Corporations Law: Case Analysis on Corporate Veil and Legal Principles

This assignment provides a comprehensive analysis of three case studies within the realm of corporations law. The first case explores the concept of a separate legal entity and the application of corporate veil piercing, examining when and why a court might disregard the legal separation between a company and its owners, particularly in a scenario involving exceeding sales quotas. The second case delves into the liability of a holding company for the torts of its subsidiary, focusing on when the corporate veil can be lifted and the extent of a parent company's duty of care. The third case investigates the enforcement of a company's constitution, detailing the powers of directors, the rights of individual members to enter contracts on behalf of the company, and the procedures for modifying the constitution. The analysis draws upon relevant sections of the Corporations Act of Australia and supporting case law, such as Salmon v. Salmon and Adams v. Cape Industries, to illustrate the legal principles at play and draw conclusions regarding the outcomes of each case.

CORPORATIONS
LAW

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
QUESTION 2...................................................................................................................................3
QUESTION 3...................................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The corporation Act of Australia deals with legislation layered with incorporation,
operation and dissolution of a company in Australia. For each and every activity and operation
within an organisation there are rules and provision in the Act. In the present report provision
and section are applied to given three case laws along with determination of facts and issues
present in each case and final a conclusion is drawn on the basis of legal provision and relevant
previously decided law suit.
QUESTION 1
THE ISSUE:
The legal issue in this case of Bay to sale scallops more than specific quantity and
formation of company to do the same is: determination of Company's potion as separate legal
entity and corporate veil piercing.
RELEVANT LAW
Main legal principle:
For the present case concept of separate legal entity is discussed which is defined under section
1.5 (1) as:
Separate legal entity has its own powers- a company with its incorporation gains a
separate legal existence with is distinct from its mangers, owners, directors, employees, agents
and operators (Devine, 2016). A company has its own property, rights, liabilities and obligations.
The assets and money must be used for purpose of company only as it belongs to it. The
enterprise has a power of an individual including powers to i) own and dispose of property and
other assets, ii) enter into contracts; and iii) sue and to be sued.
Once a company is formed, the separate legal statues along with property, rights and
liability continues till it is registration is canceled by ASIC (Australian Securities and investment
Commission).
Argument on the fact
It can be stated that with registration of a legal corporation the company and owner
becomes two different individuals. The business operation and individual activities are separates
from each other and do not have any link with each other. In the present case Bay have a
capacity to catch more scallops than the quota of 50 tonnes in a calendar year as fixed by the
scallop marketing Authorities. With formation of company Bay can sale scallops individually
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and under the name of the company. The company will have its own assets and liabilities,
property and obligation that are not linked with owner Bay.
Supporting cases:
Salmon V salmon, this was the case in which legal separate personality of a company was
recognized. The shareholders and legal entity are separate from each other. In this case it was
held that owner can not be held liable for operation of the company and can not be bound to pay
any liabilities on company's behalf.
Second principle and Opposing arguments
The second principle that can be applied in this case is corporate veil piercing : it can be
defined as disagreeing to the fact of separate legal entity and held the members and owners liable
(Corporations Act 2001, 2018). In this, creditors and third parties can access the assets of
directors and members of company. This can be done by court under following circumstances: i)
when owner mask the true purpose behind operation of the company; and ii) to avoid existing
legal duty.
With application of this principle in given case it can be stated that to increase the sale
above 50 tonnes which is statutory limit, the corporate veil of the company might be pierced and
true intention of owner i.e. Bay will come out. The formation of the company is done with a sole
purpose of selling scallops more than 50 tonnes which is not allowed as per rules of scallops
marketing authorities.
APPLICATION
In case a new company is formed by Bay it will have a possession of separate legal entity
for its owner, the owner can sale scallops in name of the company and individually he is already
selling 50 tonnes as quoted by scallops marketing authorities. With application of case of salmon
v salmon it can be stated that though both bay as an individual and his company possesses same
purpose of selling scallops marketing authorities but both of them are separate from each other
and do not have any link with each other as company would have its separate property and rights
as of Bay himself.
In case suspicion is detected the piercing of corporate wail can be ordered by court to
detect the true intention of the owner of the company (Stephens, 2017)). The corporate veil can
be lifted up in two circumstances that is when intention of formation is to mask activities of
owner or to avoid statutory legal duty. It can be assumed that instruments and equipment used to
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catch scallops would be shared by both company, as Bay serve the same purpose so why to
purchases whole machinery again.
CONCLUSION
In this case it can be concluded that piercing of corporate veil will can question the act of
Bay as an individual and act of the company as both are different personalities having same
business operation and purpose. Moreover, this can be seen that it is done to increase sale of
scallops. Company is owned and operated by Bay so he can sell scallops on individual basis as
this can be held correct. So it can be concluded that Bay can open a new company but then he
can not scallop on individually as with piercing of corporate veil the true intention casn be revels
which is not legals in terms of law.
QUESTION 2
THE ISSUE:
The legal issue to be discussed in case of trot done by wholly owned subsidiary of new
Nirvana Ltd, which is controlled by Hard Rock Band's members, is : when corporate vile can be
lifted to for making holding company liable for commencement of tort by subsidiary.
RELEVANT LAW
Main legal principle:
Group enterprise corporate veil piercing:
In certain circumstances the corporate group operates in such a way that to distinguish
individual entity is difficult and it is considered proper to pierce the corporate veil for treatment
of parent company to held it liable for acts of subsidiary .
Holding company- responsibility in tort:
