Piercing the Corporate Veil in Australia

This assignment delves into the concept of 'piercing the corporate veil' within the Australian legal context. It examines the circumstances under which courts may disregard the separate legal personality of a corporation, holding directors and shareholders personally liable for company debts or actions. The analysis draws upon relevant case law and legislation, including the Corporations Act 2001, to illustrate the complexities and nuances of this legal doctrine.

Running head: CORPORATIONS LAW 0
Corporations Law

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Table of Contents
Answer 1....................................................................................................................................2
Issues......................................................................................................................................2
Type of Corporations.............................................................................................................2
Corporation’s Name...............................................................................................................2
Registered Office...................................................................................................................2
Consents and Share Details....................................................................................................3
Constitution or Replaceable Rules.........................................................................................3
Lodging Application and Paying Fee.....................................................................................3
Effect of Incorporation...........................................................................................................4
Applicability...........................................................................................................................4
Answer 2....................................................................................................................................5
Issues......................................................................................................................................5
Lifting of Corporate Veil.......................................................................................................5
Scam and Façade Company...................................................................................................6
Liability of Wound up Corporation........................................................................................6
Conclusion..............................................................................................................................7
References..................................................................................................................................8

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Answer 1.
Issues
The key issues of this case are regarding the formation and incorporation of corporations,
such as selection of register officer, filing the application and selecting the name of the firm.
Further, the issues involve benefits of the company over sole proprietorship such as tax
exemptions, expansion of business and ease in rising of funding.
Type of Corporations
Section 112 of the Corporations Act 2001 provides the provisions regarding different kinds
of companies. The firms are divided into two parts, Proprietary, and Public Enterprises. The
proprietary corporations fall into two parts, limited by shares and Unlimited with share
capital. Public companies are divided into four parts which include, limited by shares, limited
by guarantee, Unlimited with share capital and No liability company (Kobras 2010).
Corporation’s Name
The section 148 of the Corporations Act 2001 provides provisions regarding name of an
organization. The company is requiring using an available name or Australian Company
Number. In case of a public company, the word ‘Limited’ must be added at the end and in the
proprietary firm the word ‘Proprietary Limited’ must be included in the corporation’s title.
The unlimited proprietary companies are required to add ‘Proprietary’ at the end, and no
liability enterprises are required to add ‘No Liability’ at the end of their title.
Section 147 provides that the name of a corporation must not be identical to another
organisation and it must not be unacceptable by a government authority or ASIC. The
unacceptable names include the titles rejected by ASIC, the names which include
‘commonwealth’ or ‘federal’ and which are denied by government authority. The availability
of name can be checked over National Names Index which can be searched through online
website of ASIC (ASIC n.d.). A person can reserve a name under section 152 by applying
prescribed form to ASIC. ASIC is obligated to reserve the name if it is available and such
reservation last for two months after that person can write an application for extension of a
name for two more months (Kobras 2011).

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Registered Office
The section 119A provides provisions regarding the jurisdiction for incorporations of an
enterprise. A company is incorporated in particular jurisdiction which includes a state or
Territory. The firms are required to submit applications under section 117(2) (n) and 601BC
(2) (o) for its registration. ASIC is obligated for providing the name of state or territory of
corporations in the registration certificate. The legal capabilities of an enterprise did not get
affected by the regulations of state or territory. The proposed address provided by the
corporation in it registration application becomes the permanent address for its registered
office. Generally, the registered office of an enterprise situated near the place of work of a
company and is considered as the permanent address of the enterprise. Section 144 provides
that it is mandatory for corporations to display its name at every place where it carries out its
business (McBurnie and Ziguras 2001).
Consents and Share Details
While registering a corporation, it is necessary that the structure of the company is defined
which include the number of shares and directors’ authorities. The consent of directors,
shareholders and members of the enterprise are required for the registration. In case of a
proprietary firm, the approval of the entire member is necessary for the registration
procedure. The directors and members shareholding details are also needed to be provided at
the time of registration. All such information must be correct and submitted at the date of
registration (Coffee, Sale and Henderson 2015).
Constitution or Replaceable Rules
Section 136 provides that a corporation can adopt a constitution before or after its
incorporation, the constitution is the contract between the company and its directors,
secretary, and other members. Constitution governs the operations of directors and member
of a corporation (Lawpath 2015). The replaceable rules provided under Corporations Act
which also governs the internal management of an enterprise. Section 141 of the act contains
provisions regarding replaceable rules which include provision relating to maintenance of
books and appointment, selection, and power of directors. The adoption of the constitution is
mandatory for ‘No liability’ and special purpose proprietary corporations. In this case, the
constitution is a better option than replaceable rules because constitution covers a wide
variety of circumstances and it is a safer option for the enterprise (LegalVision 2016).

