Lifting the Corporate Veil Coursework Example | Topics and Well Written Essays - 1500 words

Lifting the Corporate Veil - Coursework ExampleIn addition, the Salomon decision entrenched the notion of advantageous benefits which are granted to shareholders in the form of limited financial obligation. The dicta of Salomon has been forever restated and quoted in many cases it appears to exist as an unyielding rock4 especially since it has now been incorporated into the Companies Act 20006. The courts have endlessly been faced with mickle under which certain exceptions to the Salomon rule have been necessary and thus permitted. However, the courts have taken care to retain the power to ignore the Salomon principle in put up that its flexibility be preserved and in most cases this has led to the preservation of the corporate veil. The narrow approach which is contained in the Companies Act embodies the view that the companys rights, property and liabilities belong to the company only. The wider view claims that the companys members are prohibited from having any effect on or b eing counted in relation to the legal obligations and obligations of the company.5 The existing statutory exceptions to the lifting of the veil are rather difficult to determine with a great amount of certainty6 the concept that Salomon is a fundamental principle results in it being set aside with difficulty and even some reluctance on the part of the courts.7 As Lord Diplock claims, the statutory basis of the corporate veil is preserved, so that any Parliamentary intention to pierce the corporate veil would be expressed in clear and definitive language, however the lack of much(prenominal) clear language could still have the potential to allow the courts to pierce the veil in specific luck by way of a purposive construction of Parliaments intention.8 However, the case of Tunstall iterates that it is important to remember that the purposive instruction must be evident, because it is not readily implied (542). 9 Other additional statutory provisions also provide the opportunity t o lift the veil under specific circumstances, such as the taxation of group companies. It is often argued that such provisions do not lift the veil exactly they instead impose supplementary obligations on subsidiaries and are termed piercing the veil rather than lifting the veil. Alleged fraud additionally grants the justification to lift the veil this is indeed understandable. The Insolvency Act 1986 operates to allocate personal liability to directors or shareholders if it appears that the company has been formed for fraudulent activities,10 if evidence of director misconduct is evident, or if the company directors have been negligent by not winding up the company if it has little or no prospect of carrying on. Such provisions contain the potential to be defined and applied broadly, yet the danger of this is arguably small under the circumstances. The existence of such statutory provisions emphasize the major temptation and potential of company members abusing of the corporate ve il, and the courts have appropriately prize and established the need to eliminate as far as necessary this possibility, and thus temptation. In the decision of Merchandise Transport,11 the court declined to retain the corporate personality of the company separate from its members where it had been discovered that the subsidiary company had been formed as a mechanism to avoid specific formalities when acquiring a affirmatory licence. Additionally, a facade has been revealed where a company had