LAW60003 Research Assignment: Corporate Veil Piercing in Australia

This report examines the doctrine of piercing the corporate veil in the Australian context, addressing the statement that Australian courts have been reluctant to depart from the separate entity principle despite the absence of specific legislation. It begins by outlining the concept of a separate legal entity as established in Salomon v Salomon & Co Ltd and the protection it offers. The report then discusses the doctrine of piercing the corporate veil and its application in Australia, where courts employ a fact-based approach to determine when to disregard the corporate structure. It analyzes various situations in which Australian courts pierce the corporate veil, including instances of fraud, group enterprises, unfairness, agency relationships, and sham or façade companies. The report references key cases such as Briggs v James Hardie & Co Pty Ltd, Pioneer Concrete Services Ltd v Yelnah Pty Ltd, and Dennis Willcox Pty Ltd v Federal Commissioner of Taxation, to illustrate the principles applied by the courts. It also touches upon the role of the Corporations Act 2001 (Cth) and director's duties in relation to veil piercing. The objective of the doctrine is to prevent the misuse of corporate structures for fraudulent or illegal activities. The report concludes by providing an overview of the legal framework and the circumstances under which Australian courts are likely to pierce the corporate veil to ensure justice and accountability.

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Corporate and Contract Law

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TABLE OF CONTENTS
Introduction................................................................................................................................2
Element of Separate Legal Entity..............................................................................................2
Doctrine of Piercing of Corporate Veil......................................................................................3
Australian Context.....................................................................................................................4
Situations in which Australian Courts pierce the corporate veil................................................5
Conclusion..................................................................................................................................8
Bibliography.............................................................................................................................10

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INTRODUCTION
Companies are legal entities which have a separate legal personality from its owners, and this
personality provides them various rights such as the ability to form contractual relationship,
purchase, sell or hold assets, sign legal contract, and others.1 The element of separate
personality is referred as a corporate veil which separates the shareholders, directors, and
members of the company from its legal existence. Due to this separate legal existence, the
owners take business decisions in the corporation; however, they did not hold personally
liable for the liabilities of the enterprise. This corporate veil provides protection to the
members of the company, however, this is not an absolute rule, and the corporate veil can be
pierced by the courts to hold the members personally liable. In the case of Australia, the
provision of piercing of corporate veil applies as well under which the courts pierce the
corporate veil to hold the real perpetrators liable for their actions.2 This report will provide
arguments against the statement that Australian courts have been reluctant while departing
from the separate entity of the company because there is no legislation which requires them
to do so. This report will evaluate various reasons based on which the Australian courts
pierce the corporate veil by evaluating the judgements of various Australian cases.
ELEMENT OF SEPARATE LEGAL ENTITY
In order to understand the principle of the doctrine of the corporate veil, it is important to
evaluate the element of the separate legal entity of corporations. This element was established
in the landmark case of Salomon v Salomon & Co Ltd3. Salomon was operating a business of
boot making which he terminated to incorporate a company. He was the majority shareholder
1 Anil Hargovan, ‘Piercing the Corporate Veil on Sham Transactions and Companies’ (2006) 24 Company and
Securities Law Journal 436.
2 RI Bob Tricker and Robert Ian Tricker, Corporate governance: Principles, policies, and practices (Oxford
University Press, 2015).
3 (1897) AC 22

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and debenture holder in the company along with his family members who were also the
shareholders of the company.4 Unfortunately, the corporation went into liquidation in which
the unsecured creditors did not receive their due amount. Salomon received money in the
liquidation for the debentures. The unsecured creditors were upset, and they filed a suit
against Salomon. They argued that he is the majority shareholder along with his family due to
which he should repay the debts of the company. They also provided that the debenture were
a sham, and they are not valid.
The House of Lords provided its judgement based on the element of a separate legal entity
and limited liability. It was held that irrespective of the fact that Salomon is the majority
shareholder along with his family members, the company has a separate legal personality
based on which the liability of Salomon is limited, and he cannot be held personally liable for
its liabilities. Moreover, the information regarding debentures was given in the document of
the company, therefore, they are valid. A similar judgement was given in the court in Lee v
Lee’s Air Farming Ltd5 case in which the court provided its judgement based on the element
of the separate legal personality.6 Furthermore, this element is recognised by the
Corporations Act 2001 (Cth)7 under section 124 in which the rights of companies operating
in Australia are identified.
DOCTRINE OF PIERCING OF CORPORATE VEIL
The element of separate legal entity provides a corporate veil which protects parties such as
directors, shareholders and other officers from being personally liable for the debts of the
corporation.8 However, this veil can be pierced by the court in order to hold those parties
4 Len Sealy and Sarah Worthington, Sealy & Worthington's Cases and Materials in Company Law (Oxford
University Press, 2013).
5 (1960) UKPC 33
6 Lee Roach, Company Law (Oxford University Press, 2016).
7 Corporations Act 2001 (Cth)
8 Helen Anderson, ‘Challenging the Limited Liability of Parent Companies: A Reform Agenda for Piercing the
Corporate Veil,’ (2012) 22 (2) Australian Accounting Review 129-141.

