Corporate Law: Directing Mind, Piercing the Corporate Veil Analysis

This report delves into the legal concepts of Directing Mind and Piercing the Corporate Veil within the context of business law. It examines the role of the board of directors as the 'directing mind and will' of a corporation, referencing the case of Aderemi v Lan and Baker Nigeria Ltd (2000) and the importance of delegated authority. The report also explores the doctrine of Piercing the Corporate Veil, which allows courts to disregard the separate legal entity of a corporation to hold shareholders or board members liable for actions, as highlighted by the case of Prest v Petrodel Resources Ltd [2013]. The report emphasizes the circumstances under which the corporate veil can be pierced, such as fraud or illegal activities, and discusses the implications of shareholder liability and corporate governance, with the aim of providing a comprehensive understanding of these crucial legal principles in corporate law. It references relevant legal cases and academic sources to support its analysis.

Law of Business organisation

Directing Mind and Will
A company is incorporated by its founders and lawfully it has a separate legal entity from its
members. In the eyes of law, an organisation is artificial being and has certain rights are
duties. According to Ferran (2011), the board of directors can be determined as corporation’s
directing mind and will. The board of directors acquires their power from the agreement of
agency between them and corporation. If a proper authority to take action for the interest of
the organisation has delegated by directors to an employee, then such employee can be
determined as mind and will. The authority or power delegated must be expressed or implied
by the directors. The employee performing any work outside their power or authority shall be
liable for such work personally.
In the case of Aderemi v Lan and Baker Nigeria Ltd (2000)7 NWLR Pt. 663 at 51, the senior
members who acquired their authority to act from the board of directors and performed some
work for organisational benefits, determined as directing mind and will. In the recent case of
Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd (2011) WASC, the investors’ assets
lost in the project of an organisation, and they face significant monetary injury; the
judgement of the court held key managerial personnel’s of the firm liable for financiers’
money (Wheelwright 2006).

Piercing the Corporate Veil
The shareholders of a company are considered as its owners but the identity of a company is
different from its owners legally. The transaction and decisions of organisations are taken by
its board and shareholders. But the shareholders or board cannot be considered as liable for
the actions of an organisation; they are liable for the unpaid amount of their share. This shield
or protection provided to the shareholders is known as a corporate veil. As per
Vandekerckhove (2007), if a suit is filed against a corporation, the court can hold board or
owners of such organisation liable for such acts by piercing the corporate veil. The court
decides to ignore the separate legal entity of organisations and puts the liability of its actions
on board or owners, it doctrine is called piercing of corporate veil. This doctrine disbarred the
limited liability policy of the shareholders and held them liable for the acts conducted by
them through the corporation.
The doctrine of corporate veil is misused by board and shareholders, for example, they
perform some illegal activity through the corporation and in case of determining liability for
such acts, the board uses corporate veil as a shield. Therefore, the piercing of corporate veil
policy is necessary to hold liable the real criminals as provided in the case of Prest v Petrodel
Resources Ltd [2013] 2 AC 415. The court can pierce a corporate veil for many reasons such
as fraud, illegal activity or loss of public money (McClain 2002).

References
Ferran, E., 2011. Corporate Attribution and the Directing Mind and Will.
McClain, B.W., 2002. Piercing the Corporate Veil. Ohio Law., 16, p.14.
Vandekerckhove, K., 2007. Piercing the corporate veil. Eur. Company L., 4, p.191.
Wheelwright, K., 2006. Goodbye directing mind and will, hello management failure: a brief
critique of some new models of corporate criminal liability. Australian Journal of Corporate
Law, 19(3), pp.287-303.