Business Organisation

Question 1

Separate entity, perpetual succession & limited liability:

Overview

Answer 1

A. Use of “members” instead of shareholders because there are many people who are members of a company but not shareholders (i.e. when people own shares through their nominee companies).

B. There are 3 implications resulting from incorporation:

(1) Separate Liability
(2) Limited Liability
(3) Perpetual succession

Question 2

Separate entity, perpetual succession & limited liability:

Separate entity

Answer 2

1. Business org is treated as a legal person, separate from its member humans. From this concept flow several important consequences:

a. Business can own property.
[Bowman v Secular Society: Company had capacity to receive prop in its own right as absolute beneficial owner and not as trustee.]

b. Biz property does not belong to the members, except shares (ss 7(1A), (4), (4A)).
[Macaura v Northern Assurance: M sold timber to company in exchange for shares. M insured timber lost in fire but insurance refused to pay out.
Held: M’s interest was in company, not the assets - could not claim insurance. Proprietary rights to timber transferred to company upon sale and it had the ability to hold that property.]
[Gramophone and Typewriter v Stanley: Company has the right so sue for its own profits.]

c. Members are not liable for the business’ debts.
d. Business can enter into contracts with members. Also can form legal r/s in its own capacity (Catherine Lee v Lee’s Air Farming).

e. Only business can sue to enforce obligations owed to it.
[*Foss v Harbottle (1843) (Vice Chancellor’s Court): 2 shareholders sued company’s directors alleging misuse of company’s funds.
Held: Cs couldn’t sue bc only biz entity can sue for wrongs done to it and not any of its members, unless specifically authorised to do so. The proper organ to commence actions on behalf of the company is Board of Directors.
Proper plaintiff rule in Foss: No member can arrogate to himself the company’s cause of action (even if the member is a substantial shareholder).
Rule applies to companies within a grp of companies.]

f. Biz must be sued separately from members.

Question 3

Separate entity, perpetual succession & limited liability:

Separate entity

Aron Salomon v A Salomon and Co Ltd [1897] 1 AC 22 (House of Lords)

Answer 3

AS sold business for shares. Company put into liquidation; enough money for secured creditors but not for the unsecured creditors. Latter sued.

Held:

1. Incorp created separate legal person; irrelevant that business of the company was the same as before and the same persons received the profits.
2. Company’s agent or trustee of the members and the members were therefore not liable for company’s obligations.
3. Subscribers as members are also not liable for the company’s debts.

Been accepted as good law in SG.
a. Doctrine of separate entity = Owner-controllers of a biz (company/LLP) can be guilty of stealing / dishonestly misappropriating business’ property. [*Lai Ah Kau v Public Prosecutor [1988] 2 SLR(R) 128 (HC)]

b. Company can be guilty of conspiracy with its controlling director. [*Nagase Singapore Pte Ltd v Ching Kai Huat [2008] 1 SLR(R) 80 (HC)]

Question 4

Separate entity, perpetual succession & limited liability:

Separate entity

Statutory Exceptions

Answer 4

1. S 144(2) CA: When a person signs, issues or authorises signing of certain instruments on which company’s name does not appear properly.
2. S 238 IRDA 2018: For fraudulent trading.
3. Ss 404 / 406 CA: When there is fraudulent inducement of investment / trading.
4. S 403(2)(b) CA: Where dividends are paid out and there are no available profits to pay them from.

Question 5

Separate entity, perpetual succession & limited liability:

Limited liability

General

Answer 5

Refers to the obligation of biz org’s members to contribute to biz funds in the event that biz cannot pay all its debts.