A company can not be held liable for act of its subsidiary company by only reason of its
shareholding (Piercing the Corporate Veil in Australia, 2018). It may have a duty of care
towards employees of subsidiaries. In such a situation court do not pierce the corporate veil
instead identifies a free standing duty of care owed by the parent company to claimant arising out
of the relationship of holding and subsidiary companies.
Supporting cases:
Salmon v salmon : as per this case it can be stated that with incorporation a company
acquired separate legal personality and is recognized as legal person separate from its members.
In this case it was determined that a corporation has duel nature as both as an association of
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members and a person separate from its members. The property and assets belongs to company
not to member. The company enters into contract as a separate person in relation to property and
business of company.
Adams v cape industries: in this case no substantial relation was found a legal between
holding and subsidiary company (Steingold, 2017). The court refused to lift the veil with strict
application of salmon principle. In this case it was stated that corporate veil can not be lift
against the defendant company which is a member company of a corporate group merely on the
basis of the fact that corporate structure is used to ensure legal liabilities which are related with
future activities of the group. The principle of limited liability was made rock solid with
finalization of this case as no corporate veil lifting on a shareholder for debt of the company.
Briggs v James Hardie & Co Pty Ltd: in this case it was decided that any suffered by a
person or group of persons due to tortious act of a corporation has no choice against that
company.
APPLICATION
With application of relevant laws it is found out that mere a relationship of holding and
subsidiary do not allow court to pierce corporate veil of holding company (The corporate
personality and the possibility to lift the veil, 2018). Moreover, it is also seen that for any tort
done by subsidiary company no action can be taken against holding company owes a duty of
care for employees due to its shareholding in subsidiary company.
CONCLUSION
In this case it can be concluded that injured members do not have any legal right to
pierce corporate veil of and New Nirvana Ltd can not be held liable for negligence and tort of
Nuclear Blast Pty Ltd, as it owes a duty of care towards employees only.
QUESTION 3
THE ISSUE:
The legal issue to be discussed in this case is deals with enforcement of constitution both
by company and individual. Determination of the fact that contract statutory one under contracts
Act. Along with this, what enforcement rights does both company and individuals have.
RELEVANT LAW
Main legal principle:
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Section 135: a constitution is adopted by a company on its registration and can
modification can be done through passing specials resolution in board meeting (Macey and
Mitts, 2014). This section lays out various laws that company must comply with and officers
and holders of corporation must abide with. This also contains set of replaceable rules which
acts in place of constitution which provides specific rules.
Section 126: an individual member of a company is given right to enter, modify,
discharge contract on behalf of the company acting with in authorities and behalf of the
company. This can be done buy following a particular procedure in relation to the contract.
Argument on the fact, supporting cases
No directors can act beyond the powers given by constitution of a company and
modification in its terms can be done gassing a special resolution in meeting. The directors and
members have rights to enforce the provisions mentioned in constitution.
Second principle:
Section 198 A (Powers of directors): this section mentions that directors of company
can exercise all powers of company except those which a specifically mentioned in constitution
(Roness, 2017).
APPLICATION:
With application of above law in present case it can be seen that constitution is charted of
a company and it reflects all rules and provisions that must be followed in operation of business.
As per section 198A directors can exercise all powers except which are specifically
mentioned in the constitution on behalf of the company but as per section 126 of corporation Act
a persona can enter into a contract on behalf of company by following a particular procedure.
CONCLUSION
For this case it can be concluded that Don's name is mentioned in constitution as
appointed as solicitor of the company. And he is alps a member of the company. The directors
can exercise their power on behalf of the company but can not go beyond constitution.
Moreover, shay can make any changes in constitution without passing a special restitution in
board meeting. Removal of don can only be executed with a modification in constitution as his
name is mentioned in the same and it can be done by calling a broad meeting and passing special
resolution. Further it can be concluded that Don's action of filing legal suit is not corrects
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because as per constitution any dispute will be referred for arbitration and no one can go beyond
powers of constitution.
CONCLUSION
For above three case law it can be concluded that, with registration a company gains
separate legal identity different from its owners and shareholders. To reveals the true intention
behind formation of an entity rule of piercing of corporate veil is formed. For case of holding
and subsidiary company it can be interpreted that in event of tort of negligence on behalf of
subsidiary company the corporate veil of holding company can not be pierced as it owes a duty
of care toward employees of subsidiary company only. For the lase case of dispute between
director and solicitor is can be stated that constitution have a binding effect on all members and
it can be modified with passing a special resolution.
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REFERENCES
Books and Journals
Devine, P., 2016. Piercing the Veil: Lessons from the Federal Courts. Pa. B. Ass'n Q.87. p.75.
Macey, J. and Mitts, J., 2014. Finding order in the morass: The three real justifications for
piercing the corporate veil. Cornell L. Rev. 100. p.99.
Roness, P.G., 2017. Types of state organizations: Arguments, doctrines and changes beyond new
public management. In Transcending new public management. (pp. 77-100). Routledge.
Steingold, F.S., 2017. Legal guide for starting & running a small business. Nolo.
Stephens, B., 2017. The amorality of profit: transnational corporations and human rights.
In Human rights and corporations. (pp. 21-66). Routledge.
Online
The corporate personality and the possibility to lift the veil. 2018. [Online]. Available through :<
https://www.legavox.fr/blog/corentin-kerhuel/corporate-personality-possibility-lift-veil-
230.htm>.
Piercing the Corporate Veil in Australia. 2018. [Pdf]. Available through
:<https://law.unimelb.edu.au/__data/assets/pdf_file/0008/1710089/122-
Piercing_the_Corporate_Veil1.pdf>.
Corporations Act 2001. 2018. [Online]. Available through
:<https://www.legislation.gov.au/Details/C2017C00328/Html/Volume_2#_Toc494873111>
.
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