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INTRODUCTION

This assignment details the information about the company law.

This assignment’s content had include the clarification of nature of registered company,
the differences between different trading formats (such as sole trader, partnership and company,
the effect of registration of a company (such as separate legal entity limited liability, perpetual
succession and power to own property), types of companies (such as unlimited company,
company limited by guarantee and company limited by shares), incorporation of a company, the
procedure for incorporation, veil of incorporation, and lifting the evil of incorporation (by
automatic and discretionary)

These details are given in order to give a conclusion on whether to agree or not agree that
various authors have criticized metaphors commonly used by the court in veil-piercing cases
(such as ‘sham’, ‘simulacrum’, ‘mask’, ‘fiction’, ‘myth’) as being no more than conclusary
terms, which allow the courts to do as they please on the basis of policy.

This assignment was requested by Dr. Gopenathan Raman Nair, Lecturer of Malaysian
Company Law in Binary University. It was prepared by Tan Cheng Ying, accounting student in
Binary University and submitted to Dr. Gopenathan Raman Nair on 12th January 2010.

Acknowledgments

"I would like to thank my lecturer, Dr. Gopenathan Raman Nair, for his encouragement
and guidance, for the valuable advice and support he has given me in the writing of this
assignment. My deepest thanks go to my parents, for her/his love, understanding and support."

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QUESTION
Various authors have criticized metaphors commonly used by the court in veil-piercing
cases (such as ‘sham’, ‘simulacrum’, ‘mask’, ‘fiction’, ‘myth’ as being no more than
conclusary terms, which allow the courts to do as they please on the basis of policy. Do you
agree?

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1.0 NATURE OF REGISTERED COMPANY

1.1 What is a Registered Company?

The first point in a study of company law is to define


precisely what is meant by a company.

The definition in the Companies Act 1963 states that a company means a company
formed and registered under this Act or an existing company.

As a consequence, a registered company can be defined as a company incorporated by


registration under the Companies Acts, is regarded by the law as a person just as a human being,
Mr. Smith or Mr. Jones, is a person (Geoffrey Morse, Company Law).

When a company is formed, it is said to have become “incorporated”. A registered


company is owned by multiple shareholders and is supervise by a board of directors, which hires
the business's managerial staff.

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2.0 DIFFERENT TRADING FORMATS
There are three basic trading formats: a company, a sole trader and a partnership.

2.1 COMPANY

2.1.1 Structure

One option open to a person setting up a business is to form, or ‘incorporate’, a registered


company. There are different types of registered companies, depending on the uses to which they
are to be put.

The most common type of company in Malaysia, and the one we will bear in mind most
carefully, is the public company limited by shares, the typical
‘PETRONAS’, the short form for ‘Petroliam Nasional Berhad,’.

2.2.2 Registration

The process of forming and registering a company in accordance with legislation is


known as ‘incorporation’. Thus, the key feature of a company is that it is a
legal entity (or person) in its own right, legally different from the people
who own it, known as a ‘separate legal personality’. The advantage of
limited liability results from this.

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2.2 SOLE TRADER

2.2.1 Structure

A sole trader is simply an individual who carries out the trade or business
single handedly. This, he is responsible for the all the affairs pertaining to the
business.

2.2.2 Registration

The sole trader has the choice to trade under his or her own name or under a registered
business name, for example, ‘John & Bakery’.

This allows the sole trader to do business with a name other than their legal name and
also allows them to open a business account with banking institutions. However, a registered
business name has no legal implications other than allowing you to use and trade under that
name instead of your own.

2.2.3 Number of members

Usually, in sole trader, there is no one to assist him; it is a “sole” trader in the sense that
the owner has no partners; though in some cases he might keep an assistant or a helper.

2.2.4 Management

For sole trader, hiring employees may be difficult; this form of business will have limited
liability, therefore, if the business is sued, it is the owner’s problem. He cannot shrug his
responsibilities. He will not be able to protect himself by saying that the act was committed by
his business and not by him.

