Lifting the Veil: Imagination and the Kingdom of God

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The House of Lords, however, upon appeal, reversed the above ruling, and unanimously held that, as the company was duly incorporated, it is an independent person with its rights and liabilities appropriate to itself, and that “the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are”. 3 Thus, the legal fiction of “corporate veil” between the company and its owners/controllers 4 was firmly created by the Salomon case. IMPLICATIONS OF SALOMON V SALOMON Section 542- Fraudulent conduct: If in the course of the winding up of the company, it appears that any business of the company has been carried on with intent to defraud the creditors of the company or any other person or for any fraudulent purpose, the persons who were knowingly parties to the carrying on of the business, in the manner aforesaid, shall be personally responsible, without any limitation of liability for all or any of the debts or other liabilities of the company, as the court may direct. In Popular Bank Ltd., In re [x] it was held that section 542 appears to make the directors liable in disregard of principles of limited liability. It leaves the Court with discretion to make a declaration of liability, in relation to ‘all or any of the debts or other liabilities of the company’. This [xi]section postulates a nexus between fraudulent reading or purpose and liability of persons concerned. JUDICIAL INTERPRETATIONS The circumstances under which corporate veil may be lifted can be categorized broadly into two following heads: AGENCY OR TRUST- Where a company is acting as agent for its shareholder, the shareholders will be liable for the acts of the company. It is a question of fact in each case whether the company is acting as an agent for its shareholders. There may be an Express agreement to this effect or an agreement may be implied from the circumstances of each particular case. In the case of F.G.Films ltd, An American company financed the production of a film in India in the name of a British company. The president of the American company held 90 per cent of the capital of the British company. The Board of trade of Great Britain refused to register the film as a British film. Held, the decision was valid in view of the fact that British company acted merely as he nominee of the American Company. Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may "pierce" or "lift" the corporate veil.

Before dealing with the lifting of corporate veil it is pertinent to define what the meaning of a company is. Strictly, a company has no particular definition but section 3(1) (i) of the Companies Act attempts to provide the meaning of the word in context of the provisions and for the use of this act. It states: ‘a company means a company formed and registered under this Act or an existing company as defined in section 3 (1) (ii).’ The company must be registered under the Companies Act for it to become an incorporated association. If it is not registered it becomes an illegal association. This paper would deal with the lifting of corporate veil and its aspects with the judicial decisions. Let us first discuss the exact meaning of corporate veil and lifting of corporate veil with limited liability concept. Corporate veil: HOLDING AND SUBSIDIARY COMPANIES- In the eyes of law, the holding company and its subsidiaries are separate legal entities.

Jan Lieder, "Liability because of existence-destroying interventions", in: Andrea Vicari/Alexander Schall (eds.), Company Laws of the EU, 2020, Part 2: Germany, Chapter 7: Groups of Companies, pp. 397 - 401, at paras. 647 - 661. A company set up to carry out a series of fictitious transactions to try and protect the government of the Republic of Congo Commencing with the Salomon case, the rule of SLP has been followed as an uncompromising precedent 5 in several subsequent cases like Macaura v Northern Assurance Co. 6, Lee v Lee’s Air Farming Limited, 7 and the Farrar case. 8 Macpherson, Jay (2004). "The Travels of Sethos". Lumen: Selected Proceedings from the Canadian Society for 18th-Century Studies. 23. Generally, the plaintiff has to prove that the incorporation was merely a formality and that the corporation neglected corporate formalities and protocols, such as voting to approve major corporate actions in the context of a duly authorized corporate meeting. This is quite often the case when a corporation facing legal liability transfers its assets and business to another corporation with the same management and shareholders. It also happens with single person corporations that are managed in a haphazard manner. As such, the veil can be pierced in both civil cases and where regulatory proceedings are taken against a shell corporation.

Where the court refused to lift the veil, the Court of Appeal said that although the company had clearly been set up to reduce future liability exposure, the fact that this arrangement was not moral did not matter. The veil cannot be lifted if the arrangement has been done to ensure that future liability will fall on another member of the group. This is fine. But the arrangement cannot defend already existing claims.

Statutory Provisions For Lifting The Veil-

By contrast with the limited and careful statutory directions to ‘lift the veil’ judicial inroads into the principle of separate personality are more numerous. Besides statutory provisions for lifting the corporate veil, courts also do lift the corporate veil to see the real state of affairs. Some cases where the courts did lift the veil are as follows: Manager liability, where the directors are personally liable, is not lifting the veil. Lifting the veil is where members are liable for the company or the company is liable for the members. Piercing the Corporate Veil in American and German Law - Liability of Individuals and Entities: A Comparative View in: Tulsa Journal of Comparative and International Law, from 3-1-1995 Lindgren, Kevin E.; R. B. Vermeesch (1995), Business Law of Australia, Butterworths, ISBN 0-409-30675-4 After Adams v. Cape Industries it seemed that there will need to be an express agency agreement for such a relationship to be found.

Further in Lee v. Lee’s Air Farming Ltd. [iii], it was held that there was a valid contract of service between Lee and the Company, and Lee was therefore a worker within the meaning of the Act. It was a logical consequence of the decision in Salomon’s case that one person may function in the dual capacity both as director and employee of the same company. Court of Appeals said that can lift the veil for a sham/facade company or if there is and agency relationship. But the corporate veil cannot be lifted on the basis of a single economic unit argument or in the interests of justice. Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances); Hadot, Pierre (2006) [2004]. The Veil of Isis: An Essay on the History of the Idea of Nature. Translated by Michael Chase. The Belknap Press of Harvard University Press. ISBN 978-0-674-02316-1. Section 127- A director of a company is punishable with imprisonment or fine if a dividend which is declared has not been paid or a warrant which in respect thereof has not been posted within 30 days of the date of declaration.

Meaning Of Lifting Or Piercing Of The Corporate Veil-

It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of public interest, the effect on parties who may be affected, etc.”. This was iterated by the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. [vi] EJ Cohn and C Simitis, Lifting the Veil' in the Company Laws of the European Continent' (1963) 12(1) 'The International and Comparative Law Quarterly 189

C Alting, 'Piercing the corporate veil in German and American law - Liability of individuals and entities: a comparative view' (1994–1995) 2 Tulsa Journal Comparative & International Law 187 The Court of Appeal, declaring the company to be a myth, reasoned that Salomon had incorporated the company contrary to the true intent of the then Companies Act, 1862, and that the latter had conducted the business as an agent of Salomon, who should, therefore, be responsible for the debt incurred in the course of such agency. Reverse veil piercing is when the debt of a shareholder is imputed onto the corporation. Throughout the United States, the general rule is that reverse veil piercing is not allowed. [53] However the California Court of Appeals has allowed reverse veil piercing against a limited liability company (LLC) based largely on the difference in remedies available to creditors when it comes to attaching assets of a debtors' LLC as compared to attaching assets of a corporation. [54] [55] See also [ edit ]

Façade, Sham or Fraud

Occasionally the courts will compromise the principle in Salomon and allow remedies against the shareholders in respect of company liability or against the company for shareholder liability.