1. Basic principle: Ultimately, company is liable for its debts without limitation.
   a. Debts are incurred through borrowing from banks, or contracts to buy goods/services. If biz cannot pay, it will become insolvent.
2. DISTINCT from Separate Entity: If biz is separate from its members, members are not liable for its debts. Shareholders are liable only to share capital and not to company debts; personal interests are thus protected.
   Therefore, creditors must sue biz rather than members to recover debt. If biz cannot pay, it will become insolvent.
   Exception: Courts only pierce veil if corporate structure is abused.
3. Arises at point of insolvency.
   a. If no ltd liability: Members obliged to contribute towards biz’s assets to pay off the debts in full.
   b. If ltd liability, members only have to contribute a specified amount.
4. Opp cost of ltd liability is that company assets must be preserved for the benefit of creditors, since members are not liable for company’s debts.
   No law agst assets that are lost in biz deals that have gone bad or investments that have declined in value.
5. General rule: Assets cannot be returned to the members except under the following circumstances:
   a. Dividends: s403 CA (payable from profits only).
   b. Personal liability of the dirs under s403(2) CA if dividends paid exceed profits.
   c. Reduction of capital: ss78A–78K CA.
   d. Share buy-back: s76B–76K CA.
   e. Liquidation: IRDA 2018
6. Generally, return of assets to the members can only take place if the company is solvent (i.e. in a position to pay its debts as they fall due).

Question 6

Separate entity, perpetual succession & limited liability:

Limited liability

Consequences of failing to pay debts

(Company may be put to liquidation/winding up proceedings. 3 types of proceedings:
[1. Court-ordered winding up (ss 124, 125 IRDA)];
2. Voluntary winding up; and
3. Liquidation proceedings)

Answer 6

Court-ordered winding up (ss 124, 125 IRDA):

a. Creditor files OS applying for liquidation of company on grounds that it cannot pay its debts.
b. If court is satisfied, Winding Up Order will be made.
c. Once liquidator is appointed, dirs have no more powers to manage company.

Question 7

Separate entity, perpetual succession & limited liability:

Limited liability

Consequences of failing to pay debts

(Company may be put to liquidation/winding up proceedings. 3 types of proceedings:
1. Court-ordered winding up (ss 124, 125 IRDA);
[2. Voluntary winding up]; and
3. Liquidation proceedings)

Answer 7

Voluntary winding up:

a. Member’s Winding Up: Members pass a reso to wind up company. Dirs must make declaration of solvency (i.e. that all of company’s debts will be paid in due course).
b. Creditor’s Winding Up: When dirs cannot make a declaration of solvency. Creditors can choose liquidator and controls liquidator.
c. Note that this process is still initiated by members. If creditors want to liquidate company, must make application in court.

Question 8

Separate entity, perpetual succession & limited liability:

Limited liability

Consequences of failing to pay debts

(Company may be put to liquidation/winding up proceedings. 3 types of proceedings:
1. Court-ordered winding up (ss 124, 125 IRDA);
2. Voluntary winding up; and
[3. Liquidation proceedings])

Answer 8

Liquidation proceedings:

a. Company collects assets, realises them, pays off debts.
b. S 121 IRDA: If not enough to pay off debt, call upon members for contributions:.
c. S 121(1)(d) IRDA: If company limited by shares, no further contribution required if shares fully paid up.
d. S 121(1)(e) IRDA: If company ltd by guarantee, members can’t be called on to contribute more than what is guaranteed (stated in constitution; usually limited to nominal sum).
e. Part-repaid shares: Shares can be issued with part of issue price outstanding. Holder must pay balance of issue price at latest when company goes into liquidation. Members cannot lose more than what they have invested in the shares (i.e. liability ltd to that amount).

Question 9

Separate entity, perpetual succession & limited liability:

Perpetual succession

Answer 9

1. A logical consequence of the principle of separate legal entity.
   a. If a business entity has a legal personality separate from its members, then that legal personality endures even though there is a change in membership. Logically, the business entity remains in existence even if there are no members.
   b. Company theoretically can survive forever until they have been liquidated.

