The Company Chp 7-10 Flashcards
What are the main features of a company? (six)
- Own legal personality
- Company, not shareholders are responsible for company’s own liabilities
- In Ltd Co, shareholders cannot be required to pay more money into the company, apart from un-paid amounts on their shares
- Perpetual succession - continues even if holders leave or die, and ends only when terminated by legal process
- Subject to disclosure rules
- Formed by legal process
What two cases demonstrated the full implications of a company having it’s own separate legal personality?
Salomon v Salomon 1897 Court permitted a one-man business to enjoy benefits of a separate legal personality, distinct from company’s owner and manager
Macaura v Northern Assurance 1925 Assets do not belong to members, insurance policies must be taken out in company name
What is lifting/piercing the veil?
Where court refuses to recognise the company and its owners as separate (separate legal personality)
Explain case law and decisions behind lifting the corporate veil?
Adams v Cape Industries 1990 clarified the circumstances in which the veil could/not be pierced (confirmed in Prest v Petrodel 2013 and VTB v Nutriek 2013)
It rejected two possible grounds:
- “the justice of the case” - too vague
- “single economic entity” - mere fact group companies run as one single entity (previously allowed by DHN Food v Tower Hamlets BC 1976, then doubted by Woolfson v Strathclyde RC 1978)
It CAN be pierced where company is a “façade” or sham company but ONLY where it is being used to enable the controller of the company to evade an EXISTING obligation (Gilford Motor v Horne 1933, existing non solicitation clause)
Which three cases set down and confirmed the circumstances in which the court would lift the veil?
Adams v Cape Industries 1990 clarified the circumstances in which the veil could/not be pierced (confirmed in Prest v Petrodel 2013 and VTB v Nutriek 2013)
When can the veil be pierced?
It CAN be pierced where company is a “façade” or sham company but ONLY where it is being used to enable the controller of the company to evade an EXISTING obligation (Gilford Motor v Horne 1933, existing non solicitation clause)
A company used to prevent future liabilities is not a façade
In which case was Adams v Cape Industries 1990 not followed?
Creasey v Breachwood Motors 1993 - assets from one company against which former employee was claiming unfair dismissal, were transferred to another company.
Creasey was strongly disapproved of in Ord v Belhaven Pubs 1998 which insisted that the decision in Adams should be followed in future.
Name the three situations having similar consequences to veil piercing
- Statutory/contractual provisions requiring a group to be treated as a single economic unit (i.e. tax statutes)
- Company being an agent of its shareholders - Re FG (Films) 1953 (Adams accepted this could happen but only if the owners authorise company to act as agent (unlikely))
- Under s214 IA 1986 directors of insolvent companies can be made to contribute to assets if guilty of wrongful trading
Why do claimants sometimes turn to actions in tort?
Due to veil piercing being difficult, some claimants turn to actions in tort, arguing directors or shareholders are personally liable.
When will action in tort against directors be/not be successful?
Williams v Natural Life 1998 - attempt to sue director in tort of negligent misstatement failed.
Director only liable for negligent misstatement if they have assumed personal responsibility (clear evidence of such) for accuracy of statement
If director sued for tort of deceit, no need to show assumed personal responsibility for truth of their statement - Standard Chartered Bank v Pakistan National Shipping Corp 2003
When will action in tort against shareholders be/not be successful (usually parent/sub scenarios)?
Chandler v Cape 2012 - action brought against parent for PI suffered by employee of sub. Succeeded.
Parent company owed its duty of care to employee of sub. But only if:
- Parent/sub must operate in same business (pure holding co not sufficient Thompson v Renwick 2014)
- Parent as knowledgeable about H&S in that industry as sub
- sub operations are unsafe and parent ought to/knew
- sub employees must rely on parent to safeguard their H&S
What case came after Chandler v Cape 2012 regarding shareholder tort liability?
AAA v Unilever 2018 - took more restrictive approach to when parent liable for injuries inflicted by subsidiary.
Parent owes duty of care to those injured by subsidiary negligence if guilty of misfeasance (making subsidiary harm someone).
What types of company are there?
Registered
- Limited/unlimited (can change with unanimous consent of members)
- Limited by shares or guarantee
- Public or private (can change with special resolution). Public cannot be unlimited. £50k + share capital.
Chartered (formed by Royal Charter for non profit making bodies)
Statutory companies (formed by special act of parliament)
What legislation governs model articles?
Companies (Model Articles) Regulations 2008
Sch 1 - Private by shares
Sch 2 - Private by guarantee
Sch 3 - Public companies
What is a promoter?
One who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose - Twycross v Grant 1877