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Lodging Application and Paying Fee
Section 117 provides provisions for lodging a registration application with ASIC. The
application must include following items (Chen, Dyball and Wright 2009):
 Type, name, address, hour of business, proposed register office, place of business of
the company
 Name, consent, address, family details, number of shareholding of the members
 Amount paid by each member and copy of constitution
 Application must be in prescribed format
ASIC charge fees for the document and application lodge by any party. For reservation of
company’s name a fee of AU$48 is payable and applying for registration has a fee of
AU$479 for share capital and without share capital, it is AU$395 (Green 2010).
Effect of Incorporation
As per section 119, a corporation comes into existence as a body corporate on the day of its
incorporation. The company acquires various rights and liabilities, and it remains in existence
until it’s deregistration.
Applicability
In this case, a proprietary corporation is a better choice for Richard’s business because it
provides various benefits such as tax exemptions, expansion, and control over operations. As
per National Names Index, both names (Ridali and Rich’s Guaranteed Olives) are available
for registration. The registered office of the company should be in the Hunter Valley because
it is the place of business for the enterprise. Richard should get the consent of his sons and
another member who will be the part of such corporation. The company should adopt
constitution instead of replaceable rules because it is safe and cover wider circumstances. The
method of lodging application and effects of incorporations are mentioned above. From the
above observations, incorporating a company is a better option for Richard and his sons, and
the procedure of registering a corporation is referred above.

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Answer 2.
Issues
The key issues of this case include tortious liability of negligence by Cosmo Mine Ltd; they
failed their duty of care to provide a safe environment to their workers. Another problem is
whether the corporate veil can be lifted and the directors can be held responsible for the acts
of Cosmo Mining Services Pty Ltd.
Lifting of Corporate Veil
Every corporation has separate legal entity from its directors and members meaning a
member cannot be held personally liable for the actions of an enterprise. Any party aggrieved
by the actions of corporations cannot sue the member or directors of such company (Ramsay
and Noakes 2001). The corporate veil works as a shield for the members and directors, but in
certain circumstances, the court had the authority to lift the corporate veil and held the person
liable for their actions. The corporate veil can be lifted on the order or court or by the
decision of shareholders of a company (Anderson 2009). Following are three circumstances
from different cases in which court lifts the corporate veil.
1. There have been several cases in which the court held corporations liable for
controlling and decision-making for the operations of subsidiary companies. In the
case of CSR Ltd. v Young (1998) Aust Tort Reports 81-468, the court that subsidiary
corporations have established its parent enterprise agent for performing the
transactions on behalf of its management (Anderson et al. 2012). Due to this
relationship, the orders of Parent Corporation’s behest upon the subsidiary company.
The plaintiff filed a case against both subsidiary and parent company because due to
the work of corporations he suffered from mesothelioma. The court provided that both
the enterprises have a duty of care to their employees and residents of the town
because the parent company controls the actions of the subsidiary (Luntz n.d.).
2. In Smith, Stone & Knight Ltd v Birmingham Corp (1939) 4 ALL ER 116 case, the
court did not consider the separate legal identity of two corporations and decided that
one should be held liable for another organization’s actions. In this case, the court
found out that the holding company did not transfer the ownership of the waste paper
business to its subsidiary which makes them the real owner of the firm and the
subsidiary was just the agent of the holding corporation (Nyombi 2014). The court