Question 10

Types of Companies:

Background

Answer 10

1. Foreign companies are not subject to the CA unless (a) expressly provided for; and (b) when the term “Corporation” is used: s4 CA.
2. Basic rule: Foreign companies are governed by the laws of the jurisdiction they are incorporated in.

Question 11

Types of Companies:

Public and Private companies

Answer 11

1. S 17 CA: Provides for formation of companies by subscribing to constitution and complying with registration requirements (found under s19 CA).
2. S 18 CA: Company with share capital can be incorporated as private company.
   a. Requires restriction on share transfer: Must have less than 50 members (note distinction b/w employees and members).
   b. Pte company has less than 20 members and none are corps = Exempt pte company.
   c. Exempt pte companies do not need to file balance sheet and profit and loss statements with annual return at ACRA.
   d. S 32 CA: Any default with the rules concerning pte companies may lead to ACRA serving notice that company ceased to be pte company.
   e. S 31 CA: Pte companies may be converted into public companies by lodging special resolution and altering the constitution.
3. Public companies are subject to more regulations.
   a. Some public companies have their shares listed on a stock ex, generally the Singapore Exchange (SGX) – allows public trading of shares, governed by SGX-issued rules, principally Listing Rules. While not all public companies are listed, all listed companies are public.

Question 12

Types of Companies:

Liability of members in limited and unlimited companies

Answer 12

1. S 30 CA: Subject to special resolution, can convert between ltd and unltd company.
2. Unltd coys = Members are liable for all business debts of company.
3. Ltd coys can be ltd by guarantee or shares.
   a. By Guarantee: S 4 CA.
   - S 121(1)(e) IRDA: Members liable to contribute to coy’s assets on winding up only up to amount guaranteed (per constitution) (i.e. usually nominal $1).
   - Generally for charitable, scientific, religious, artistic coys.

b. By Shares: S 4 CA.
- Members can only lose the amount paid or must pay per shares allocated.
- Members cannot be asked to pay more than amount unpaid on their shares (i.e. only entire investment can be lost).
- Holders of fully paid shares are immune from the vicissitudes of life that the company may face.

c. Yee Yut Ee [1978]: Coy was ordered by Industrial Arbitration Court to pay retrenchment benefits to staff. When coy failed to comply with the order, Court ordered that coy’s dirs be personally liable to pay the benefits.
Held: Court’s order quashed on basis that dirs are not liable for debts of an incorp coy except in cases of fraud, breach of warranty of authority, and other exceptional circumstances.
Policy reason: Otherwise no one would volunteer to be a dir of an incorp coy.

Question 13

Types of Companies:

Group of Companies

Answer 13

1. Group = Holding company + Subsidiaries
   a. NO such thing as grp legal entity.
   b. Impt when considering prep of financial statements: S 201(5) CA.
2. 2 criteria to determine holding-subsidiary r/s under S 5 CA:
   a. H controls more than 50% of voting power in S; or
   b. H controls the board composition of S; or
   c. S is a subsidiary of any corp that is H’s subsidiary.
3. Ultimate H Coy (s5A CA): One which isn’t the S of anything else.
4. Wholly-owned S (s5B CA): All shares owned by H, its nominees, its wholly-owned S, and nominees of its wholly-owned S.
5. S 6 CA - X is related to Y if:
   a. X is Y’s H;
   b. X is Y’s S; or (H/S r/s always related)
   c. X and Y share common H.

** Has ramifications: Dirs can make decisions for the interest of the whole grp rather than just the indiv coy, and that would not be a breach of dirs’ duties.

** Trying to hold a grp coy responsible for the obligations of another grp coy will prob not succeed if premised only on their common parentage and interests (Adams v Cape Industries plc).

** In a biz context, ‘group’ is often used to designate coys that are controlled by common shareholders - NO legal significance.

