Lifting the corporate veil

PLZ GO TO THE LINK

/forum/lifting-of-the-corporate-veil--79344.asp

to be short and clear , when a company is incorprated it enjoys d concept of seperate legal entity. it is also knwn as corporate body / corporate personality / corporate facade. that means d company and d members who form it are distinct and different.  when corporate personality of a company is misused by individuals who may be members, officers, and other employees. in such a situation d law ll disregard corporate personality. or set aside corporate facade and treat company and individuals behind d company as one and same. this is knwn as lifting or piercing of corporate veil.

Statutory support of lifting the veil( English law)
1) Reduction of number of members
Under section 24 of the companies act if a public company carries on business for more than six months may become liable jointly and severally with the company for the payment of debts the right that this section confers on creditors is limited. it is only that member who remains after 6 months that can be sued. The anomaly of this section is that the liability attaches to a member and not a director unless the director also happens to be a director as well. This section has very little practical utility because of the limitation.

2) Fraudulent or wrongful trading: -
a) Criminal liability: -
If any business of a company is carried on with the intend to defraud creditors of the company or creditors of any other person or for any fraudulent purpose who was knowingly a party to the carrying on of the business in that manner is liable to imprisonment or fine or both

This applies whether or not the company has been or is in the course of being wound up.
The civil liability for the same offence in now a part of the Insolvency Act

b) Sections 213-
(1) If in the course of winding up of a company it appears that any business of the company has been carried on with the intend to defraud creditors of the company or creditors of any other person or for any fraudulent purpose...then
(2) The court on application of the liquidator may declare that person in who were knowingly parties to the carrying on of business in that manner are liable to make such contributions (if any) as the court thinks proper.

Wrongful trading is dealt with in section 214 of the insolvency act and has similar provisions to section 213.however this section operates only in cases of insolvent liquidation and the declaration can be made only against a person who at some time before the commencement of winding up, was a director of the company and knew or ought to have concluded at that time that there was no reasonable prospect that the company would avoid going into liquidation.
No such declaration will take place is the court is satisfied that the person took all the possible steps to minimize the losses.
These sections have been considered to be opposed to the Solomon principle: -

3) Abuse of company names or employment of disqualified directors
Section 216 of the Insolvency Act now makes it an offence for anyone who was a director or a shadow director of the original company at any time during the 12 months preceding its going into insolvent liquidation to be in any way concerned (except with leave of court) during the next five years in the formation, management, of a company or business with a name by which the original company was known or one so similar as to suggest an association with that company.

A person acting in violation of 216 is under 217 personally liable, jointly and severally with that company and any other person so liable, for the debts and other liabilities of that company and any other person so liable, for the debts and liabilities of that company incurred while he was concerned in its management n breach of section 216.

d) Misdiscripttion of the company
Section 349(4) of the companies act provides that if any officer of the company or other person acting on its behalf
Signs or authorizes to be signed on behalf of the company any bill of exchange, promissory note, endorsement, cheque or order for money or goods in which the companies name is not mentioned in legible letters..He is liable to a fine and he is personally liable to the holder of such as mentioned above.

e) Premature trading.
Another example of personal liability is section 117 (8). Under this section a public limited company newly incorporated as such must not "do business or exercise any borrowing power" until it has obtained from the registrar of companies a certificate that has complied with the provisions of the act relating to the raising of the prescribed share capital or until it has re-registered as a private company. if it enters into any transaction contrary to this provision not only are the company and it's officers in default ,liable to pay fines but it the company fails to comply with its obligations in that connection within 21 days of being called upon to do so, the directors of the company are jointly and severally liable to indemnify the other party in respect of any loss or damage suffered by reason of the company's failure.

Conclusion:
The Judgment of the Court Of Appeal in the Adams case is the current law, which is nothing more than a reiteration of the law laid down by the House of Lords in Solomon's case. The bottom line being only the court will lift the veil in the face of grave abuse of the corporate form not otherwise.