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2.2.5 Capital and liability

In the eyes of the law, both the owner and his business are the same. The law does not
make any distinction between the owner and his business. Therefore, his liability is unlimited, if
the business goes bankrupt or receivership, the owner will have to cough money from his own
assets and financial reserves to pay to the creditors and lenders.

A sole trader has no separate legal personality; hence, any profits or losses made by the
business are bear by the sole trader, which is seen as the greatest risk of this form of business.

For example, there is a cake manufacturer, who is also a sole trader, who introduces a
new variety of cake, thinking that there is demand for this particular variety. If the product turns
out well, he can take the credit. If the product fails and as a result he suffers losses, then he will
be held for the losses.

A sole trader may have difficulty in raising finance, because they are small, many
financial institutions consider sole trader as risky ventures and will not lend them large sums and
they will not be able to use any other form of long-term finance unless they change their
ownership status.

Sole trader may not able to raise capital on his own not like in partnership where they are
able to share the financial burden of raising funds.

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2.3 PARTNERSHIP

2.3.1 Structure

A partnership is defined by the Partnership Act 1890 in s. 1(1) as an


association of two or more parties carrying on a business in common with a
view to a profit.

A partnership is alike to the coming together of two or more sole


traders, with all partners sharing the profits and losses.

Partnership can be considered as a form of business organization grew out of the


limitations of individual proprietorship; in sole proprietorship, the financial resources,
managerial skill, risk bearing capacity were limited.

When business activities started expanding, a need for more capital is arise, more persons
are needed to supervise the business affairs, thus, the partnership form of organization was
developed to overcome the weakness of sole trading organization and to meet up the expanding
needs of a business requiting a moderate amount of capital.

2.3.2 Registration

Partnerships, unlike companies, are not required to go through any complications


registration process when they are formed, a partnership only has few requirements to be formed
and there are no minimum or maximum limits for capital, and, again unlike companies, they are
under no obligation to make their accounts public, and, the business for partnership is flexible in
its operations as it can engage in any other operations without any restriction as it may be the
case with the companies.

If the business of a partnership is carried on under a name which consists of the surnames
of all the partners, no restrictions apply (s. 1 Business Names Act 1985).

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2.3.3 Number of members

The maximum number of persons who could be members of a particular partnership was
usually 20 (s. 716 Companies Act (CA) 1985), and it is formed by making a written or oral
agreement that they will jointly assume full responsibility for the conduct of business.

The agreement should identify the partners; their respective business-related duties and
responsibilities; how income will be shared; the criteria for additional investments and
withdrawals; and the guidelines for adding partners, the withdrawal of a partner, and liquidation
of the partnership.

2.3.4 Constitution

The life of a partnership may be set up as a certain number of years by the agreement.
The death, inability to carry out specific responsibilities, bankruptcy, or the desire of a partner to
withdraw automatically will terminates the partnership, if no such
agreement is made. A new partnership agreement is required every time
when a partner withdraws or is added, if the business continues to
operate as a partnership.

The partnership's business may continue with proper requirements, and


the termination or withdrawal of the partnership will be a certification issue that does not impact
ongoing operations of the partnership.

2.3.5 Management

The business of partnership may be carried on by all the partners or by any of them acting
for all. For itself, one partner may legally bind the partnership to a contract or agreement that
appears to be in line with the partnership's operations.

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2.3.6 Capital and liability

Although partners may limit a partner's ability to enter into contracts


on the company's behalf, this limit only applies if the third party entering into
the contract is aware of the limitation. It is the partners' responsibility to notify third parties that a
particular partner is limited in his or her ability to enter into contracts. Thus every partner is an
agent of other partners and at the same time of the firm.

A partnership has no separate legal personality either. When the partnership cannot meet
its obligations, the partners may be called on to use their personal assets to satisfy partnership
debts. The other partners can be held individually liable by the creditor requiring payment, if one
partner does not have enough assets to meet his or her share of the partnership's debt.

2.3.7 Types of partners

There are two types of partners.

General partnership is a partnership in which all partners are individually liable; it has an
obligation of strict liability to third parties injured by the partnership. General partners may have
joint liability or joint and several liabilities depending upon circumstances.

