Lifting the Corporate Veil: Case Study

This assignment delves into the legal concept of 'piercing the corporate veil,' examining a scenario where Cosmo Mining Services Pty Ltd (CMS) faces potential liability for contaminating a water source, leading to cancer among employees and residents. The case study explores CMS's subsidiary, Cosmo Mine Ltd (CM), shareholder decisions to sell the business, and the implications under Australian company law regarding insolvent trading and director liability. Students are tasked with analyzing the legal arguments for lifting the corporate veil and determining potential liability for damages.

Running head: CORPORATION LAW
Corporation Law
Name of the Student
Name of the University
Author Note

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Table of Contents
Question 1........................................................................................................................................2
Issue.............................................................................................................................................2
Rules............................................................................................................................................2
Application..................................................................................................................................4
Conclusion...................................................................................................................................5
Question 2........................................................................................................................................6
Issue.............................................................................................................................................6
Rules............................................................................................................................................6
Application..................................................................................................................................8
Conclusion...................................................................................................................................9
Reference.......................................................................................................................................10

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Question 1
Issue
The issue has been arises that Richard and his sons want to from a family business
therefore they need to be taken to incorporate and register the company under the Corporation
Act 2001.
Rules
According to the Corporation Act 2001 organization has right to conduct or operator
business for gaining profit anywhere in Australia. The organization can incorporate their
business as a public or private company. It is necessary for running a private company must note
have at least more than 50 members where they not able to investment from the general public
but the public companies has no limitation on restriction for having any members of
shareholders. These companies are more stringent disclosure and reporting requirements as a
property company and Corporation Act 2001 (Tricker and Tricker 2015).
There are four kinds of Companies are incorporated under the Corporation Act 2011
which are public no liability company where only the no liability company can use the
legislation for meaning purposes. The unlimited company which share capital fair the share
capital only be used as public or property under this company investment only used for the
members who want to withdraw their investment capital from this organization. They also faced
with the disadvantages where they became personally liable for the debts of the company. The
company limited by shares which also applicable for the public or property organization and it
only able to use for the business purposes (Whincop 2017). Under this company the members
become personally liable for any unpaid subscription price where they owned their shares in

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those organizations. The public company limited by guarantee is defined the corporation
which should be a public company and they must be subject to the stringent disclosure and
reporting requirements under the Corporation Act 2001. According to this act the companies
limited by guarantee never have rights to issue shares. The public company limited by guarantee
only profitable for the fluctuating membership where the members do not need to buy shares in
the company it and it only structured limits liability of members. This organization only offers
the amount payable for share issued liability is limited where it agree to the amount in a
guarantee which only contributed by the members of the company. Therefore when a company
incorporates they must use the Limited or Ltd along with the name of the corporation. When a
public company limited by guarantee has been incorporated they are required to open the
registered office for at least 3 hours in each business days and the arrangements of the business
should be found by a professional business organization (Whincop 2017).
According to the section 117 has define the legislation of the application for registration
of any company. The section 118 has given the rights to the ASIC to keeps the company or
organizations where the company can register under this act and after the registration it will issue
the certificate for incorporate the business. The section 119A has legislates the jurisdiction of
incorporation and jurisdiction of registration organization. According to the section the
organization or the company only has right to incorporate under a particular of Jurisdiction
where the company can be registered under the specified state or Territory of the Australia. The
section 120 has registered for the member’s, directors and a company secretary of the newly
registered organization where under the registration process a person can become a member
director for company secretary with specified applications (Tricker and Tricker 2015).

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Application
According to the case fact Richard has an extensive olive grove in the Hunter Valley
region of NSW where he has establishes 12000 trees and recently purchased his neighbor’s
adjoining property with a view to expansion. Now his 2 sons has joined him for expand the
business and they are looking for opportunities for the business opening in the markets. Also
planning to make the business as a family business which will be easier for them to raise the
capital and it will get also tax benefits in operating a business through a company structure rather
than as a sole trader or partnership. Richard wants to give the name of his company “Ridali”
where his sons prefer the name “Rich’s Guaranteed Olives”. Now for the incorporation under the
Corporation Act 2001 the family business which they are planning to incorporate should be the
private company where they can invest their capital amount for the business purposes (Whincop
2017).
According to the section 117 they can apply for the registration for their property
company under section 118 the ASIC gives company ACN registration for running the business
where they can issue the certificates. When the certificate has been issued it provide the
company's name, companies CAN, companies type, company is registered as a company under
the Corporation Act 2001. Under the state or Territory of the jurisdiction where the company is
taken to be registered and the date of registration of the company has been mentioned. Under
section 119 of Corporation Act has legislates the existence of registration where the corporation
can be exist as a body of corporation at the beginning of the day when it will be registered under
the section 117 and 118 and the name of the company also specified in the certificate of
registration. The section 120 will decide the members, directors and company secretary of the
new register organization and the section 121 will specified the registered office where the

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address has been mentioned in the application for the registration for the organization proposed
registered office and it will become the official registered address for the organization where
they incorporate their business (Tricker and Tricker 2015).
Conclusion
According to the Corporation Act 2001 Richard and his sons can incorporate their
business as a property company where they are required to register under this act. They will
apply for the registration and get the date, prediction number and name and the address of
registered office for running the business. It is necessary for every Corporation to register their
business before day incorporate the organization and with a proper name along with a registered
office is also necessary for the registration of the business (Tricker and Tricker 2015).