Question 14

Lifting the veil of incorporation:

Background

Answer 14

1. No definitive statement as to when Courts will ignore the corporate veil in SG.
   Generally, Courts tend to decline to pierce the corporate veil unless there are strong reasons to do so.
2. Coys are essential for conducting business, and are useful as vehicles for fraud, crime and deception.
   a. Very often, when there are legal proceedings, Courts are asked to ‘lift the veil of incorp’ and ignore the theoretical separate personality of a coy in order to prevent abuse of the corporate form.
3. Courts will only deviate from Salomon v Salomon because of:
   a. Purposive Interpretation of Statute;
   b. Court exercising equitable discretion or analogous discretion; and
   c. Coy used as a vehicle for fraud.

Question 15

Lifting the veil of incorporation:

Purposive Interpretation of Statute

[Evasion of Legal obligation - Prest v Petrodel Resources [2013]]

Answer 15

1. S 9A Interpretation Act: An interpretation that would promote the purpose or object underlying the written law (whether it’s expressly stated in written law or not) shall be preferred to an interpretation that wouldn’t promote that purpose or object.
   If intention of using coy is to defeat the object or purpose of written law (i.e. to take advantage of biz incentives and tax breaks or to avoid taxes), Courts are more likely to lift corporate veil.
2. Incorp of a coy hides the IDs of humans running the biz.
   a. While ACRA can retrieve much of the info of the coy in the public sphere, not every other jurisdiction is so transparent.
   b. E.g. Coys created in Cayman Islands or British Virgin Islands may be used as tax havens by the rich to shelter their wealth (legitimate or ill-gotten) from tax authorities of their country.
   c. Where assets are held in trust for controllers of the coy (matter of evidence), the corporate form doesn’t shield them from taxation.
   Likewise, sham transactions b/w coys may be entered into to reduce tax liability. Taxing statutes may contain provisions designed to deal with such circumvention (per s33A Stamp Duties Act (Cap 312) – provides Commissioner with discretion to disregard certain transactions and dispositions).
3. Coys may also be incorporated to avoid certain legal restrictions (i.e. ownership of props by foreigners).
   a. Statutes are often drafted to cover this sort of situation (i.e. s2(1) defs of ‘foreign person’, ‘SG company’, ‘SG LLP’ under Residential Property Act (Cap 274).

Question 16

Lifting the veil of incorporation:

Court Exercising Equitable Discretion or Analogous Discretion (1)

[Fraud / Sham or Facade]

Answer 16

1. When a claim is brought agst a coy that has committed some form of misfeasance against another entity, that other entity can argue for specific perf (an equitable remedy).
2. If there is evidence that the controller of the coy is abusing the corp form, eye of equity is not blind to the reality [*Aspatra Sdn Bhd v Bank Bumiputra Malaysia Bhd [1988] 1 MLJ 97 (M’sia Supreme Court)].

Question 17

Lifting the veil of incorporation:

Court Exercising Equitable Discretion or Analogous Discretion

Gilford Motor Company Ltd v Horne [1933] (UK CA)

[Evasion of Legal Obligation?]

Answer 17

On the facts, employee agreed by contract not to compete with employer, but left and set up own company.

Controller was trying to evade obligations or liabilities that he was subject to.

Question 18

Lifting the veil of incorporation:

Court Exercising Equitable Discretion or Analogous Discretion

Jones v Lipman [1962] (UK HC)

[Sham or Facade]

Answer 18

Landowner entered agreement to sell land, then instead incorporated a coy to which the land was sold, arguing land was now in hands of a third party.

Held: Corporate veil was pierced in the end.

Question 19

Lifting the veil of incorporation:

Court Exercising Equitable Discretion or Analogous Discretion

*Tiu Shi Kian v Red Rose Restaurant Sdn Bhd [1984] 2 MLJ 313 (M’sia HC)

[Evasion of Legal Obligation]

Answer 19

Ps ran Golden Million Cabaret and Night Club in Red Rose Restaurant (‘Red Rose’). Red Rose was wholly owned and controlled by Hotel Berjaya, wherein the Red Rose was situated. Dispute arose b/w Ps and Red Rose re renewal of Ps’ licence to operate the night club. Ps obtained an interlocutory injunction restraining Red Rose from interfering with their biz until the action was tried. But, one night, Ps found restaurant premises were locked in breach of the injunction. Ps then sought order of committal for contempt of Court agst Red Rose dirs. Pleaded that it was not Red Rose that locked up the restaurant, but Hotel Berjaya.

