Doctrine of indoor management and piercing of corporate veil
company law - lifting the corporate veil - akash
1. SRN: 111180404
Oral Presentation for Law Skill
Portfolio 2
Under what circumstances the
Corporate Veil may be Lifted?
Presented By
Sultan Muhammad Akash
3. Principle of Corporate Personality
• In the eyes of law, if a company is duly
incorporated it has a separate legal entity.
In essence it means that shareholders,
directors and employees are not liable for
the debts of the company.
• When any fraudulent and dishonest use is
made of the legal entity, the individuals
concerned will not be allowed to take
shelter behind the corporate personality.
4. • In this situation, the Courts will break
through the corporate shell and apply the
principle of “lifting the veil”
• Lifting the veil refers to a situation where
the courts put aside limited liability and
hold a corporation’s shareholders or
directors personally liable for the
corporation’s actions or debts.
5. Law will lift the corporate veil
• Under statutory provisions
• Under judicial interpretation
6. Under statutory provisions
• S. 213 of Insolvency Act 1986 (IA 1986)
‘fraudulent trading’ provision requires an
intent to defraud.
• S. 214 of IA 1986 ‘wrongful trading’
provision requires to prove wrongdoing on
the part of directors.
7. Under judicial interpretation
• Classical veil lifting (1897 - 1966)
> Salomon v Salomon & Co Ltd [1896]
UKHL 1, Lee and Macaura v. Northern
Assurance Co. Ltd
> Daimler Co. Ltd (national security)
> Gilford Motor Co. Ltd (front)
> Jones v. Lipman (facade)
> Re Bugle Press (mere facade for the
majority shareholder)
8. • The interventionist years (1966 - 1989)
> DHN Food Distributors Ltd v Tower
Hamlets London Borough Council [1976] 1
WLR 852 (group of companies was in
reality a single economic entity)
> Woolfson (the HL disapproved DHN)
> Re a Company (The CA held that veil
should be lifted whenever it is necessary
to achieve justice irrespective of the legal
efficacy of the corporate structure under
consideration.)
9. > Lowry , Gallagher and Ziegler (criticized
Re a Company, because this approach
casts uncertainty over the safety of
incorporation)
> National Dock Labour Board (The CA
moved firmly against a more
interventionist approach at least where
group structures were concerned.)
10. • Back to basics (1989 - present)
Adams v Cape Industries
- According to the CA the principle in
Salomon should generally be followed.
However, there are three exceptional
circumstances in which the veil of
incorporation can be lifted.
11. 1) Single Economic Unit
(this exception will only be triggered if the court is interpreting a
statute or document and there has first to be some lack of clarity
about a statute or document which would allow the court to treat a
group as a single entity.)
2) the Agency principle
(where the subsidiary company is an agent of the company)
3) Facade
(where the company is a mere facade concealing the true facts i.e.
avoid taxes & educe liabilities)
12. Lifting the veil for the interest of
justice
> Creasey (A company can be a façade even though it was
not formally incorporated with any dishonest intent. Indeed, just the
fact of breach of duty is sufficient to justify lifting the veil)
> Ord (the CA overruled Creasey held, in legitimate business
transaction the veil will not be lifted. Here in this case, subsidiary
company was closed for minimizing the tax liability of the parent
company)
> Prest (in can only be lifted only if there is no legal method of
achieving an equivalent result)
13. Conclusion
• Comparatively gives wider scope to lift the
corporate veil by judiciary than statutory.
But judiciary veil lifting is not so much
flexible.
• Recently, Auld J in Ratiu v Conway 2005
re-adopt Lord Denning’s view i.e. Interest
of justice.
