Business Law Module Report: Directing Mind and Piercing the Veil

This report provides an analysis of two key concepts in business law: 'directing mind and will' and 'piercing the corporate veil'. The 'directing mind and will' principle explains how a company's actions are attributed to its directors or authorized employees. It examines the delegation of authority and the liability of employees acting outside their delegated powers, citing the case of R v. Regis Paper Co. Ltd. The report then explores 'piercing the corporate veil', a legal doctrine that allows courts to disregard the separation between a company and its owners, holding individuals liable for corporate actions, especially in cases of fraud or injustice. It discusses the grounds for piercing the corporate veil and relevant case law, including AB v Smallbone and Briggs v James Hardie & Co Pty Ltd, highlighting the court's challenges in applying this doctrine. The report concludes by summarizing the legal principles and their implications for corporate liability.

Law of Business Organisation

Contents
Directing Mind and Will............................................................................................................2
Piercing the Corporate Veil........................................................................................................3
Reference List............................................................................................................................4

Directing Mind and Will
The founders of a company bring it into existence but after its incorporation, the company has
a distinct legal entity from its founders. The operations of a corporation are directed by its
board or management, who are known as key managerial personnel. A legal contract
established between the company and its directors gives the board their right to act according
to company’s interest. According to Lim (2011), this power can be delegated by board or
management to other employees as well. An employee performing or doing some work,
according to the authority delegated to him by the director is called ‘Directing mind and will’.
The authority or power delegated to the employee must be obvious, expressed or implied by
the directors. In case the employee acts or perform any action outside the authority, the
employee shall be personally liable for such action, not the company. But the board has right
to rectify such mistake of an employee by passing a resolution.
In the recent case of R v. Regis Paper Co. Ltd., (2011) WLR (D) 317, the court decided that
the technical manager who intentionally entered an incorrect entry in the record of
environmental pollution conducted by the company, does not consider as directing mind and
will since he does not have proper authority to perform such act. The corporation was not
liable for the acts of its technical manager because he does not have any expressed or implied
authority to enter a false transaction in records (Gurunay 2015).

Piercing the Corporate Veil
The actions of a company are taken by its board of directors and its shareholders, but they are
not personally liable for such actions since the corporation has legal entity distinct from its
management. This doctrine is commonly known as a corporate veil. As per Booth (2016), in
the case when there is a lawsuit filed against the company for fraud or misappropriation of
money, the court has the right to pierce the corporate veil of the organisation and held the
management liable for their acts. The management cannot use corporate veil as a shield to
save them from the law. The Australian court has decided various reasons for which a
corporate veil can be pierced by the court, such as fraud, agency, sham, injustice, or group
enterprise, to hold board of directors or shareholders liable for their illegal actions taken in
the organisation.
The court can also pierce a corporate veil on the request of shareholders or board. In the
decision of AB v Smallbone (No 2) [2001] 1 WLR 1177 case, the court provide different
reasons for piercing corporate veil such as sham and fraud, but which circumstances
constitute as fraud and sham were not defined. The Briggs v James Hardie & Co Pty Ltd
(1989) 16 NSWLR 549 case, shows the struggles confronted by courts while piercing the
corporate veil for the traditional torts crimes (Ramsay and Noakes 2001).

Reference List
Booth, R.A., 2016. Close Encounters with Piercing the Corporate Veil. Vill. L. Rev., 61,
p.393.
Gurunay, P., 2015. The directing mind and will test in corporate criminal liability. [PDF file].
International journal of legal insight. Retrieved from <
http://www.ijli.in/assets/docs/PrabhleenGurunay.pdf >
Lim, E., 2011. A Critique of Corporate Attribution:'Directing Mind and Will'and Corporate
Objectives. Browser Download This Paper.
Ramsay, I. M., and Noakes, D. B., 2001. Piercing the Corporate Veil in Australia. [PDF file].
Company and Securities Law Journal. Retrieved from <
http://law.unimelb.edu.au/__data/assets/pdf_file/0008/1710089/122-
Piercing_the_Corporate_Veil1.pdf >