Held: Coy was transparent device to defeat justice and the 2 companies were functionally 1 entity. Accordingly held that there had been contempt of court.

Affirmed on appeal in *Datuk Hong Kim Sui v Tiu Shi Kian [1987] 1 MLJ 345 (M’sia Privy Council on appeal).

Question 20

Lifting the veil of incorporation:

Court Exercising Equitable Discretion or Analogous Discretion

*Raffles Town Club Pte Ltd v Lim Eng Hock Peter [2013] 1 SLR 374 (CA)

[Contrast with *Pek Seng Co Pte Ltd v Low Tin Kee [1989]]

Answer 20

CA held that new dirs were using RTC as a nominee to claim against former dirs for breaches of duties which former dirs as shareholders of RTC had already accepted or ratified over many years.

Ordered coy controllers to indemnify the coy for a failed action as it found that controllers were using the coy to pursue their own personal vendetta.

Didn’t allow separate legal personality of RTC to assist new dirs in a way to unjustly enrich themselves.

Question 21

Lifting the veil of incorporation:

Court Exercising Equitable Discretion or Analogous Discretion

*Pek Seng Co Pte Ltd v Low Tin Kee [1989] SGHC 83 (HC)

Answer 21

Chan Sek Keong J held that where a Mareva injunction is sought against the assets of a wholly-owned subsidiary, Court need only be satisfied of 2 conditions:

(1) Existence of a real risk of dissipation; and
(2) Existence of assets within the control of D.

Question 22

Lifting the veil of incorporation:

Company used as a Vehicle for Fraud

General

Answer 22

1. Courts tend to lift corporate veil in these scenarios.
   [Affirmed by Judith Prakash J in *Nagase SG Pte Ltd v Ching Kai Huat [2008] 1 SLR(R) 80, [17] (HC)]
2. BUT, while this is an attractive principle, it should be remembered that a person is always liable for his own torts, frauds, and crimes even though a coy may also be liable.

Question 23

Lifting the veil of incorporation:

Company used as a Vehicle for Fraud

*Gabriel Peter & Partners v Wee Chong Jin [1997] (SG CA)

[Liability of Dir in Coy Tort Commission depends on Dir’s Involvement]

Answer 23

P (law firm) sued coy dirs who had passed a dir’s reso making defamatory remarks against them. D attempted to strike out application by arguing that it was the coy who was liable and P sued the wrong party.

Held: Commission of a tort by a coy does not auto prove that Ds who manage its affairs are also guilty of the tort, but fact that a coy is interposed does not absolve the human from responsibility.

2. If chairman and MD procures/directs commission of the tort, he may be personally liable for the tort and the dmg flowing from it.
3. Thus, only if directing mind and will of the coy “procures or directs” the commission of the tort by the coy, he will be liable in respect of it. This requires a look at involvement level of the dirs.

Question 24

Lifting the veil of incorporation:

Company used as a Vehicle for Fraud

*TV Media Pte Ltd v De Cruz Andrea Heidi [2004] (SG CA)

[Issue of dir’s personal liability for his coy’s torts involves consideration of difficult policy questions]

Answer 24

A sued company on slimming pills which gave her liver failure. Issue was whether coy director-shareholder could be held liable.

Held: Issue of dir’s personal liability for his coy’s torts involves consideration of difficult policy questions.