Whereas, a limited partnership has two classes of partners where often known as silent
partner or sleeping partner, their liability is limited to the amount of their investments and is
often used when investors will not be actively involved in the business and do not want to risk
their personal assets. A limited partnership must include at least one general partner who
maintains unlimited liability.

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3.0 EFFECT OF REGISTRATION OF A COMPANY

3.1 Separate Legal Personality

Corporate personality refers to the fact that as far as the law is concerned a company
really exists.

The registered company like a statutory company or a chartered company is a


‘corporation’, i.e. in the eye of the law it is an artificial legal person as opposed to individuals
who are known as natural persons. As a person, a company can do almost everything a human
person can do; it can make contracts, employ people, borrow and pay money, sue and be sued,
among other things.

The company becomes a legal person in its own right, with powers and liabilities as an
individual but is distinguished from the members it may have from time to time, distinct from the
shareholders and management. This was seen in the famous case of Salomon v Salomon & Co
Ltd (1897).

Salomon v Salomon & Co Ltd (1897) AC 22


Mr. Salomon had a boot manufacturing business which he decided to
incorporate into a private limited company. Mr. Salomon had become the
company's principal shareholder and its creditor in Salomon & Co. Ltd at
the same time, since he sold his business to the newly formed company, A
Salomon & Co Ltd, and took his payment by shares and a debenture or debt
of £10,000. Thus, he has become a secured creditor by taking a mortgage debenture which gives
him a right to be entitled to be paid first as a secured debenture holder when the company into
liquidation some years later.

The liquidator and the other creditors objected to this and asked the court to reserve
Salomon’s debenture on the ground that he could not owe money to himself, claiming that it was
unfair for the person who formed and ran the company to get paid first.

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However, the House of Lords held that the company was a different
legal person from the shareholders, and thus Mr. Salomon, as a shareholder
and creditor, was totally separate in law from the company A Salomon & Co
Ltd. The result was that Mr. Salomon was entitled to be repaid the debt as the
first secured creditor. The decision confirmed that the use of debentures
instead of shares can further protect investors.

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3.2 Limited Liability

Once incorporated, a company’s members enjoy limited liability, provided that their
shares are fully paid up and it is a limited company. For example, if a company goes into
liquidation owing 100, 000, the debt is the debt of the company, not of the shareholders. The
shareholders’ debts are limited to any money they owe for the purchase of their shares.

A company formed in compliance with the regulations of the Companies Acts is a


separate person and not the agent or trustee of its controller. As a result, the debts of the company
were its own and not those of the members. The members’ liability was limited to the amount
prescribed in the Companies Act: section 13(3) – i.e. the amount they invested.

Another good illustration is Lee v Lee’s Air Farming (1961) A.C. 12 (P.C.). Mr. Lee
incorporated a company, Lee’s Air Farming Limited which he owned all the shares and also been
employed as chief pilot of the company. In March, 1956, Mr. Lee was killed in the plane crash
while he is working, leaving a widow and four infant children.

The matter came to the New Zealand Court of Appeal who found that Mr. Lee
was not a ‘worker’ within the meaning of the Workers’ Compensation Act and so no
social welfare compensation was payable as the widow claimed she was allowed to be
compensated under the Act as the widow of a ‘worker’.

However, in the Privy Council in London, it held that there was a contractual relationship
for Mr. Lee to be employed as the chief pilot of the company as the company and Mr. Lee were
distinct legal entities and therefore capable of entering into legal relations with one another. The
widow was therefore entitled to compensation.

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3.3 Perpetual Succession

A company does not die, once it formed, it will continue until such time as its name is
struck off or dissolved through a legal process known as winding up or liquidation even though
without any directors, members, employees, business etc and a good example is shown in the
case of Re Noel Tedman Holdings Pty Ltd (1967) Qd R 561.

Moreover, in Abdul Aziz Bin Atan & 87 Ors v Ladang Tengo Malay Estate Sdn Bhd
(1985) 2 MLJ 165 case, it shows the fact that a member, even one holding one hundred per cent
of the company’s shares, dies has no effect on the legal existence of the company i.e. members
may come and go but this still does not affect the legal personality of the company.

