Company Law Report: Directing Mind, Corporate Veil and Liabilities

This report provides an analysis of key concepts in company law, specifically focusing on the 'directing mind' and the 'corporate veil'. The report begins by explaining the role of the directing mind, usually the top management, in making decisions on behalf of the company and the potential liabilities associated with these decisions. It highlights the importance of this concept in assigning responsibility for fraudulent or negligent actions. The report also discusses the concept of the corporate veil, which typically shields shareholders from company liabilities, and explores instances where courts may 'pierce' this veil, such as in cases of corporate fraud, asset intermingling, or undercapitalization. Examples are provided to illustrate situations in which the corporate veil might be disregarded, underscoring the importance of maintaining clear distinctions between corporate and personal assets. The report cites multiple legal sources, including the Corporations Act 2001, to support the discussion.

LAW OF BUSINESS ORGANISATION
PART 2
a) Even though the company is a legal entity s per s. 124 Corporations Act 2001 but yet the
decisions on the behalf of the same are taken by the top management usually the CEO or
MD (Managing Director). At times, there are certain civil or criminal liabilities that may
arise for the company due to the inappropriate or fraudulent conduct of particular agents.
In such a situation, the concept to directing mind and will is found useful in order to
confer liability on the person or persons who collectively represent the mind of the
company and are responsible for the negligence or fraud committed. The directing mind of
the company usually refers to the top management personnel who has the requisite
authority from the board of directors and hence directs the company into a particular
director for achieving stated goals (Baxt, Fletcher and Fridman, 2008).
The ‘directing mind and will’ in the context of a company would refer to any individual who
is acting as the agent of the company and has a sphere of authority within which he/she is
supposed to act. This concept tends to highlight that the state of mind of the company
essentially refers to that of the agents particularly the top management that has the maximum
control. As a result, any liability arising from such actions would essentially not be limited to
company but the agent whose mind and will were involved in the underlying action.
However, there are certain safeguards particularly for the top management available such as
the business judgement rule in order to escape liability (Ciro and Symes, 2013).
b) One of the key advantages of the company business structure over other business
structures (partnership, sole trader) is that the liability is limited to the assets of the
company and the personal assets of the owners cannot be liquidated for the settlement of
company dues unless there is a personal guarantee. However, in certain cases or situations,
it is possible that court ignores the limited liability and holds the shareholders or owners as
responsible for the company outstanding liabilities. This is called as piercing of the
corporate veil and is usually carried out in limited circumstances (Cassidy, 2013).
Some of these circumstances include serious corporate frauds, corporate asset and personal
asset intermingling, corporate form abuse to exploit limited liability protection, under-
capitalization of the firm and failure to distinguish between the identity of the company and
the respective owners. A simple example where the piercing of corporate veil would be done

LAW OF BUSINESS ORGANISATION
by the court is where a former employee of a company under non-competence clause sets up
a company in the same business with the intent to limiting personal liability. Another instance
could be when there is lack of adequate corporate records with regards to assets and liabilities
which hint towards non-separation of corporate and personal assets. Also, companies which
are put in place to carry fraudulent activities are prime candidates of corporate veil piercing
since company structure is used with the intention of escaping liabilities arising on account of
fraud (Fisher, Anderson and Dickfos, 2009).
References
Baxt, R., Fletcher, K.L. and Fridman, S. (2008) Corporations and Associations Cases and
Materials. 10th edn. Butterworths: LexisNexis Australia.
Cassidy, J. (2013) Corporations Law Text and Essential Cases. 4th edn. Sydney: Federation
Press.
Ciro, T. and Symes, C. (2013) Corporations Law in Principle. 9th edn. Sydney: LBC Thomson
Reuters.
Fisher, S., Anderson, C. and Dickfos, (2009) Corporations Law - Butterworths Tutorial Series.
3rd edn. Butterworths, Sydney: LexisNexis Australia.