1. On one hand, there is the separate entity principle and comm interest in allowing coys to enjoy the benefits of ltd liability.
2. On the other, coy dirs shouldn’t be allowed to escape personal liability to 3rd parties for torts they personally committed merely bc they committed the torts in the course of carrying out their duties as coy dirs.
   a. Whether dir is personally liable depends on the factual situation at hand.
   b. Court must look at involvement in the coy to determine the extent to which the dir is the coy’s alter ego.

Question 25

Lifting the veil of incorporation:

Company used as a Vehicle for Fraud

*New Line Productions Inc v Aglow Video Pte Ltd [2005] (SG HC)

[Where dirs order an act by the coy which amounts to a tort by the coy, they may be liable as joint tortfeasors on the basis that they have ‘procured or directed’ the wrong to be done]

Answer 25

Copyright owner sued web of separately incorporated coys and their dirs for copyright infringement. Issue was whether dirs were directing minds of coys and whether corporate veil should be lifted to make dirs personally liable.

1. Where dirs order an act by the coy which amounts to a tort by the coy, they may be liable as joint tortfeasors on the basis that they have ‘procured or directed’ the wrong to be done.
2. Courts will look at level of involvement to determine the extent to which he is the company’s alter ego.
   If dir is personally authorised, directed, and procured the coy’s negligent acts, the veil can be lifted and dir will be personally liable.
   However, insufficient to hold dir liable on the ground of his indifference or inaction alone.

Question 26

Lifting the veil of incorporation:

Company used as a Vehicle for Fraud

Ss 234, 238 IRDA 2018: For fraudulent trading.

Answer 26

Concerned provisions about fraudulent trading uncovered in the winding up of a coy.

Dirs would be liable as well.

Question 27

Lifting the veil of incorporation:

Coy used as alter ego of controller

Answer 27

Where controller has run the coy as an extension of himself (i.e. treating biz as his own), the corp veil may be lifted where the coy is a sham or façade concealing the true state of affairs.

Question 28

Lifting the veil of incorporation:

Coy used as alter ego of controller

*Alwie Handoyo v Tjong Very Sumito [2013] 4 SLR 308 (CA)

Answer 28

T sold shareholding interests in certain Indo coys. Proceeds then paid to 2 shell companies (AH and OAFL), owned by A on behalf of T. Transaction subsequently went sour; T alleged the payment arrangement came about thru misrep by parties close to or controlling the 2 shell companies which had been unjustly enriched in the process. T sought from A the payment remitted to OAFL.

1. TJ had held that in light of the elements of fraudulent misrep and unlawful means conspiracy, OAFL’s corp veil should be pierced on the basis of alter ego.
   a. A was the alter ego of OAFL which in reality was not operating as a separate entity. Thus, since the controller and the coy were not acting as separate entities, the corporate veil could be disregarded.
2. Held (CA): Accepted alter ego argument and held that it was a ground distinct from that based on façade or sham. Key qn that must be asked whenever an argument of alter ego is raised is whether the coy is carrying on the biz of its controller.

Question 29

Lifting the veil of incorporation:

Coy used as alter ego of controller

*Singapore Tourism Board v Children’s Media Ltd [2008] SGHC 77 (SG HC)

[Affirmed in Children’s Media Ltd v Singapore Tourism Board [2008] SGCA 45 (SG CA)]

Answer 29

A was CEO and dir of 2 coys that failed to stage a mega event “Listen Live” which Rs had paid sums amounting to >$6m.

Held: Coys were a façade and/or a sham, used by A to evade his legal obligations. He treated their assets as his own; hence their liabilities arising from the failure to stage the event should also be his.

Accordingly, the corp veil was lifted to impose joint and several liability.

Question 30

Lifting the veil of incorporation:

Use of the term “lifting of the veil”

Answer 30

Necessary (for clarity) to distinguish situations where there is no actual ‘lifting of the veil’, even though Courts may use the term:

(1) If coy doesn’t exist, no veil to lift. [Alter Ego]
* Asteroid Maritime Co Ltd v The owners of the Saudi Al-Jubail [1987] SGHC 71 (HC): Ship charterer was held to be the beneficial owner of it, despite it being ostensibly owned by a separate coy. Money for the purchase had come from D, and he ran coy as a front for his activities. He didn’t keep coy separate from his personal affairs.

