Registration, Liability & Piercing the Veil: A Corporate Law Case

This assignment presents a detailed case study analyzing key aspects of Australian corporate law. It addresses the process of registering a company, advising Richard and his sons on the necessary steps under the Corporations Act 2001 and ASIC guidelines, including name selection and compliance requirements. It also examines the concept of corporate liability, particularly focusing on when the corporate veil can be pierced, using relevant case law such as Salomon v A Salomon and Co Ltd. The second part of the assignment involves analyzing Terry's legal options against Lazarus Pty Ltd, CMS, and CM, considering issues of tortious acts, fraudulent company dissolution, and agency relationships, with reference to section 236-237 of the Corporation Act 2001. Desklib provides access to similar solved assignments and past papers for students.

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Contents
ANSWER 1.................................................................................................................................................2
Issue........................................................................................................................................................2
Relevant law............................................................................................................................................2
Application of law...................................................................................................................................3
Conclusion...............................................................................................................................................4
Answer 2.....................................................................................................................................................4
Issue........................................................................................................................................................4
Applicable Law.......................................................................................................................................4
Application of law...................................................................................................................................5
Conclusion...............................................................................................................................................6
Reference list...............................................................................................................................................7

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ANSWER 1
Issue
Advice to Richard and his sons regarding steps to register and incorporate a company.
Relevant law
There are various forms of business structure such as a company, proprietorship, partnership etc.
Out of which the best process to carry on the business is by way of establishing a company. A
company in order to be in existence requires a certain procedure to be followed then only a
company can be floated , the procedure for registration of a company is stated in the Corporation
Act 2011, moreover it should be as per guidelines of ASIC. The procedure of registration of
company is as follows: (Nolan 1996)
i. A company can be of two types a private and a public company. A private company
can further be bifurcated into a limited liability company where the liability of
members is limited, a unlimited liability company in which the liability is not limited
and the company limited by guarantee in which the liability of persons is as per the
guarantee. A person deserting to form a company can choose from any of the above.
ii. After finding out which type of company is to be formed the next stage is to give a
name to a company, the name of the company can be chosen by the persons
incorporating it but it cannot contain words like incorporated bank, trust and royal
etc. Further the use of name requires approval from the government. Also the
derogatory words or offensive words which are misleading in nature cannot also be
opted as a name of the company. Also a name of already existing or similar to an
existing company can also be not the name of a new company. (Gibson and Fraser
2013)
iii. Now after the name of the company is finalized then the constitution and the
framework of the company is decided. One way is that a company may adopt the
replaceable rules as stated in the Corporation Act 2001 as per Part 2B, chapter 2B.4
of the corporation act 2001or a company can formulate its own constitution and apart
from above two structures for a company, there can also be adoption of both the
replaceable rules and the constitution. After all this it is thus decided that the
company will have a limited liability or unlimited in case of limited company whether
it should be limited by guarantee or limited to the extent of shares.
iv. A private company in Australia should have one secretary, director and member and
all must be of sound age and mind. Every person being member of the company
should provide their assent that they must abide by the rules and the obligations of the
company as per the constitution of the company.
v. A company should have its registered place of carrying on the business. In case the
place of business does not belong to company then approval of the owner is to be
taken and in case the place belongs to the company by then no formality is required.

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vi. Requisite fees along with form 201 is to be deposited with ASIC. When the company
is registered then the certificate of incorporation is issued in favor of the company,
corporate key and a can number is also provided to a company.
vii. ACN number is mandatory to be mentioned on the company’s documents. And a
company should keep all its documents up to date.
When the above said process is complied with by the company then the company comes into
existence. As and when the company is formed the company acquires the feature of a separate
legal entity i.e. a company is regarded as separate from its directors and management and the acts
of the company performed by the directors etc. on behalf of a company are considered to be
company’s own acts, as it can acquire its own property in its name and can enter into contracts
with third party in its own name. The case law of Salomon v A Salomon and Co Ltd [1897] also
states that the company is different from the persons who run the company. (Seal and Penrith
2008)
Also a company makes its members liable to the extent of number of shares the member hold on
behalf of a company. A company has feature of perpetual succession as company runs even if
person retires or sells his stake in company. Further the tax benefits are associated with a
company and it is easy to raise capital in case of a company. (Gibson and Fraser 2013).
Application of law
Richard is having an extensive olive grove having 12,000 trees in NSW. He purchased a
neighboring property with a view to expand his business. David and Liam had also moved to him
from Sydney and with a view to expand business and capital requirement and tax benefits seek
advice to adopt company form of business.
As company form of business will be beneficial for them as per the features of the company the
requirements of Richard, David and Liam are fulfilled so hence they must adopt for company
form of business and thus abide by the Corporation Act 2001 and ASIC rules in order to get their
company registered.
Now, there are few name suggestions that are provided.
“Rich’s Guaranteed Olives” the name as suggested by David and Liam may not work out as it
suggest that the company is guarantying the rich quality of olives and such name which are
deceptive cannot be allowed as per the Act of Australia so hence this name cannot be kept by
them with respect to the company.
On the other hand Ridali the name as suggested by Richard will work as it not misleading in any
way or deceptive in nature hence this will work so company can keep this name.