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3.4 Power to own property

A company is capable of owning property, making contracts, employing people and being
sued or of suing. Thus, a company may own property distinct from the property of its members.

The property of the company belongs to the company itself and not to the individual
members, so that even the largest shareholder has no insurable interest the property of the
company. Therefore, a change in membership of a company will have no effect on the ownership
of the company’s assets.

In Macaura v Northern Assurance Co. (1925) AC 619, Mr. Macaura who owned an
estate and some timber, stored the timber, which amounted to nearly the
entire assets of the company on the estate and he insured the timber in his
own name. Two weeks later, a fire destroyed all the timber on the estate.

The insurance company refused to pay out arguing that he had no


insurable interest in the timber as the timber belonged to the company when
Mr. Macaura tried to claim under the insurance policy but.

The House of Lords held that the timber belonged to the company and not Mr. Macaura.
Even though Mr. Macaura, owned all the shares in the company, but he had no insurable interest
in the property of the company.

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4.0 TYPES OF COMPANIES

A registered company may be limited or unlimited in terms of liabilities.


A limited company possibly limited by guarantee or by shares.
A company limited by shares perhaps is a private or public company.

4.1 An Unlimited Company

In unlimited company, the members are liable for the


debts of the company; the shareholders will lose all their
money if the company goes bankrupt, and also risk losing
their own property in order to pay the company's debts which
is very similar to a partnership or sole proprietorship. They
may be liable without limit or liability may be limited to a
certain figure.

To avail of a corporate structure, for example, when buying property, a person may
choose to form an unlimited company. As well, it has a privacy advantage; unlimited companies
do not have to attach accounts to the annual return

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4.2 A Company Limited by Guarantee

A company limited by guarantee is a company that guarantees to pay its debts up to a


certain limit in the event of the company being wound up, while they are a member or within one
year of their ceasing to be a member.

In Guarantee Company, the members do not provide money to the company on formation
or during its life; it does not have a share capital, but has members who are guarantors instead of
shareholders.

So it is suitable for companies that wish to get legal personality and limited liability but
do not need to raise money from its members. This format is often used for charities, clubs and
nonprofit organizations.

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4.3 A Company Limited by Shares

A company limited by shares is the most common type of company in Malaysia, is the
type of company commonly used for forming a small business.

In this type of company, the liability of shareholders for the debts of a company is limited
to any amount unpaid on their shares.

Normally, when shareholders buy shares, they pay for them fully, so they then have no
liability to the company if it goes into debt, they have no responsibility to pay more than the
amount they have invested.

The purpose of this type of company is to trade and make profits Shares are issued and
directors are appointed by the shareholders.

Companies limited by shares may divide into two categories which are public limited
companies and private limited companies.

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4.3.1 A Private Limited Company

A Private limited company restricts the rights to transfers shares of the company; it
cannot sell the shares to general public. The name of private limited company ends with the word
"Sendirian Berhad" or abbreviation "Sdn. Bhd.". The minimum number of member is two for
private limited company; the maximum is fifty, excluding members who are employees or ex-
employees of the company.

4.3.2 A Public Limited Company

Public companies must have a minimum of two members; there is no maximum number
of members. They show their position by using the abbreviation "Bhd." or the word "Berhad"
after their name.

Public limited companies increase capital by selling shares and are manage by a board of
directors selected by shareholders. The shares are freely transferable by sale on the Stock
Exchange or elsewhere. Public limited companies can only offer shares to the public if a
prospectus which meets the terms with the requirements of the Companies Act 1965 has been
registered with the Registrar of Companies.

Public listed companies are listed either on the Main Board or the Second Board of the
KLSE. Any subsequent issue of securities such as the issue by way of a rights or bonus requires
the approval of the Securities Commission.

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5.0 VEIL OF INCORPORATION

5.1 What Is the Veil of Incorporation?

Once a company incorporates, it becomes a legal personality, a juristic entity, separate


and distinct from its members and shareholders and capable of having its own rights, duties and
obligation such as owning property or entering into contracts, and it can sue or be sued only in its
own name.

