Company Law Assignment: Directing Mind, Piercing the Corporate Veil

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Homework Assignment
AI Summary
This Company Law assignment explores the concepts of 'directing mind and will' and 'piercing the corporate veil.' The assignment defines the 'directing mind and will' as senior company officials with the mental capacity to act as the company and discusses how it addresses the issue of corporate liability due to the company being a legal person without a state of mind. It references Lennard v Asiatic Petroleum, highlighting directors' roles as the mind and will of the corporation. The assignment also explains the concept of piercing the corporate veil, which allows courts to hold shareholders liable for company debts in cases of fraud or injustice, disregarding the doctrines of limited liability and separate legal personality, with reference to Pioneer Concrete Services Ltd v Yelnah Pty Ltd. The assignment concludes by noting the difficulties in applying this doctrine in Australia.
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Company Law 1
COMPANY LAW ASSIGNMENT
by (Name)
BUS 200: Company Law
(Tutor)
(University)
(City and State)
(Date)
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Company Law 2
PART B
Directing Mind and Will
The phrase, ‘directing mind and will’ is a Company Law concept defined as according
directors and other senior company officials who undertake management functions with the
mental capacity to speak and act as the company (Grimes, et al., 2013). Generally,
substantive law requires that the mental element of the defendant is identified in order to
establish liability. However, the company, though a legal person, lacks a state of mind; the
doctrine of directing mind and will exists to cure this defect by attributing the knowledge of
any breach of the law to the ‘directing mind and will’ of the organisation.
This was the position held in Lennard v Asiatic Petroleum [1915] AC 705 where the court
appreciated that a company is an abstraction and as such lacks any mind or body of its own.
Therefore the company’s knowledge or will must be sought from acting agents in the position
to control what the company does; as such directors represent the mind, will and personality
of the corporation and are therefore ‘directing mind and will’ of the company. However, not
all agents in a managerial positon may be accorded this obligation; the court is tasked with
considering who holds this particular capacity in the transactions in question (Hudson, 2017).
It can be concluded that the concept of ‘directing mind and will’ is a cure to the lacuna
created by the establishment of the concept of the corporate legal person under company law.
Piercing the Corporate Veil
Incorporation brings about two important doctrines, limited liability and separate legal
personality (Anderson, 2009). As such, the liability of shareholders in the event of dissolution
is limited to their capital contribution (Philipp, 2011). They would therefore no be held liable
for the organisations shortcomings as it is viewed as a separate legal person who can so and
be sued in its own name. However circumstances exist where the court will hold
shareholder’s personally liable for the organisations debts. This action is referred to as
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Company Law 3
piercing the corporate veil; where an entity is established for fraudulent purposes or to
perpetrate injustices on the society the court can disregard the aforementioned doctrines and
hold the shareholders personally liable. As such, where a person holding or subject to a legal
obligation deliberately evades it or frustrates the enforcement of the obligation by interfering
with a company under their control, the court may pierce the corporate veil created by the
doctrine of limited liability and hold the perpetrator personally liable (Worthington & Sealy,
2016).
In Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254, the court
appreciated that whenever and individual company is formed it is a separate legal entity from
its creators. It however held that courts on occasion disregard the legal personality and look
to the real company controllers. However, various scholars have highlighted that the
application of this doctrine in Australia has been difficult as there are no discernible
principles in company law highlighting the circumstances under which courts may pierce the
veil.
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Company Law 4
References
Anderson, H., 2009. Piercing the Veil on Corporate Groups in Australia: The Case for
Reform. Melbourne University Law Review, 33(2).
Grimes, J., Niblock, R. & Madden, L., 2013. Corporate criminal liability in the UK: the
introduction of deferred prosecution agreements, proposals for further change, and the
consequences for officers and senior managers. [Online]
Available at: https://uk.practicallaw.thomsonreuters.com/4-547-9466?
transitionType=Default&contextData=(sc.Default)&firstPage=true
[Accessed 16 September 2017].
Hudson, A., 2017. Understanding Company Law. 2nd ed. s.l.:Routledge.
Lennard v Asiatic Petroleum (1915) AC 705.
Philipp, R., 2011. Wiley CPA Exam Review 2011 Update. s.l.:John Wiley & Sons.
Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254.
Worthington, S. & Sealy, L., 2016. Sealy and Worthington's Text, Cases and Materials in
Company Law. 11th ed. Oxford: OUP.
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