(2) If coy holds property on trust for the controller of the company, it will be a question of evidence.
(3) Where coy is acting as an agent or nominee for the controller, this is also a matter of evidence.

(4) If need to attribute knowledge or intention to a coy, out of necessity the knowledge or intention of humans will be taken as the coy’.
[*New Line Productions v Aglow Video [2005] (HC): AV imported VCDs for which NLP held exclusive licence for replication and sale, distributing them under the name “TS Group”. Interim injunction was granted, but TS Group obtained supplies of the VCDs. NLP commenced suit against TS Group and its principal dirs, shareholders, and shareholders of coys under TS Group.
Held: The 4 dirs were the controlling mind and spirit of the coy and were therefore personally liable for infringing copyrights. They had acted dishonestly when they knowingly breached P’s copyright. Note that on the facts, corp veil was thus lifted among the Grp of Coys but personal liability was limited.]

In these cases, not necessary to ignore the corp personality of the coy. Note that it is always a matter of evidence whether the coy is a sham or whether a trust or agency exists.

Question 31

Lifting the veil of incorporation:

Piercing the corporate veil - 4 ways

Answer 31

1. Fraud: Where the fraud was perpetuated by the dir under the “alias” of the coy (Re Darby).
2. Sham or Facade: The corp veil will be lifted if Court finds that the coys were but mere corp names which the person had abused as cover for his own trading activities. (The Saudi Al Jubail)
3. Evasion of legal obligation: The veil may only be pierced to prevent the abuse of separate legal personality to evade the law or frustrate its performance, such that it deprives the coy or its controller from the advantage that they wouldn’t otherwise have obtained, but for the coy’s existence. (Prest v Petrodel)
4. Alter Ego: Key qn in determining whether coy is an alter ego is whether the coy is carrying on the biz of its controller. [Alwie v Tjong Very Sumito]
   If it is an alter ego, the firm is merely a conduit or front for the personal dealings of individual(s). Thus, in effect, the firm does not exist as a separate and independent entity envisaged in the corp legislation.

Question 32

Lifting the veil of incorporation:

Justified by “abuse of corporate form”

[Goh v Beyonics (2017 SGCA)]

Answer 32

Reasons for piercing of veil:

(a) to evade an existing legal obligation;
(b) as a mere ‘sham/façade/device’;
(c) to perpetuate fraud; and
(d) as an extension/alter ego of its controller.

Criticisms:
1. Where a decision is justified only by invoking such terms without also expounding the principle or policy at play, it is merely stating a desired outcome w/o explaining why that outcome is right. Such decisions therefore typically shed little light on the scope and rationale of the veil-lifting jurisdiction.

2. Moreover, Courts tend to look at policy considerations and their underlying rationale to arrive at their decision and mask them behind the general term of piercing of veil.

Question 33

Lifting the veil of incorporation:

Single Economic Entity

Answer 33

A. 2 aspects to be concerned about:
1. Ownership: Corporator owns coy beneficially (i.e. he keeps all the profits). This doesn’t always appear explicitly in cases but should be pleaded in litigation.

2. Control: Must be proven that, on the evidence, the corporator controls the coy. No lifting of the veil if corporator doesn’t have control. Often taken for granted in cases but is an essential prerequisite.

B. Where the lesser ownership and control, the harder to lift the corp veil.
[*Simgood Pte Ltd v MLC Barging Pte Ltd [2016] SGCA 46: Requires adduced evidence to demonstrate a high level of interconnectedness to be necessary for Court to pierce the corp veil.]

C. SG position: If a group of coys is run as an integrated biz, may be treated as a single economic entity.
Dependent on purposive interpretation of statutes, and qn of degree of econ integration of the biz.