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Question 2
Issue
The issue has been arises whether Terry can take any legal action against Lazarus Private
Limited and CMS or CM for the problems he has faced due to the employment under CMS?
Rules
According to the Section 124 of the Corporation Act 2001 has legislated the legal
capacity and powers and individual both in and outside of the jurisdiction where a business can
separate from and another business or individually with value to the accountability. According to
their legal entity a corporation or a limited liability company is exist as a separate legal body
because they have bound to do the activities separately according to the entity from those of the
individual or the other company and they has powers to include issues or cancel shares from the
company. Under the separate legal entity a company can distribute any of the company’s
property among the members and provide security for uncalled capital and also helps to register
the new company under the jurisdiction and according to the law of registration (Waqas and
Rehman 2016).
Salomon V A Salomon And Co Ltd [1897] is one of the famous case of English law
where the concept of separate legal entity has arises for the companies. This case has been
established according to the Companies Act 1862 but later according to the Corporation Act
Section 124 which has been described about the legal capacity of the separate entity of the
business. In this case the court has been described the principles of separate legal personality
where it helps to cover the initial commercial law of regime. The doctrine of separate legal entity

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has been described on the basis of company law and the corporate theory (Tricker and Tricker
2015).
Under the separate legal entity that there should be control and taken under the
company’s name and it must belong to the company but sometimes it mean not found to be
related directly with the shareholders of directors of the company. A separate legal entity has
been established there for the debts and liabilities has automatically make the legal rights for the
company under some circumstances (Whincop 2017).
Lee v Lee’s Air Farming Ltd (1961) is another famous case of separate legal entity
where the house of Lords has establishes the facts for the company has right to make a
relationship and enter in a employment contract under some circumstances. When a company has
provided with the separate legal entity then all the obligations has formed to establish a
contractual relation with the shareholders the directors and others member who are related in the
companies controlling member (Waqas and Rehman 2016).
Andar Transport Pty Ltd v Brambles Ltd (2004) as another example of separate legal
entity case where the court has been illustrated where terms of introduction has been found
between the legal principles in the Corporate law and the employer’s duty of care. It is the duty
of the corporation that they must provide proper safe system of work for the every members of
the company. It is necessary that employee of company who on the position of the separate legal
entity must bound to do their duties where it is necessary to provide a safe work system where
any employees must not be injured (Tricker and Tricker 2015).
The terms of the piercing of the corporate veil it helps to establish the facts in the
Corporation where the separate legal entity principles has found and fair with the Corporation

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under these principles. It is necessary for the court to found the actual person who holds the duty
of legal separate entity behind the veil and must establish the facts of the actual true nature of the
company. It only applicable in the area of law where it has been ill defined, inconsistent and
quite unpredictable. Briggs v James Hardie & Co Pty Ltd & Co Pty Ltd (1989) is one of the
famous cases of Corporate veil where the court has mentioned to lift the veil due to the
establishment of ill defined, inconsistent and unpredictable situation (Waqas and Rehman 2016).
Application
The Cosmo Mining Services Pty Ltd (CMS) has a subsidiary as Cosmo Mine Ltd (CM)
as CM and it owes 120 of the 200 issued shares of CMS. Recently CMS has better attracted
considerable media attention as scientist discovered that CMS mining activities have
contaminated a nearby river which supplies the water of the mine and Gunbarrel. However a
number of Gunbarrel resident and former employees including Terry have contracted cancer
because they drank the terminated water. It is the CMS potentials liability to their employees and
the resident of Gunbarrel. The CMS shareholders have vote in favor of selling CMS business to
an newly formed company Lazarus Private Limited and winding up the CMS (Whincop 2017).
According to the Section 124 a company can Incorporated with the separate legal entity
due to the failure of veil of the corporation. Therefore the company can be liable for the debts
incurred by the corporation in itself unable to pay those debts and due to the fall. Therefore it is
completely insolvent if it cannot pay the debts when they become due. In this situation it is the
duty of the company that they must look for the cash flow of the company where the anticipated
current and future cash can be sufficient to unable to pay the debts and the financial position of
the company will be establish whether the company is liable to pay the debts to the shareholders
or any other issues related to the company. The section 588G has defined the personal liability

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of the directors for debts incurred by the company when it is become insolvent. Therefore it is
only applicable when the directors have found personally liable for the debts on to creditors for
trading for the insolvent (Tricker and Tricker 2015).
Conclusion
According to the case facts Terry has right to take legal action against CMS or CM for
the issues have suffered due to the drinking of the contaminated water which has been supplied
into the mine and Gunbarrel. Though company has sell their business to another company it is
the duty of the CMS that they hold a potential liability and safe workplace for the employees in
the Corporation (Waqas and Rehman 2016). Therefore they are liable to pay the compensation to
Terry as because he has contacted with cancer due to the contaminated water which he has
drunk.

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Reference
Andar Transport Pty Ltd v Brambles Ltd (2004) 206 ALR 387; (2004) HCA 28
Briggs v James Hardie & Co Pty Ltd & Co Pty Ltd (1989) 16 NSWLR 549
Lee v Lee’s Air Farming Ltd (1961) AC12
Salomon V A Salomon And Co Ltd [1897] AC 22
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.
Waqas, M. and Rehman, Z., 2016. Separate Legal Entity of Corporation: The Corporate Veil.
International Journal of Social Sciences and Management, 3(1), pp.1-4.
Whincop, M.J., 2017. Corporate governance in government corporations. Routledge.