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liable who made business decisions for the enterprise. The veil is pierced so that the court can
hold those parties liable who used the separate personality of the company to gain personal
advantage or conduct an illegal act.
AUSTRALIAN CONTEXT
In the case of Australia, there is no legislative framework implemented by the government in
order to recognise the principle of piercing of corporate veil. However, this did not stop
Australian courts from relying on this principle to hold the culprits liable for their actions.9
The courts are not reluctant to terminate the element of the separate legal personality in order
to promote justice. This view was given by Rogers AJA in the judgement of Briggs v James
Hardie & Co Pty Ltd10 case. It was held that there is no common or unifying principle in
Australia which underlines the occasional decisions in which the corporate veil is pierced by
Australian courts. However, the courts rely on a fact-based approach while piercing the
corporate veil due to which they are not reluctant to overlook the element of a separate legal
entity.11
Moreover, the element of the lifting of the corporate veil was recognised by the court in
Australia in the judgement of Pioneer Concrete Services Ltd v Yelnah Pty Ltd12 case. In this
case, the court recognised that by relying on the element of piercing of corporate veil, the
element of the separate personality could be overlooked while providing a judgement by the
court. In this case, the court highlighted the difference between lifting and piercing of
corporate veil phrase as well.13 In the judgement of Gorton v Federal Commissioner of
9 Anil Hargovan and Jason Harris, ‘Piercing the Corporate Veil in Canada: A comparative analysis’ (2007) 28
The Company Lawyer (UK) 58.
10 (1989) 16 NSWLR 549
11 Marilyn Warren, ‘Corporate structures, the veil and the role of the courts,’ (2016) 40 Melb. UL Rev. 657.
12 (1986) 5 NSWLR 254
13 Sandeep Gopalan and Michael Guihot, ‘Cross-Border Inslovency Law and Multinational Enterprise Groups:
Judicial Innovation as an International Solution,’ (2015) 48 Geo. Wash. Int’L. Rev. 549.

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Taxation14 case, it was held by Windeyer J that this element of the separate personality had
led the law in unreality and formalism. It was argued that the main problem with the
judgement of Salomon v Salomon & Co Ltd case is not the separate personality of the
company; instead, it is the fact that the House of Lords did not define the situations in which
the court can refuse to implement this provision.
SITUATIONS IN WHICH AUSTRALIAN COURTS PIERCE THE
CORPORATE VEIL
Since there is no legislative framework established by the Australian government, the court
relies on this doctrine based on the facts of the case. Australian courts have recognised
various situations in which they overlook the element of the separate personality in order to
pierce the corporate veil.15 Generally, the objective of the veil piercing by the court is to
ensure that parties are not missing the position of the company for conducting fraud or illegal
activities, and they are not using the separate personality element for personal benefit. In
Dennis Willcox Pty Ltd v Federal Commissioner of Taxation16 case, the purpose of avoiding
the element of the separate legal personality by the court is to evaluate whether the
corporation is a mere sham or façade or it is created in order to bypass certain law or
obligation by its members.17 There are certain broad categorised which are recognised by the
Australian courts to pierce the corporate veil of companies which include fraud, group
enterprises, unfairness, agency and sham or façade.
Generally, it is not considered that the company is the agent of its shareholders or the parent
company just based on the fact that they hold its shares as given in Balmedie Pty Ltd & Anor
14 (1965) 113 CLR 604
15 Ian Ramsay and David Noakes, ‘Piercing the Corporate Veil in Australia’ (2001) 19 Company and Securities
Law Journal 8.
16 (1988) 79 ALR 267
17 Jade, Dennis Wilcox Pty Ltd v. The Commissioner of Taxation of the Commonwealth of Australia <
https://jade.io/j/?a=outline&id=150636>.