Question 34

Lifting the veil of incorporation:

Single Economic Entity

*Hotel Jaya Puri Bhd v National Union of Hotel, Bar and Restaurant Workers [1980] 1 MLJ 109 (M’sia HC)

Answer 34

Workers of a wholly-owned S restaurant laid off, claimed compensation from hotel.

Held: Veil lifted. Although the 2 companies were legally separate entities, in reality, they were functionally 1 integral whole, management-wise.

Not an invariable rule. It depends on the statute and the degree of economic integration of the business.

Question 35

Lifting the veil of incorporation:

Single Economic Entity

*New Line Productions Inc v Aglow Video Pte Ltd [2005]

Answer 35

Held: Coys in the grp were really little pieces of mosaic forming a complete mural, glued together by 4 directing minds behind the grp who were common dirs, officers, and shareholders. As such, it was just to lift the corporate veil.

Question 36

Lifting the veil of incorporation:

Single Economic Entity

[In the absence of fraud, Courts are reluctant to treat the grp as a single entity, bc biz people are allowed to structure their ops as separate coys.]

*Win Line (UK) Ltd v Masterpart (SG) Pte Ltd [1999] 2 SLR(R) 24 (HC)

Answer 36

WL sued MP for wrongful repudiation of charter. Also sued DnM (3rd party coy) on basis that MP was sham of DnM (shared same offices, MP did biz with DnM’s financial backing and also biz which DnM could not do). WL sought dmgs, claiming that the 2 were organised as one economic entity.

Held: Veil not lifted bc this area of law had not been completely resolved. However, principle of treating coys within the same grp as 1 entity cannot be extended to a case where 2 coys have no common shareholders or dirs.

Question 37

Lifting the veil of incorporation:

Single Economic Entity

[In the absence of fraud, Courts are reluctant to treat the grp as a single entity, bc biz people are allowed to structure their ops as separate coys.]

*Cavenagh Investment Pte Ltd v Kaushik Rajiv [2013] 2 SLR 543 (HC)

Answer 37

CI and Lee Tat Prop owned by Mdm Ching. An LT employee committed fraud using CI’s property by acting without CI’s authority and receiving payments in his own name. CI sued tenants for trespass to land for the period and claimed mkt rent. Issue was whether coy could be held vicariously liable for the acts of an employee in another coy which was also owned by the same shareholder-dir.

Held: Starting point is that each coy within a “grp” remains a separate distinct entity. In absence of fraud or serious abuse of the corp form, Court declined to lift the corp veil to hold CI liable wrongs committed by an employee of Lee Tat.

Businesses are free to structure their operations to insulate one part of a biz from another: Adams v Cape Industries.

Question 38

Lifting the veil of incorporation:

Single Economic Entity

[In the absence of fraud, Courts are reluctant to treat the grp as a single entity, bc biz people are allowed to structure their ops as separate coys.]

*Manuchar Steel Hong Kong Ltd v Star Pacific Line Pte Ltd [2014] 4 SLR 832 (HC)

Answer 38

P had obtained an arbitral award against a coy but enforcement proceedings ineffectual. P then applied to commence proceedings against D on basis that D and other coy were part of a single economic entity.

Held (Shin JC): Application dismissed.
1. Not persuaded that a concept of a single economic entity existed at common law or at any rate under SG law.

2. Followed the approach in Prest v Petrodel: ID’d abuse of corp personality as the underlying basis for the corporate veil to be lifted.
3. Separate Legal Entity is the cornerstone of comm transactions and cannot be disregarded on the mere justification that “justice so requires” (Adams v Cape).
4. Cited legitimate use of “one-ship” coys to further proposition that single economic entity concept has no place in SG law.
5. BUT, there are exceptional situations where the law, by piercing thru the corp veil, ignores the separate legal personalities of the coy and its shareholders only where there has been some form of abuse.