Corporate Law: Veil Piercing, Director Duties, and Syndicate Companies

This report delves into key aspects of company law, specifically focusing on the corporate veil, the circumstances under which it can be pierced, and the duties and responsibilities of company directors. It examines the legal principles established in landmark cases such as Salomon v A Salomon & Co Ltd and Lee v Lee's Air Farming, providing a detailed analysis of the concept of separate legal entity and the limitations of liability afforded by the corporate veil. The report then explores the exceptions to this principle, discussing when courts may pierce the corporate veil to hold shareholders or directors liable for the actions of the company, referencing cases like Gilford Motors Co Ltd v Horne. Furthermore, the report analyzes the statutory and common law duties of directors, as outlined in the Corporations Act 2001, including duties of good faith, acting in the best interests of the company, and avoiding conflicts of interest, using cases like ASIC v Healey & Ors and ASIC v Adler and 4 Ors to illustrate the potential consequences of breaching these duties. The report specifically considers the application of these principles to Synep, Plutrus Payroll (PP), and other syndicate companies, evaluating potential breaches of director's duties by individuals such as Adam Cranston and assessing whether the corporate veil might be pierced in relation to these entities based on the provided facts.

Running head: COMPANY LAW
Company Law
Name of the student
Name of the University
Author Note

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Introduction
The corporate veil, the piercing of the corporate veil and the duties of the directors are
terms associated with the issue which is surrounding modern day corporate governance. The
purpose of this paper is to through light upon SYNEP, PLUTUS PAYROLL (PP) and other
Syndicate companies (SC) in relation to corporate veil, the piercing of the corporate veil and the
duties of the director1s. Every company is a separate entity and its identity is different from its
members in addition the liability of the members of the company is only restricted to the amount
they owe to the company in form of shares or guarantees. As the company does not act on its
own and where there are various shareholders each of them cannot be a part of the management
for the proper functioning of the company the governance of the company is vested in the
selected board of directors2. The paper analyzes the significance of the corporate veil, when it
may be pierced and the implications of the directors’ duties.
1. Corporate Veil
Issue
The issue which has to be discuss the corporate veil in relation to relation to Synep, PP
and Syndicate companies.
Rules
As provided by LordMcNaughton in the case of Solomon v Solomon and Co3at law a
company is a totally different person as compared to those person who have subscribed to its
1 http://www.abc.net.au/news/2017-05-18/tax-fraud-allegations-could-risk-investigations-senator-says/8537608
2Smith Stone and Knight [1939] 4 KB 116.
3 (1897) A.C 22 (H.L).

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memorandum. In this case it is irrelevant that even after incorporation the business is same as it
was before and the same heads receive profit and the same person are manager.
As provided by Macaura v Northern Assurance Coat law the company is not an agent of
the trustees or subscribers of the memorandum and nor the members as subscribers are liable in
any form or shape except to the manner and extent provided by the act to the liabilities of the
company4.
Application
The provisions laid down by this case are often considered the route on which corporate
personality jurisprudence is been practiced around the world. The concept of a separate legal
entity have successfully been continued in an uninterrupted manner for more than 100 years in
Australia. Thus as Synep, PP and SC are all incorporated companies the liability of the company
is not the same as its members as they are protected by the corporate veil. The actions of a
company and based on its own authority and the company does not act as the agent of its owners
of the subscribers of its memorandum. However there have been various circumstances where
this feature of the company has been taken up as a way to introduce fraud to the corporate world
which is also highlighted in the present case of the three companies. There are many instance
where the owners of the company hide behind the corporate veil in order to take advantage of it
and defraud the creditors of the company. As the concept of corporate veil protects and limits the
liability of the owners of the company they are provided with a scope of committing such acts
which may ensure them illegitimate profit without being held liable for it. The concept can be
taken to Be as both an advantages and disadvantages in relation to the corporate world. However
if a proper system was not initiated in order to restrict such acts the system of corporations would
4 (1925) Ac 619.

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have been a total failure. The selected case for the purpose of this paper the director of the SC
along with PP and Synep are protected to the principles of corporate veil.
Conclusion
The members of the companies are protected through the concept of corporate veil
2. Piercing of corporate veil
Issue
Whether the corporate veil should be pierced or not in relation to Synep, PP and Syndicate
companies
Rules
In order to ensure the proper functioning of the Corporate Law system a concept was
developed by the courts which is known as piercing the corporate veil. It has been recognized by
the courts in Lee v Lee’s Air Farming at the same time that the corporate veil of the corporation may
be pierced to deny the shareholders any protection which is provided to them by the provisions
of limited liability5.
According toGilford Motors Co Ltd v Hornethe piercing of the corporate veil may be
referred to as exception which is imposed judicially to the principles of separate legal entity
through which the courts do not take into regard the different identity of the corporation and hold
its members liable for the actions of the corporation in the same way as if they were committed
by the members themselves6.
5 [1961] AC 12.
6[1933] 1 Ch 935.