5.2 Function of Veil of Incorporation

The veil of incorporation ensures that a company is a legal person, thus a legal entity,
separate and distinct from the people who formed, own or invest in it; they do not get sued, the
corporation does as a result this protect the personal assets of owners and investors from
lawsuits.

Thus, incorporation is a way of limiting the liability of the individuals that own a
corporation. If two persons incorporate a company, the company will become a third person
separate and different from these two persons individually or collectively.

Therefore, the courts usually do not look behind "the veil" to ask why the company was
formed or who really controls it.

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6.0 LIFTING THE COPORAETE VEIL

6.1 Exceptions (Lifting the Veil)

In some cases, the 'veil' that shields the owner(s) from liability can be removed, and the
owners can be enjoined into the law suit. Such incidences happen when a corporation is not
supported with enough assets to balance its debts and liabilities.
However, in some conditions, the courts have take place to disregard or ignore the doctrine of
corporate personality and limited liability especially in dealing with group companies and
subsidiaries and where the corporate form is being used as a vehicle to commit fraud or as a
"mere façade concealing the true facts."

The corporate veil can be lifted in two ways:


(1) By specific provision in legislation
(2) And by discretion of the courts.

Although the cases when the veil has been lifted vary with the facts of the cases, there are said to
be three main reasons why this may be done:
(1) To enforce the provisions of company law;
(2) To avoid fraud;
(3) To deal with a group of companies.

Legislative lifting of the veil is usually for purposes of enforcing company law, whereas
the courts usually lift the veil to prevent fraud.

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6.2 Lifting the Veil by Legislation—Automatic

The veil will be lifted automatically and there is no freedom of choice, when it is
specified in the Companies Acts that the corporate veil will be lifted

6.2.1 Where the number of members is less than two

Under Section 36, CA 1963 if the number of shareholders of a company (except a


company whose issued shares are wholly held by a holding company) is reduced below two and
the company trades for more than six months while the number is so reduced, every shareholder
who knows that the company is trading with less than the statutory minimum, is personally liable
for all the debts of the company contracted after those six months and may be sued therefore, and
shall also be guilty of an offence against the Act. The classical case is Nisbet v Shepherd (1994)
BCC 91.

6.2.2 Use of an incorrect company name

Under Section 121, CA 1963, an officer of a company (the officers of a company are the
directors and secretary) who signs or authorizes to be signed on the company’s behalf any bill of
exchange, cheque or promissory note where provided that the company fails to affix its name is
not properly or legibly written thereon, will be personally liable for the amount if unpaid by the
company.

Durham Fancy Goods v Michael Jackson (Fancy Goods) Ltd (1968) 2 QB 839
A director of the defendant company authorized a cheque made out to ‘M. Jackson (Fancy
Goods) Ltd’ without correcting it as the true name of the company is “Micheal Jackson (Fancy
Goods) Limited” where “M” is not an abbreviation of “Micheal”. The court held that the
plaintiffs had accepted an incorrect version of the name, thus could not rely on section 121.

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Lindholst & Co A/S v Fowler (1988) BCLC 166
The plaintiff prepared four bills of exchange in the name of ‘Corby Chicken Co.’. The defendant
was a director of the Corby Chicken Co. Ltd. He signed cheques referring to the ‘Corby Chicken
Co.’ without adding the suffix ‘Ltd’ and was liable under section 121 which held by the Court of
Appeal.

6.2.3 Fraudulent Trading

Section 304 (1) of the Act states Persons who were knowingly a party to the carrying on
of any business of the company with the intent to defraud creditors or for any fraudulent purpose
may be personally liable to make such contribution to the assets of the company as the court may
think proper
Fraudulent trading is very difficult to prove and is not defined by statute because it must be
shown that the directors, in incurring the debts in question, knew that the company would be
unable to pay them.

6.2.4 Tax Offences

Under s140 (1) of the Income Tax Act 1967 allows the Director-General of Inland
Revenue to ignore transactions which have the effect of avoiding or escaping tax: SBP Sdn Bhd
v Director General of Inland Revenue (1988) MSTC 243.

