Companies Flashcards
Salomon v Salomon & Co. Ltd [1897] AC 22
*****(Separate Legal Personality)
Shows how the corporate form can be used to protect the assets of shareholders against creditors that are owed money by the company.
If the business becomes insolvent and the person is a sole trade the individual will be personally liable to satisfy the creditors
If the business is carried on by a company then it is the assets of the company which are used to satisfy the creditors and if the company assets are insufficient the creditor is out of luck.
( The House Of Lords Salomon held that Salomon was not liable for those debts on the basis of separate legal personality.
The company alone were liable for these debts.
The creditors had traded with the company which had been duly formed, they had not traded with Salomon himself.
- No matter that Salomon was by far the biggest shareholder in the company
- Also no matter that the 7 subscribers for shares under the memorandum were all family.
Macaura v Northern Assurance Co. Ltd [1925] AC 619
M sought to recover the loss for the fire damage to the timber from insurance that he had taken out under his own name shortly before the fire.
The Insurers refused to pay out on the grounds that he had no insurable interest in the timber as an unsecured creditor or a shareholder.
To take out an insurance policy you must have an insurable interest, a shareholder and unsecured creditor would not have an insurable interest in the timber owned by the company.
He was insuring the timber but he did not own the timber.
HOL upheld this view. They said M could not recover as the timber now belonged to the company and he had no interest in it.
*Lee v Lee’s Air Farming Ltd [1961] AC 12
Privy Council (final court of appeal at this time) Held that GL was a worker under the definition of the legislation.
Made it clear that this situation was a logical consequence from Salomon in the way that a person can have dual capacity.
The company as a separate legal entity was able to enter into employment with its “controlling shareholder and governing director” under which that shareholder director was employed by the company to do work for it in connection with its business.
*Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500
Two individuals; K and N were investment managers with meridian
They were trying to take over another company = ENC
K was described as Chief investment officer
N was described as a Senior Portfolio manager
They had a scheme to buy shares in ENC however this fell afoul of New Zealand stock market rules.
They were going to use money that meridian managed with the result that meridian was the owner of a threshold number of shares in a company on the N.Z. stock exchanged. The threshold level means that if you get to that level of shares you must tell a disclosure of their holdings to various parties.
Such a disclosure was not made = so the security commission brought proceedings against meridian.
This activity was not reported to K’s superior; Mr A or to the board members of meridian.
K had been a managing director until he was replaced by A.
HELD, that the actions of K and N could be attributed to Meridian who were therefor liable for breaches of N.Z. security laws.
There were two sources of rules;
1) the constitutional documents of the company e.g. articles of association which deals with the internal running of the company. He called these “PRIMARY RULES OF ATTRIBUTION”
2) General rules which supplement the primary rules. The primary rules are insufficient to let the company “go out into the world and do business”. Not everything that is done on the companies behalf can be expected to be the subject of some director’s resolution, hence there is reliance on GERNERL RULES OF ATTRIBUTION, which relate to agency principles.
In Meridian, Koo was acting for Meridian, even though he did something wrong. This wrong is then attributed to the company, as it is the company through which the trading takes place. Koo is not trading in a personal capacity.
