PIERCING THE CORPORATE VEIL Flashcards
(23 cards)
What does the term ‘Corporate Veil’ refer to?
The separate legal personality of a company that protects its shareholders from personal liability for the company’s debts.
Courts may lift or pierce the corporate veil under certain circumstances.
Under what conditions can the corporate veil be pierced?
When the corporate entity is used to justify wrong, protect fraud, or defend crime.
Courts look at the substance of actions rather than mere legal form.
What is the difference between ‘lifting’ and ‘piercing’ the corporate veil?
Lifting the veil considers who the shareholders or directors are without disregarding the company’s identity, while piercing treats the company’s liabilities as those of its shareholders or directors.
This distinction affects the legal responsibility of individuals behind the company.
What was determined in the case of Pioneer Concrete Services Ltd v Yelnah (Pty) Ltd?
‘Lifting the veil’ allows courts to look behind the legal personality to identify the real controllers of a company.
This case established the precedent for courts to investigate the individuals behind corporate structures.
What did the court conclude in Daimler Co Ltd v Continental Tyre & Rubber Co Ltd?
The company was considered an enemy alien based on the nationality of its controllers, despite being an English company.
This case illustrates how the corporate veil can be lifted based on the actions of its controllers.
What are some common law grounds for piercing the corporate veil?
- Fraud and improper conduct
- Using a company to evade contractual obligations
- Existence of an underlying partnership
These grounds highlight the situations where courts may disregard the separate legal personality.
What is the significance of the case In re Darby, Ex parte Brougham?
The court held a director personally liable for fraudulent intentions behind the company’s formation.
This case emphasized that corporate personality cannot shield wrongdoing.
What principle was established in Botha v Van Niekerk?
The law may ignore the principle of separate identity if unconscionable injustice occurs due to improper conduct.
This case recognized the need for equitable treatment in corporate liability.
What change did Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd introduce regarding piercing the corporate veil?
It emphasized a more flexible approach, allowing courts to determine piercing based on the facts of each case rather than rigid tests.
This case laid down guiding principles for when a court may pierce the corporate veil.
What does Section 424 of the Companies Act of 1973 allow?
It permits personal liability for company debts on directors if there is fraudulent or reckless trading.
This section provides a statutory basis for piercing the corporate veil in cases of misconduct.
What is the concept of ‘unconscionable abuse’ as per the Companies Act of 2008?
A situation where a company’s juristic personality is misused to perpetrate fraud or improper purposes.
This concept allows for the lifting of the corporate veil under specific circumstances.
In which case was it concluded that a group of companies operated as a single entity?
Ex parte Gore, where the court recognized an unconscionable abuse of corporate identities within the King Group.
The case demonstrated how disregarding corporate separateness can be justified in cases of significant misconduct.
What does s 20(9) of the Act address?
It addresses the remedy for unconscionable abuse of the juristic personality of a company.
What did the court conclude about the King Group’s operations?
The court concluded that the group operated as one entity and disregarded the separate corporate personalities of the companies.
What are the terms used to describe conduct that may invoke s 20(9)?
- sham
- device
- stratagem
- conceivably much more
True or False: The remedy under s 20(9) is considered exceptional and should only be used as a last resort.
False
What does the term ‘unconscionable abuse’ imply in the context of s 20(9)?
It implies a diverse range of conduct related to the formation and use of companies that negatively affects third parties.
Who can apply for relief under s 20(9)?
Any ‘interested person’ can apply for relief under s 20(9).
What is the consequence for a director under s 77(3)(b) if they allow prohibited business conduct?
The director will be liable for any loss, damages, or costs sustained by the company.
Fill in the blank: Section 22(1) prohibits a company from conducting its business _______.
[recklessly, with gross negligence, with intent to defraud or for any fraudulent purpose]
What action can the Commission take under s 22(2) if a company is believed to be engaging in prohibited conduct?
The Commission may issue a notice to the company to show why it should be allowed to continue its business.
What does the court’s decision suggest about the treatment of the King Group’s companies?
The companies were treated as a single entity, disregarding their separate legal existence.
What does the phrase ‘piercing the corporate veil’ refer to?
It refers to disregarding the separate legal personality of a company to hold its directors liable.
