Company Law Flashcards
Salomon v Salomon
Gave the Salomon principle that a company is to be treated as a separate legal entity.
Case concerned unsecured creditors in the liquidation of Salomon Ltd who sought to make Salomon, the majority shareholder, personally liable for the companies debts.
The HoL held that, when a company is duly incorporated, it becomes an independent person with its rights and liabilities apportioned to itself. The motives of those who took part in the promotion of the company are irrelevant when discussing what those rights and liabilities are. The legal fiction of the corporate veil between the company and it’s members was created in this case
Lee v Lee’s Air Farming
It is possible for a person acting in one capacity in a company to give himself orders in another capacity.
This was a NZ case where it was held that a person could be both the owner and an employee of a company
Macaura v Norther Assurance Co
Due to the company being a separate legal person, documents must be signed by the company to have an insurable interest.
An insurance policy was taken in the owners name and not the companies and therefore the assurance company did not have to pay out
Adams v Cape Industries
This was a case involving negligence and asbestos.
A subsidiary company in Texas was held liable for damages but a question was raised as to whether their UK based parent company were also liable for these damages.
The courts held that the Salomon principle applied and that the two companies were separate entities and thus the parent company were not liable.
The court also held that they were NOT free to disregard the Salomon principle if they did not feel as though justice has been served.
Khan Freud
Outside of the UK the Salomon principle is viewed as ‘calamitous’
Smith, Stone and Knight v Birmingham City Council
Exception to the Salomon principle.
Authority for the fact that an exception to the Salomon principle exists when there is a principle-agent relationship between the subsidiary and parent company
DHN Foods v Tower Hamlets North London Borough Council
Exception to the Saloman principle because the companies involved formed a single economic entity
Woolfson v Strathclyde Regional Council
The single economic entity exception to the Salomon principle did not apply in this case because the companies involved where not wholly owned by the same people
What are the grounds for lifting the veil of incorporation
1) Statutory
2) Sham and facade companies
3) illegality
4) oppression
5) Fraud
6) Tax liability
Re Gerald Cooper
Veil of incorporation was lifted under the IA 1986, s.213 because a customer was asked to pay in advance on an order that the directors knew they could not fulfil. Directors were therefore liable.
Re Produce Marketing Consortium
Veil of incorporation was lifted under the IA 1986, s.214 because the directors ought to have known that the company could not pay their debts. Directors were therefore liable
In this case it was held that the test was an objective one and the directors were not judged on what information they had, but on what information a reasonably diligent director could have ascertained
Gilford Motor Company
Veil of incorporation will be lifted where a company is created to avoid liabilities.
In this case the liability was a restrictive covenant so that said that the company owner could not compete with his former employer
Daimler Co Ltd v Continental Tyre and Rubber
Veil of incorporation lifted on the ground of illegality.
It is illegal to trade with an enemy at the time of war and CT&R was German owned
Re Bugle Press
Veil of incorporation lifted because of the oppression of minority shareholders
Re Darby
Veil of incorporation lifted on the grounds of fraud. Money was fraudulently filtered through a number of sham corporations
R v Register of Companies
An infamous prostitute tried to form a company under the name Prostitutes Ltd and later, Hookers Ltd, which were both rejected
Peveril Gold Mines Ltd
If the rules of the company’s constitution conflict with the CA 2006 then the CA will prevail
St Johnstone FC v The SFA
If the rules of the company’s constitution conflict with the common law then the common law will prevail
Hickman v Kent
A company may sue its shareholders
Wood v Odessa
Shareholders may sue the company
Rayfields v Hands
In exceptional circumstances shareholders can sue each other (this rule can also be found in the CA 2006, s.33)
Eley v Positive Life Assurance Co
Outsider rights (rights granted to a specific person under the constitution) are not enforceable and must be contained in a separate contract to be enforceable
Edwards v Halliwell
Any alteration of a company’s constitution without a special resolution will be invalid
Allen v Gold reefs of West Africa Co Ltd
Any alteration of the constitution must be in good faith
Brown v British Abrasive Wheel
The expulsion of minority shareholders without justification is not allowed
Shuttleworth v Cox Brothers
The expulsion of directors without justification is not allowed.
In this case it was held that the alteration of the articles was bona fide for the benefit of the company
