Piercing Corporate Veil - Scenario Only Flashcards
What is the Solomon principle?
A company has a legal existence, separate and distinct from its members
When did the courts say they might pierce the corporate veil in Re a Company?
In the interests of Justice
What were the liquidator’s arguments in Solomon v Solomon?
- Mr Solomon was an agent for the company, and as such should be held personally liable
- The company was a sham contrary to legislation
What did the High Court decide in Solomon?
The HC initially found an agency relationship existed.
What did the Court of Appeal decide in Solomon?
The CoA rejected the agency argument and instead found that the company was a sham contrary to legislation.
What did the House of Lords decide in Solomon v Solomon?
The HoL unanimously rejected the decision of the CoA and found that once a company is properly incorporated, it acquires a separate legal personality separate from its owners.
The companies liabilities were its own and not the responsibility of its principal shareholder.
What did Solomon decide in terms of the effect of incorporation for creditors?
Creditors must seek redress from the company. Insolvency could have dire consequences for creditors, but creditors must keep in mind that they are dealing with a limited liability company.
What does the CA2014 say about single-member companies?
The CA allows for an LTD to be a single-member company. An argument that there is only one shareholder/director in this respect will not succeed.
[Agency] What questions must be answered in order for an agency argument to succeed, according to Smith, Stone and Knight Ltd? (1-6)
- Were profits of the subsidiary treated as those by the parent company?
- Was management appointed by the parent company?
- Was the parent company the head and brains?
- Did the parent company govern the operation of the subsidiary?
- Were the subsidiary profits the result of the skill and direction of the parent?
- Was the parent company in effectual and constant control?
[Agency] What was decided in Adams v Cape Industries?
The principle of Solomon v Solomon cannot be disregarded merely because it would be just to do so. The SLP can effectively be used to avoid future legal obligations (unless there is some fraud etc)
[Single Economic Entity] What was decided in DHN Food Distributors Ltd v Tower Hamlets Borough Council?
The courts could disregard the SLP of a group of companies, treating them as one, if the justice of the case required.
The CoA allowed a parent company to claim compensation for a loss that only its subsidiary should have been entitled, at law, to claim.
[Single Economic Entity] What will the courts consider when determining whether to disregard the SLP?
The level of independence the subsidiaries have, how decisions are made etc. (Power Supermarkets Ltd v Crumlin Investments Ltd and Dunnes Stores (Crumlin) Ltd)
What was the outcome of Power Supermarkets?
The second defendant was bound by the contract, even though not a party to it
What did the court decide in State McInerney & Co Ltd v Dublin City Council?
The corporate veil cannot be lowered and raised at the will of the parent company
Explain what happened in Allied Irish Coal Supplies Ltd v Powell Duffryn Intl. Fuels Ltd
Interests of justice dismissed here.
Plaintiff sued defendant for breach of contract in relation to sale of supplies
Plaintiff sought to join parent company as co-defendant as there was concern that the defendant would not be able to pay the debt.
SC refused to allow, noting that the concept of SLP was to allow a person’s affairs to be kept in a separate compartment.
Also noted in the high court that the corporate veil cannot be used to make the assets of the parent company available to meet the liabilities of the subsidiary.
Distinguished this case from Power Supermarkets regardless of control level
Disregarding SLP involves exceptional circumstances