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The piercing of the corporate veil may also be initiated by the court when a request to do
so has been made by the company itself or its members so that they can attain a remedy which
would be denied to them otherwise or create a right which is enforceable or impose a penalty on
the board of directors as provided by Creasey v Breachwood Motors Ltd7.
In the case of Equiticorp Finance v BNZit was provided by judges that piercing the
corporate veil is a term which is reserved for treating the liabilities and rights call functions of a
corporation as the liabilities and rights or functions of its members. On the other hand to lift the
corporate veil or to have a look behind it means having a regard to the shareholders of the
company in relation to a legal purpose. Never the difference between the two phrases as yet to be
properly recognized in Australia as the quote most of the times refer to lifting then the effect of
such lifting is piercing of corporate veil8.
In the case of Pioneer Concrete Services Ltd v Yelnah Pty Ltd it was provided by
young J that even though when an individual company is incorporated it creates a separate legal
person only on occasions the court will look behind the legal person to determine its real
controllers9.
Application
Since the Solomon case there have been various instances in the United States the United
Kingdom and Australia where the courts have found general to the principles of corporate veil
and have pierced it in order to reveal those who have control over the company’s affairs.
7(1992) 10 ACLC 3052.
8(1993) 11 ACLC 952.
9 (1986) 5 NSWLR 254.

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Thus the courts have the power to look behind for lift the corporate veil whenever they
want to determine the operational mechanism running the company. It is clear that the corporate
veil is only lifted or pierced when the actual purpose of the company is to do fraud. From the
provided facts it is difficult to say that Synep or PP had been incorporated for a fraudulent
purpose. When it comes to syndicate companies the actual purpose for which they had been
formed has to be analyzed in order to determine whether the corporate veil should be pierced or
not
Conclusion
The corporate veil of Synep ,PP and other SC may only be pierced if it is found that the
company was formed in an illegitimate way for a fraudulent purpose
3. Director’s duties
Issue
Whether director’s duties have been breached by Adam Cranston who is the director of
Synep, PP and the syndicate companies.
Rule
The duties of directors in Australia is controlled by the provisions of common law along
with statutory provisions provided by the Corporation Act 200110.
The Corporation Act 2001through Section 181- 84 provide the statutory duties which are
imposed upon the directors of companies operating in Australia.
10 Corporation Act 2001 (Cth).

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According to Section 181 it is the duty of director to act in good faith and in a way which
will enhance the interest of the company in the best possible outcome what is of the director have
to be disposed for a proper purpose.
According to Section 182 of the act the directors of the company are forbidden from
using their position in such a way so as to bring detriment to the company in order to achieve
personal gain.
Section 183 states that the directors of the company must not use the information which
is gained by them through position in the company in such way so as to make personal profits at
the cost of the company without disclosing such situation to the other directors.
As provided by section 184 anything in relation to the above sections done intentionally
is a criminal offence.
There had been various instances in Australia such as the case of ASIC v
Healey &Ors11and Asic v Adler and 4 Ors12 where the directors have been made personally
liable for their actions and breach of duties.
Application
As they have been imposed with the duty to control the affair of the company the
directors are expected to provide high standard of skill, care and diligence while disposing their
duty towards a company. There is a duty imposed on the directors which raises Expectations of
the shareholders towards them that they will always act in good faith to enhance the success of
the company
11 [2011] FCA 717.
12 [2002] NSWSC 171.

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In the provided scenario the government companies have themselves admitted that they
should have observed due diligence while providing authority to another company to deal with
public money. Whether Adam Cranston had breached his duties as director or not is still under
the scanner but as provided by the article that the public had not been paid their money he can be
held liable for not abiding by his duties to act in the best interest of the companies owned by him.
It is not suitable to comment on a case which is under investigation and yet to be decided.
However as of now it appears that Synep, PP and the Syndicate companies had not been initiated
for the purpose of doing fraud and the customers were initially being paid properly by the
company. However a few directors of the companies were fake as provided by the ATO
investigation as their residential address was not proper. In case the ATO is able to provide it
would be a strong evidence to establish that PP had not been incorporated properly and the
corporate veil may be pierced.
Conclusion
Apparently the duties of directors have been breached by Adam Cranston.

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Bibliography
Asic v Adler and 4 Ors [2002] NSWSC 171
ASIC v Healey &Ors [2011] FCA 717
Corporation Act 2001(Cth)
Creasey v Breachwood Motors Ltd (1992) 10 ACLC 3052
Equiticorp Finance v BNZ (1993) 11 ACLC 952
Gilford Motors Co Ltd v Horne [1933] 1 Ch 935
http://www.abc.net.au/news/2017-05-18/tax-fraud-allegations-could-risk-investigations-senator-
says/8537608
Lee v Lee’s Air Farming [1961] AC 12
Macaura v Northern Assurance Co (1925) Ac 619
Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254
Smith Stone and Knight [1939] 4 KB 116
Solomon v Solomon and Co (1897) A.C 22 (H.L)