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v Nicola Russo & Ors18 case. However, in some cases, the parent company or shareholders
have a high degree of control on the operations of the enterprise that the company is
considered as their agent based on which these parties are held liable for their actions.19 In the
case of Barrow v CSR Ltd20, it was held by Rowland J that the parent company could be held
liable for the actions of the subsidiary because their relationship was considered as a
principal-agent relationship due to the effective control which the parent company had on the
subsidiary. In the case of The Electric Light and Power Supply Corporation Limited v
Cormack21, it was held by Rich AJ that the corporate veil could not be pierced in case of a
one-man company because he acted as the agent for the corporation and the decision was not
taken by him for evading his personal obligations.22
Fraud is another key element in which the courts are not reluctant to establish the principle of
the separate legal entity even though there is no legislative framework established. However,
it did not mean that the courts did not uphold the element of corporate veil while providing
their judgement. For instance, in the judgement of Re Edelsten ex parte Donnelly23 case, it
was held by the court that no fraud is conducted by the parties if they have incorporated the
company to ensure that the property which is acquired after the bankruptcy did not go into the
hands of the trustee.24 On the other hand, it was held in the case of Re Neo25 it was held by the
court that the purpose of forming the company is to avoid the provisions of the Australian
migration law since it was incorporated on the same day and it did not carry out any business.
Moreover, in the judgement of RMS Glazing Pty Ltd v The Proprietors of Strata Plan No
18 (1998) FCA 980
19 Helen Anderson, ‘Piercing the Veil on Corporate Groups in Australia: The Case for Reform’ (2009) 33
Melbourne University Law Review 333.
20 (Unreported, 4 August 1988, Supreme Court of Western Australia, Rowland J)
21 (1911) 11 NSWSR 350
22 Julie Cassidy, Concise corporations law (Federation Press, 2006).
23 (1992) FCA 296
24 Jade, Re Edelsten, G.W. Ex parte Donnelly, M.C. (Trustee of estate) v Edelsten, G.W. & ors <
https://jade.io/j/?a=outline&id=325427>.
25 (Unreported, Immigration Review Tribunal, Metledge M, 30 July 1997)

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1444226 case it was held by the court that a shareholder of the company also has the right to
seek piercing of the corporate veil in order to avoid an unfair outcome.27
Therefore, the objective of the doctrine of piercing of corporate veil is to ensure that parties
are not misusing the corporate structure to conduct fraud or illegal activity. Certain provisions
given in the Corporations Act assists courts in piercing the corporate veil, for instance, the
implementation of director duties. The directors play a crucial role in corporation since they
take business decisions and form future strategies in the company. Therefore, the
Corporations Act has provided a range of duties or obligations which directors have to
comply with in order to ensure that they did not misuse their position. These duties are
focused on ensuring that the directors do their job with care and diligence and they maintain a
good faith towards the company.28 In case these duties are violated by directors, or they failed
to comply with them, then the court pierces the corporate veil to hold the directors liable for
the actions of the company. For instance, in ASIC v Narain29 case, the director was held liable
for the misleading letters send by the company by piercing the corporate veil by the court
since the director failed to comply with the duties imposed under the Corporations Act.
Another good example is the ASIC v Adler30case. In this case, the directors misused his
position as the director and shareholder in another company to illegally use the funds of the
company for improper purposes and personal gain. Rather than holding the corporation liable
for the actions, the court pierced the corporate veil by provided that the directors have
violated the duties given under section 180 to 183 of the Corporations Act based on which the
director is liable for the actions of the corporation.31 By piercing the corporate veil, the
26 (Unreported, Supreme Court of New South Wales, Cole J, 17 December 1993)
27 Amin George, The Veil Doctrine in Company Law < https://www.llrx.com/2007/09/the-veil-doctrine-in-
company-law/>.
28 Peter Oh, ‘Veil-Piercing Unbound,’ (2013) 93 BUL Rev. 89.
29 (2008) FCAFC 120
30 (2002) 41 ACSR 72
31 Peter Dominick Scott, ‘Shafron v Australian Securities and Investments Commission (2012) 286 ALR 612,’
(2012) 31 U. Tas. L. Rev. 155.