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6.3 Lifting the Veil by the Courts—Discretionary

The cases that deal with the courts’ lifting of the veil do not fall into neat categories, but
many of the cases have a common thread. In these cases, the court will have considerable
discretion in deciding whether to lift the veil of incorporation.

6.3.1 When the Company Was Formed for Fraudulent Purposes

The court may extremely give an equitable remedy against both the company and the
shareholder, if the company is set up as a ‘cloak or sham’ with the dishonest purpose of escaping
the promoter or shareholder’s existing obligations.

Gilford Motor Co v Horne (1933) Ch. 935


G was a manufacturer of vehicles and supplier of spare parts. H was a managing director of the
company, and left G. His contract stated that he wasn’t allowed to sell to G’s customers for a
period after leaving. On the termination of his employment, H set up a company which then
approached his former customers; H argued that firstly his company was approaching the
customers, not him; and secondly, if there was a wrongdoing, his company was liable and not
him. The courts held that the company was sham, and granted an injunction against his company
as well as him.

Jones v Lipman (1962) I All ER 442


Lipman sold to Jones a house by a written contract but refused to complete
the sale and then wished to get out of the contract. He formed a company,
transfers the house to it, to avoid the transaction and then claimed he could
no longer sell the house to Jones. The court held that this company was formed as a ‘device or
sham’ to frustrate the sale contract, and an order of specific performance of the sale contract was
granted to Jones.

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6.3.2 When the courts recognize an agency relationship.

If a subsidiary company having power to act as an agent may do so as an


agent for its parent company, or certainly for all or any of the individual
members if it or they authorize it to do so, it may be bound by the same
liabilities and rights of its holding company.

So long as those acts are within actual or apparent scope of the authority, the parent
company or the members will be bound by the acts of its agent.

But in the absence of an express agreement, there is no presumption of any such


relationship between the parties; it will be difficult to establish one.

Thus, the corporate veil shall be lifted and the principal shall be liable for the acts of the
agent in cases where the agency agreement holds good and the parties concerned have expressly
agreed to such an agreement.

Though, no court has yet found subsidiary companies liable for their holding company’s
debts.

Smith, Stone & Knight Ltd v Birmingham Corporation (1939) All ER 116
Smith, Stone & Knight Ltd owned some land, and a subsidiary company operated on this land.
The subsidiary company is Birmingham Corporation that occupied the land and operated a
business there. Birmingham Corporation had issued an enforced purchase order on this land. Any
company which owned the land would be paid for it, and would reasonably compensate any
owner for the business they ran on the land. Birmingham Corporation claimed they were entitled
to no compensation since they did not own the land. The courts held that the subsidiary company
was an agent and Birmingham Corporation must pay compensation.

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6.3.3 When the entities are considered to be a single economic unit.

As a general rule, the courts have treated each company in the group as separate: one
company is not liable for another’s debts, and this generally extends to other liabilities.

D.H.N. Food Distributors Ltd. v Tower Hamlets London Borough Council [1976] 3 All ER
462
A subsidiary company of DHN Food Distributors Ltd owned land which London Borough of
Tower Hamlets issued a compulsory purchase order on. The company running the business was
the holding company and the premises were owned by the company’s wholly owned subsidiary.
The courts held that DHN Food Distributors Ltd‘s subsidiary was a single economic unit and
was able to claim compensation because it.

Adams v Cape Industries plc and Another (1991) 1 All ER 929


A worker, Adams who worked for a US subsidiary of Cape Industries plc, which marketed
asbestos in the US had suffered injuries through exposure to asbestos
dust and wanted to sue. This case was brought against the UK parent
company because its US subsidiary had no assets, he would have
received no compensation since there was no money to pay out. The
court of appeal refused to treat the UK parent company, its US subsidiary and an independent US
corporation through which it marketed asbestos in the United State as a single economic unit, or
to lift the veil of incorporation. This means that the plaintiff even if successful in their action
against the US subsidiary would receive no compensation since the subsidiary had no assets.

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6.3.4 In cases of national emergency, the courts may need to consider ownership of
companies.

