lifting the corporte veil

Jean , Lynette , Lauren and Ryan the director of W H Ltd , own one quarter of the company 's issued shares each . The company operates its business by providing management services to commercial organizations . Among the four of the directors , three are not satisfied with the performance of the company in terms of profitability . While dealing with management services for a foreign company , they decided to form a new company Jean , Lynette and Lauren then formed a new company , LJM Ltd in which they would be the directors and shareholders

LJM Ltd was

incorporated . W H Ltd has sufficient training facilities and equipment to fulfil the potential contract . In a board meeting of W H Ltd , it was resolved that W H Ltd will sell its assets and stock to LJM Ltd at less than the market value . Subsequently W H Ltd became insolvent and the liquidation process was initiated . This indicates the malafide intent of these directors . Their aim is to defraud the creditors and the other shareholder whom they have blamed for all the troubles of the company . Instead of making efforts to resuscitate the old company , these directors have formed a new company and sold the assets of the old company to it at a loss

For assessing the liabilities , of the directors and for determining the circumstances , under which the corporate veil can be pierced by the courts , and for assessing the breaches in fiduciary duties and responsibilities by Jean , Lynette and Lauren we have to consider the provisions of the companies ' act 1985 and the insolvency act of 1986

A company on incorporation is a legal entity or person distinct from its members and its property is not the property of the members . The company having a separate identity from its directors and shareholders and the company 's acts were not those of a shareholder , nor were its liabilities the liabilities of its shareholders even though the shares were held in trust for them

This concept was established in the following case . Saloman v Saloman Co (1897 . Saloman was a leather merchant who formed a company in which his wife and five children held a share each . This was in to comply with the Companies Act of that time , which required seven shareholders as a minimum . The rest of the shares were held by him After this formation of the company , his liability reduced from unlimited to limited

The company , after some time , went into liquidation and the Court of Appeal held that the shareholding was not bonafide but contrived to favour Saloman . However , the House of Lords reversed this decision and held that Saloman was liable only to a limited extent and Lord McNaghten emphasized that the company and its promoter (s ) are different

Further , a company cannot be characterised as an agent of its shareholders unless there is clear evidence to show that the company in fact is acting as an agent of its shareholders in a particular transaction and the property of...