the management
 Any related matters which are considered to be appropriate by the court.
Further it has been provided in section 1317s that the courts can relive a person from his personal
liability wholly or partly, if it is convinced that that person has acted honestly while contravening
a civil penalty provision.
The a similar case involving the issues that have been identified in this case is the Australian
Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq
apptd) [2016] FCA 42
Application
Thus by applying the relevant legal provisions of Corporations Act 2001(Cth), it can be stated
that the directors of Slater and Gordon had breached their duties to act in Good Faith according
to section 183. Thus they will incur a civil penalty provision.
Further, it can be stated that such directors had made deceptive and misleading conduct in
relation to prospects of the company as provided in section 728 of the aforementioned act.
Therefore they will incur a civil liability as provided in section 1041H.
The directors however, can plead for relieving civil liability in the court by proving that they
acted honestly while contravening a civil penalty provision according to section 1317s.
Conclusion

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Thus, to conclude it can be said that the ASIC can sue the directors of the law firm for engaging
in deceptive and misleading conduct. The directors of the firm will incur civil liability for the
same.
Answer Three
Issue:
The issue that has been identified in the give case is whether the corporate veil should prevail in
circumstances as identified in the case or whether such corporate veil should be pierced.
Rule
The separate legal entity of a company had been established in the case Salomon v. Salomon
and Co. Ltd. (1897) A.C 22. The principle of separate legal entity of a company can be termed
as the veil of incorporation. It can be stated that court generally consider to be bound by this rule
and treat a company as a separate legal entity from its owners. However in several circumstances
the courts have pierced or lifted the veil for the purpose of revealing the true form of character of
the company. The courts can lift the corporate veil if it is assumed by the court that any
fraudulent activity is being perpetrated behind such corporate veil. This Courts disregarded the
separate legal entity of a company as established in the Salomon v Salomon case in the notable
cases of Gilford Motor Company Ltd v. Horne and the case Jones v. Lipman [1962] 1 WLR
832. In the case Walker v Hungerfords (1987) 44 SASR 532 the court had decided to lift the
corporate veil because of potential misleading conduct. Further it has been provided in section
728 of the Corporations Act 2001 (Cth) that a person who engages in providing any statement
which is misleading or deceptive will incur personal liability in accordance with section 1041H.
Therefore, it can be stated that the corporate veil will be pierced in circumstances where any

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person makes misleading and deceptive statements as the statutory law will prevail over common
law.
Application
It has been provided in this case that the directors of the firm of Slater and Gordon had
misrepresented the facts and had provided in misleading statements about the financial prospects
of the company. The shareholders of the company had relied on such misleading information and
had invested in the firm. It can be stated that the value of the shares of the firm had plummeted.
The firm had sustained a loss of 1.2 billion dollars. However, the shareholders of the firm had
been promised that the company financial status would recover. This constituted contravention
of section 728 of the Corporations act 2001. Therefore as provided in section 728, any person
who makes deceptive and misleading statements will Incur civil liability as per section 1041 H.
Thus it can be said that the corporate veil can be lifted in this case.
Conclusion
Thus to conclude it can be said that the corporate veil will be pierced in this case.

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Reference List:
Corporations Act 2001 (Cth)
Gilford Motor Company Ltd v. Horne [1933] Ch 935
Jones v. Lipman [1962] 1 WLR 832
Walker v Hungerfords (1987) 44 SASR 532
Salomon v. Salomon and Co. Ltd. (1897) A.C 22
Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq
apptd) [2016] FCA 42