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Company Law - English law - Case Study Example

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Company Law - English law

Commentators have attempted to categorise those decisions under various headings, such as agency, fraud, group enterprise, tort and so forth6. What is clear on a close reading of the cases which have distinguished Salomon is that the courts will only interfere - by lifting the veil of incorporation - where there is clear evidence of wrongdoing or where they are required to interfere by Statute. There is therefore a presumption that members of a limited company are only liable to the extent of any unpaid amount on nominal value of their shares unless 'wrongdoing' can be established.
LJM Limited seems to have been incorporated for the sole intention of providing a vehicle for the directors Jean, Lynette and Lauren to unlawfully deprive W&H Limited, its shareholders and its members of its corporate assets and any retained profits from the international contract.
There is authority to suggest that the courts will lift the veil to prevent evasion of an existing obligation7 and the court will grant an injunction/specific performance in that instance. For a short while it also seemed to be the case that the court would lift the veil where there was clear evidence of asset stripping.

In Creasey v. Breachwood Motors Ltd [1992]8 proprietors of Breachwood Welwyn Ltd transferred that company's assets to the defendant company. The evidence indicated that the defendant company had been formed for the sole purpose of avoiding the payment of a substantial wrongful dismissal claim. Breachwood Welwyn Ltd was then struck off the company register following the procedure laid down in Section 652 of the Companies Act 1985; hence depriving the plaintiff of any redress. Robert Southwell QC, sitting as deputy High Court Judge, held that the plaintiff could present his claim for damages directly against the new company, Breachwood Motors Limited, as its sole purpose was to strip Breachwood Welwyn's assets and deprive Creasey of redress.

The decision in Creasey was unequivocally overruled in Ord & Another v Belhaven Pubs Ltd [1998] by the Court of Appeal. Hobhouse L.J said:
" Creasey v. Breachwood . represents a wrong adoption of the principle of piercing the corporate veil. Therefore, in my judgement the case of Creasey v. Breachwood should no longer be treated as authoritative".

The Court of Appeal cited its previous decision in Adams v. Cape Industries plc [1990]9 where plaintiffs were not able to seek redress from a holding company when its subsidiary (the defendant) went into liquidation. The House of Lords have endorsed this stricter interpretation of Salomon more recently in Williams v. Natural Life Health Foods Ltd [1998]10. In that case a franchise company had already gone into liquidation by the time a misrepresentation was discovered. The plaintiff sought redress directly from the sole director of the former franchise company. Their Lordships held not only that the corporate veil was sacrosanct and should only be lifted in the most ...Show more

Summary

'The company is at law a different person altogether from the subscribers. Nor are subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the [Companies] Act.'2
It is a general principle of English law that it is not possible in the absence of agency, a trust relationship or wrongful trading to hold one person liable for the debts of another.3 However, like most common law principles and judicial interpretations it is a rebuttable presumption which must give way to a statement to the contrary 'in clear and unequivocal language'4 by Parliament…
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Company Law - English law essay example
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