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Salomon is in the Shadow - Doc

   

Added on  2021-05-30

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Solution ‘Salomon is in the shadow. It is still alive but no longer occupies the centre of the corporationstage’.1Introduction‘Salomon is in the shadow. It is still alive but no longer occupies the centre of the corporationstage’ a quote taken from the journals written by Schmittoff, C. The present article makes anemphasis on justifying the said quote by analyzing the concept of the distinct legal personalityand whether this concept still prevail with the application of piercing/lifting of commercialblanket of the company. The House of Lords in Salomon v Salomon2 have established a legal point which is prevalent tilldate and which emphasis that once a corporation is integrated then it acquires the status of anindividual and has a distinct personality in law. This separate legal personality makes adistinction amid a company itself and its officer and shareholders. The rule emphasis that the actsthat are taken by the company are carried out by its officers in the name of the company andwhich are binding upon the company itself and will not make the officers liable for the same. InPeate v Federal Commissioner of Taxation3, a company was regarded as a one man companyhaving its own personality. A company is an Eriptur persona, manet res, that is a mask, that is, itmakes a distinction amid itself and its officers4.It is now important to understand whether the principle that is laid down in saloman case isprevalent or the same is coming under the shadow and thus no longer occupies the center of thecorporation stage.Fir the analysis it is first important to have few lines on the concept of separate legal personalitySeparate Legal personality of the companyA distinct personality highlights two important principles, that is.:1 Schmittoff, C. M., ‘Salomon in the shadow’ [1976] Journal of Business Law 3052Salomon v Salomon (1932).3Peate v Federal Commissioner of Taxation (1964).4 Ian M Ramsay and David B Noakes, Piercing the Corporate Veil in Australia, (2001) 19 Company and Securities Law Journal 250-271.

i. That officers of company are distinct from the company and the acts that are carriedby them are in the name of the company alone;ii.That the shareholders/members are not liable for the liabilities and are answerableonly to the extent of their shareholding in the company and is held in Gas LightingImprovement Co Ltd v Inland Revenue Commissioners5.Thus, the conceit of separate legal personality is simple, that is, the officers are not accountablefor the acts that are carried out by them in the name of the company. That the separate legalpersonality principle also results in establishing the principle of limited accountability whichemphasis that the financial obligation of the members are limited to the extent of theirshareholdings.However, this separate legal personality of the company is now gaining under shadow and it isright to submit that it no longer occupies the center of the corporation stage. This is mainlybecause the veil that makes a distinction amid the company and its officers are more thannumerous times was pierced by the courts.Piercing the corporate veil It was in 1973 that for the first time ‘piercing of the corporate veil’ was used by Bray CJ inBrewarrana v Commissioner of Highways6 . The term lifting or piercing of corporate veil wasrightly acknowledged in Australia in Commissioner of Land Tax v Theosophical Foundation PtyLtd7. When the courts are willing to look behind the company and analyze the position of the realcontrollers of the company then it is an act of piercing the veil of the company and is analyses inPioneer Concrete Services Ltd v Yelnah Pty Ltd8.The lifting/piercing of corporate veil mainly disregards the distinct character of the company. In Australia, it was submitted by S Ottolenghi, that it is very hard to state the circumstancesunder which the blanket can be lifted/pierced and thus lifting of veil is a concept which has notmuch relevance in Australia. Rogers AJA in Briggs v James Hardie & Co Pty Ltd9 has submitted5Gas Lighting Improvement Co Ltd v Inland Revenue Commissioners (1923) AC 723.6Brewarrana v Commissioner of Highways (1973) 4 SASR 476, at 480.7Commissioner of Land Tax v Theosophical Foundation Pty Ltd (1966) 67 SR (NSW) 70.8Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254.9 S Ottolenghi, ‘From Peeping Behind the Veil to Ignoring it Completely’ (1990) 53 The Modern Law Review’ 338, 352.

that the piercing of veil is not a static concept and is used by the courts only at few occasionsthereby not making the same as much of the relevance. In AGC (Investments) Limited vCommissioner of Taxation (Cth)10, the court held the situations in which the veil can be lifted ishighly circumscribed11. However, It is first important to analyze the situation in which the courts are found to be willingin piercing the veil of the corporation. There is no single ground in which the veil can be pierced.Ground sunder which the Separate Legal personality is disregardedIn Dennis Willcox Pty Ltd v Federal Commissioner of Taxation12, Woodward, Jenkinson andFoster JJ have laid down few instances where the courts are found to be willing to disassociatewith the legal principle that is laid down in the salmon case and raise the situations in which theveil of the company can be pierced and the acts of the comoany are regarded as the acts of itsofficers making them personally liable for the acts. AgencyIn Balmedie Pty Ltd v Nicola Russo13, Ryan, Whitlam and Goldberg JJ submitted that the conceptof separate legal entity is trite in nature and submitted that there is a need that the company attimes must be considered as the agent of the shareholders and the shareholders must be heldanswerable for the company’s acts.It was analyzed that the shareholders are the alter egos of the company and thus are in thecontrolling position of the company thus, at times it become extremely important that thecompany must be regarded as the agent of the shareholder and thus the veil must be pierced sothat the acts carried out by the company must be considered as the acts carried in the name of theshareholders by applying the law of agency and is rightly established in Brewarrana vCommissioner of Highways.10AGC (Investments) Limited v Commissioner of Taxation (Cth) (1991).11 S Ottolenghi, ‘From Peeping Behind the Veil to Ignoring it Completely’ (1990) 53 The Modern Law Review’ 338, 352.12Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267.13Balmedie Pty Ltd v Nicola Russo (1998).

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