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tortious liability of the company is also imposed on other parties who are liable for the same.
The parent company which completely controls the operations and decisions of its subsidiary
is liable for the torts committed by the corporation (Barrow v CSR Ltd). Thus, the courts in
Australia did not shy away from piercing the corporate veil of a company in order to deliver
justice or hold the parties liable for their actions. These policies are targeted towards ensuring
that parties are not misusing the limited liability and separate personality element to take
unfair advantage, avoid a law or conduct illegal activity through the corporation.
CONCLUSION
To conclude, limited liability and the separate legal entity are a part of the corporate structure
due to which the shareholders, directors or other officers of the company cannot be held
personally liable for its debts. However, these principles can be set aside by the court by the
doctrine of piercing of corporate veil in which the court set aside the separate personality of
the company to hold those parties liable who have taken its decisions. A legislative
framework has not established by the government in Australia, however, it did not stop the
Australian courts from applying this principle. The Australian courts are not reluctant to set
aside the principle of the separate personality based on the fact that no legislative framework
exists. There are various cases in Australia in which the courts applied the principle of
corporate veil piercing to hold the real culprits liable for the liabilities of the corporation.
There is a board range of categorises based on which the courts overlook the corporate veil of
the corporations to find out who is responsible for its actions. These categories include fraud,
sham or façade, unfairness, agency and group enterprises. The courts can hold the
shareholder, parent corporations, directors or any other officers liable who have taken the
wrong advantage of the separate entity of the company for personal gain or for conducting
illegal activities. Therefore, the doctrine of piercing of corporate veil is recognised and

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applied by the Australian courts irrespective of the fact that a legislative framework is not
recognised by the government to apply this principle.

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BIBLIOGRAPHY
Articles/Books/Reports
Anderson, Helen, ‘Challenging the Limited Liability of Parent Companies: A Reform
Agenda for Piercing the Corporate Veil,’ (2012) 22 (2) Australian Accounting Review 129-
141.
Anderson, Helen, ‘Piercing the Veil on Corporate Groups in Australia: The Case for Reform’
(2009) 33 Melbourne University Law Review 333.
Cassidy, Julie, Concise corporations law (Federation Press, 2006).
Gopalan, Sandeep and Michael Guihot, ‘Cross-Border Inslovency Law and Multinational
Enterprise Groups: Judicial Innovation as an International Solution,’ (2015) 48 Geo. Wash.
Int’L. Rev. 549.
Hargovan, Anil and Jason Harris, ‘Piercing the Corporate Veil in Canada: A comparative
analysis’ (2007) 28 The Company Lawyer (UK) 58.
Hargovan, Anil, ‘Piercing the Corporate Veil on Sham Transactions and Companies’ (2006)
24 Company and Securities Law Journal 436.
Oh, Peter, ‘Veil-Piercing Unbound,’ (2013) 93 BUL Rev. 89.
Ramsay, Ian and David Noakes, ‘Piercing the Corporate Veil in Australia’ (2001) 19
Company and Securities Law Journal 8.
Roach, Lee, Company Law (Oxford University Press, 2016
Scott, Peter Dominick, ‘Shafron v Australian Securities and Investments Commission (2012)
286 ALR 612,’ (2012) 31 U. Tas. L. Rev. 155.

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Sealy, Len and Sarah Worthington, Sealy & Worthington's Cases and Materials in Company
Law (Oxford University Press, 2013).
Tricker, RI Bob and Robert Ian Tricker, Corporate governance: Principles, policies, and
practices (Oxford University Press, 2015).
Warren, Marilyn, ‘Corporate structures, the veil and the role of the courts,’ (2016) 40 Melb.
UL Rev. 657.
Cases
ASIC v Adler (2002) 41 ACSR 72
ASIC v Narain (2008) FCAFC 120
Balmedie Pty Ltd & Anor v Nicola Russo & Ors (1998) FCA 980
Barrow v CSR Ltd (Unreported, 4 August 1988, Supreme Court of Western Australia,
Rowland J)
Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549
Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267
Gorton v Federal Commissioner of Taxation (1965) 113 CLR 604
Lee v Lee’s Air Farming Ltd (1960) UKPC 33
Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254
Re Edelsten ex parte Donnelly (1992) FCA 296
Re Neo (Unreported, Immigration Review Tribunal, Metledge M, 30 July 1997)

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RMS Glazing Pty Ltd v The Proprietors of Strata Plan No 14442 (Unreported, Supreme
Court of New South Wales, Cole J, 17 December 1993)
Salomon v Salomon & Co Ltd (1897) AC 22
The Electric Light and Power Supply Corporation Limited v Cormack (1911) 11 NSWSR
350
Legislation
Corporations Act 2001 (Cth)
Others
George, Amin, The Veil Doctrine in Company Law < https://www.llrx.com/2007/09/the-veil-
doctrine-in-company-law/>.
Jade, Dennis Wilcox Pty Ltd v. The Commissioner of Taxation of the Commonwealth of
Australia < https://jade.io/j/?a=outline&id=150636>.
Jade, Re Edelsten, G.W. Ex parte Donnelly, M.C. (Trustee of estate) v Edelsten, G.W. & ors <
https://jade.io/j/?a=outline&id=325427>.