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decided that the profits, employees, ventures, and control of subsidiary corporations
shall be considered a holding company’s business.
3. The court can lift the corporate veil if the company is formed just as sham or façade to
confuse or deceit the public. A good example was provided in Gilford Motor Co. v
Horne (1993) Ch 935, in which an employee enters into a contract with his employer
that he will not engage in similar business activities. After his resignations, the
employee establishes corporations of similar work in which he and his family member
were directors and shareholders. The court provided that formation of this
organization is just a scam or façade and held the employee liable for his actions
(Alcock 2013).
In the case of Terry, the provision from above cases applies in this instance as well. The
corporation failed to comply with their duty to care which caused injury to the employee. CM
Company acts as an agent but completely control the operations of CMS because the majority
of their shareholders were similar. Therefore, CM can be held liable for the actions of CMS.
The Lazarus Pty Ltd was formed as scam and façade to remove the liability of CMS
Corporation. The facts mentioned above provided that the shareholders and management of
CM has an obligation towards their employees and citizens lived near the workplace;
therefore, terry can file a suit against CM corporations to recover his losses.
Scam and Façade Company
In Creasey v Breachwood Motors Ltd (1993) BCLC 480 case, the general manager was
wrongfully dismissed from Breachwood Welwyn Ltd, but before his suit, the corporation
wound up (Franklin 2012). The assets of Breachwood Welwyn were transferred to
Breachwood Motors, and they settle all its debts except for general manager’s claim. The
court provided that Breachwood Motors is liable for the actions of Breachwood Welwyn
because the directors ignored the provision of the separate legal entity and the new company
is formed as scam or façade. In the case of Lazarus Pty Ltd, a similar principle applies as
well. The new business is formed by the directors to avoid the liabilities of CMS; therefore,
they shall be liable for the actions of CSM Company.
Liability of Wound up Corporation
CMS Company has been wound up by the unanimous vote of shareholders, in order to avoid
its responsibility towards employees and public. Terry has right to file a suit against the

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shareholders for the damages suffered by him, due to the actions of CSM. The court can lift
the corporate veil and held the shareholder liable towards the claims of Terry (Pradhan 2013).
Conclusion
From the above observations, it can be concluded that CM was acting as an agent for the
CMS Corporation, but they hold the operating power of the company which provides them
full control over the enterprise. The operations of CMS contaminated the nearby river which
caused cancer to a citizen of Gunbarrel and Terry, who was the former employee of the
company. The shareholders wound up the corporation to avoid the liabilities and transfer the
asset to Lazarus Pty Ltd. Terry has right to file a suit against CM corporation the
management of the company violated the principles of the separate legal entity and used
another company to avoid their liabilities. The court can lift the corporate veil and held the
director and shareholders of CM corporations liable towards employees and citizens.

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References
Alcock, A., 2013. Piercing the Veil-A Dodo of a Doctrine. Denning LJ, 25, p.241.
Anderson, H., 2009. Piercing the veil on corporate groups in Australia: the case for
reform. Melb. UL Rev., 33, p.333.
Anderson, H.L., Welsh, M.A., Ramsay, I. and Gahan, P.G., 2012. Shareholder and Creditor
Protection in Australia-A Leximetric Analysis.
ASIC., n.d. Search ASIC Registers. ASIC. Retrieved from <
https://connectonline.asic.gov.au/RegistrySearch/faces/landing/SearchRegisters.jspx?
_adf.ctrl-state=kfvwpc8ld_4 >
Chen, R., Dyball, M.C. and Wright, S., 2009. The link between board composition and
corporate diversification in Australian corporations. Corporate Governance: An International
Review, 17(2), pp.208-223.
Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and
materials.
Franklin, L., 2012. Company Law. Significance of corporate personality and the meaning
of'lifting the veil of incorporation'.
Green, R., 2010. Overview of some things to consider when registering an Australian
company. Clear Docs. Retrieved from < https://www.cleardocs.com/clearlaw/company-
registration/company-registration-considerations.html >
Kobras, S., 2010. Business Structures in Australia. [PDF file]. Schweizer Kobras. Retrieved
from <
http://www.schweizer.com.au/articles/Business_Structures_in_Australia_(SK00125445).pdf
>
Kobras, S., 2011. Corporate Law. [PDF file]. Schweizer Kobras. Retrieved from <
http://www.schweizer.com.au/articles/Corporate_Law_(SK00079638).pdf >

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Lawpath., 2015. Company Constitution vs Corporations Act Replaceable Rules. Lawpath.
Retrieved from < https://lawpath.com.au/blog/company-constitution-vs-corporations-act-
replaceable-rules >
LegalVision., 2016. What’s the Difference Between a Company Constitution and the
Replaceable Rules?. LegalVision. Retrieved from < https://legalvision.com.au/difference-
between-a-company-constitution-and-the-replaceable-rules/ >
Luntz, H., CHAPTER FIFTEEN THE LAW OF TORTS.
McBurnie, G. and Ziguras, C., 2001. The regulation of transnational higher education in
Southeast Asia: Case studies of Hong Kong, Malaysia and Australia. Higher
Education, 42(1), pp.85-105.
Nyombi, C., 2014. Lifting the veil of incorporation under common law and
statute. International Journal of Law and Management, 56(1), pp.66-81.
Pradhan, K., 2013. Liability of Past Members during Winding Up of a Company.
Ramsay, I. and Noakes, D.B., 2001. Piercing the corporate veil in Australia.

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