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Conclusion
Richard, David and Liam can keep Ridali as the name of the company and they have to follow
the process as stated above for registration of a company.
Answer 2
Issue
Against whom Terry can pursue actions, Lazarus Pty Ltd, CMS and/or CM?
Applicable Law
In Australia, a company is one of the business forms which can be operated. However, to operate
a business by way of a company it is necessary that the same must be registered by due process
of law. Once a company is registered then it is regarded as a person who has an artificial
personality in law. In the leading case of Salomon v A Salomon and Co Ltd [1897] it was rightly
held that a registered company has its own personality and is regarded as a person in law. A
company is different from its members and officers and the acts that are carried out by them are
in the name of the company alone and no actions can be taken against the officers and the
members of the company. This distinction or the veil that is catered amid the company and its
officers is one of the significant features that is attained only when a company is formulated after
the process of registration. (Gibson and Fraser 2013)
However, the feature is separate legal personality is not rigid and there are various instances
when there was found to be need that the separate legal personality of the company must not be
considered and the veil that makes a distinction amid the company and its officers must be
disregarded. This act is called the piercing the veil of the company. In the leading case of
Industrial Equity v Blackburn (1977) it was held that when the veil is pierced by the courts then
the acts which are imposed on the company becomes the personal acts of the officers and the
court can take legal proceeding directly against the officers of the company. (Gibson and Fraser
2013)
One of the situations when the veil amid the holding and subsidiary company is disregarded is
when the subsidiary company is found to be indulged in any kind of tortuous act because of
which some loss is caused to the worker or employee of the subsidiary company. In such
situation, if it is found that the subsidiary company does not have the means to pay to the
employee then the distinction or the veil amid the holding and subsidiary company is pierced and
the holding company is held liable for the losses that are incurred by the subsidiary company and
it is the holding company that will make the compensation for the employee who has suffered
because of the tortuous acts of the subsidiary company and is rightly held in the leading cases of
Barrow v CSR Ltd (1988) and CSR Ltd v Wren (1997). (Ramsay & Noakes 2001)
There are also incidences when the relationship or the association amid the holding company and
the subsidiary company is guided under the law of agency. It is established that all the acts of the

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subsidiary is controlled by the holding company. It is the holding company which decides all the
acts of the subsidiary, the holding is also the major shareholder of the subsidiary company. In
such situation, if any liability is aroused upon the subsidiary company then the liability is
imposed on the holding company as the holding company is the agent of the subsidiary company
and is rightly held in the leading case of Stone and Knight v Birmingham Corporation (1939).
(Ramsay & Noakes 2001)
There are instances when a new company is incorporated by dissolving an existing company in
order to incur fraud or sham on the aggrieved party, the main aim of creating a new company by
dissolving an old company is to avoid any kind of liability that is already accrue on the old
company. In such situation, the distinction amid the new and old company is disregarded and the
liability that is imposed on the old company is imposed on the new company and it is the new
company which must make good the loss that is caused to the aggrieved and is rightly held in
James Hardie & Coy Pty Limited v Putt (1998).
If there arose a situation that any loss is caused to an employee of the company because of the
wrongful act of the company itself and the company is not taking any action on behalf of the
employee then the employee is empowered under section 236-237 of the Corporation Act 2001
to bring actions for himself against the company provided the interest of the member and the
company is keep intact. (Hofmann 2005)
Application of law
Cosmo Mining Services Pty Ltd (CMS) and Cosmo Mine Ltd (CM) are the two companies
involved. CM is the parent company of CMS and CM is holding 60% shares in CMS. Terry is
the employee of CMS. CMS was involved in mining work ad because of which the river is
getting dirty. The water is used in Gunbarrel where Terry is residing and thus suffered cancer.
So, CMS is involve in tortuous act because of his wrongful act Terry who is in proximate
relationship suffers injury. So, Terry can sue CMS. But, CMS in order to avoid liability wound
up and form a new company called Lazarus Pty Ltd. thus, the new company is formed by
dissolving the old company is an act of fraud and cheat. So, by applying ..........................the veil
amid CMS and Lazarus Pty Ltd must be pierced. Thus, Terry can sue Lazarus Pty Ltd for the
wrongs of CMS.
Also, CM is holding 60% shares in CMS. Also, the equipments that are used by CMS is also
supplied by CM. so, CM is the agent of CMS. So, Terry can also sue CM by perking the veil
amid CMS and CM.
Now, no company is taking actions for Terry, so, Terry can sue CM under section 236-237 of the
Act in order to bring relief.

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Conclusion
Terry can sue Lazarus Pty Ltd by perking the veil amid CMS and Lazarus Pty Ltd. also; action
under section 236-237 can be bought against CM.

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Reference list
Book/Articles/Journals
Melissa Hofmann (2005) The Statutory Derivative Action in Australia: An Empirical Review of
its Use and Effectiveness in Australia in Comparison to the United States, Canada and
Singapore. Bond University.
Gibson and Fraser. (2013). Business Law 2014. Pearson Higher Education AU.
Nolan, J. (1996) Australia Business: The Portable Encyclopedia for Doing Business with
Australia, World Trade Press.
Ramsay & Noakes (2001) Piercing the Corporate Veil in Australia. 19 Company and Securities
Law Journal 250-271
Seal and Penrith. (2008). Live & Work in Australia, Crimson Publishing.
Case laws
Barrow v CSR Ltd (1988).
CSR Ltd v Wren (1997) 44 NSWLR 463.
Industrial Equity v Blackburn (1977) 52 ALJR 89,
James Hardie & Coy Pty Limited v Putt (1998) 43 NSWLR 554.
Salomon v A Salomon and Co Ltd [1897] AC 22.
Stone and Knight v Birmingham Corporation (1939).