The courts have occasionally raised the ‘veil’ and looked at the shareholders to disclose a
company’s nationality in wartime, or other national emergencies where sanctions are imposed.

Daimler Co Ltd v Continental Tyre and Rubber (GB) Ltd (1916) 2 AC 307
Continental Tyre and Rubber (GB) Ltd were registered in Britain. Continental Tyre and Rubber
(GB) Ltd sued Daimler Co Ltd for debts owing. Continental Tyre and Rubber (GB) Ltd was a
UK company; however all shareholders but one were German; almost all
of the shares were German owned. Daimler Co Ltd claimed that they
should not pay the debt to German individuals to prevent money going
towards Germany’s war effort. The court held that Continental Tyre and
Rubber (GB) Ltd (1916) was German.

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7.0 Conclusion

Through this assignment, we can understand and know that a company once
incorporated, it becomes an artificial legal person which recognized by the law that separate and
distinct from its members and shareholders and capable of having its own rights, duties and
obligation and can sue or be sued in its own name.

Thus, just like Ambrose Bierce (1842-c. 1914), American writer said "Corporation. An
ingenious device for obtaining individual profit without individual responsibility.".

However, there still have some circumstances that this doctrine or principle of corporate
personality which carries with the concept of limited liability may disregard or ignore by the
court especially in dealing with group companies and subsidiaries and where the corporate form
is being used as a vehicle to perpetrate fraud or as a "mere façade concealing the true facts."

The image of Sir Edward Coke (1552-1634), English jurist and parliamentarian said
that "Corporations cannot commit treason, or be outlawed or excommunicated, for they have no
souls." had truly shown that a company is only an ‘artificial’ person only not a ‘real’ person.
Although it can sue people and make contract under its name but it didn’t have mind and spirit to
commit fraud or illegal action or even disloyalty. That’s why there is an exception for the
company not to lift the ‘veil’ of incorporation because there may have someone used this
advantages as a vehicle to carry out fraud.

Thus, in my view, I will agree that various authors have criticized metaphors commonly
used by the court in veil-piercing cases (such as ‘sham’, ‘simulacrum’, ‘mask’, ‘fiction’, ‘myth’
as being no more than conclusary terms, which allow the courts to do as they please on the basis
of policy. This is because these criticized metaphors shows the court’s responsibility for giving a
truthfully and acceptable judgment based on the veil-piercing cases they heard.

In general, the main reason of forming a company certainly is to earn profits by running
the business smoothly just like Alexandre Dumas (1802-1870), prolific French author of

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plays, popular romances, and historical novel said that "Business, that's easily defined; it's
other people's money."

Harold S. Geneen, an American businessman said that "In business, words are words;
explanations are explanations, promises are promises, but only performance is reality”.

So in order to earn more money in the business, the performance that should contribute in
the business, the efficiency of using the knowledge and skill of handling a business in turn to
success is important although we have know the advantages and disadvantages of our business
form. And based on this, we also should use the advantages of business form that we have in
proper way not inappropriate way just like those veil-piercing cases that had shown in the
assignment.

We should use our ability of running the business properly, we should find solution to cut
the losses in which to eliminate the disadvantages appear in the business, and let the profit run
sufficiently where using the advantages of the business efficiently not sinking at the back of the
veil of incorporation doing something that is not the purpose for running a business, for forming
a company.

Thus, I think that those criticized metaphors commonly used by the court in veil-piercing
cases are necessary since this give those outlaw a lesson and this also show the degree of
illegitimate that they had committed which let the people know the rules and regulation more
clearly and precisely.

Thus, in the end, we must learn that, we should run the business legitimately and should
be down-to-earth, instead of surreptitiously running it improper on the sly because this
nevertheless will be found and held by the court once and for all.

28
REFERENCE
Books:
Geoffrey Morse. Charlesworth’s Company Law. 13th edition.

Notes:
Notes from lecturer, DR. GOPENATHAN RAMAN NAIR

Internet:
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http://www.experiencefestival.com/salomon_v_salomon_amp_co_-_background [accessed 29
Dec 2009]

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Md. Rodzi Harun. 1998. “Nature of a Company” [Online]


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