206 corporate personality and groups of companies

This preview shows page 55 - 58 out of 250 pages.

20.6 CORPORATE PERSONALITY AND GROUPS OF COMPANIES Many companies carry out their business activities (whether domestic or multinational) through a group structure. This is because a company can own shares in other companies known as subsidiaries. In a group of companies, a parent company owns controlling shares in the subsidiaries and determines the composition of their board of directors. Normally, the companies in a group have their own separate legal personalities. In Adams v. Cape Plc (1990) Ch. 433 , where the English parent of an American subsidiary company was sued for asbestos contamination in America, the court held: Save in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon v. Salomon merely because it considers that justice so requires. Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities. In Ord v Belhaven Pubs [1998] BCC 607, t he Court of Appeal held that the court will not allow a plaintiff with a claim against one company in a group to substitute the holding company or other group subsidiaries as defendants to that claim merely because the group may be a single economic entity. A company is in law entitled to organise the group’s affairs in the manner that it does, and to expect the court to apply the principle of Salomon in the ordinary way. Download free eBooks at bookboon.com
Image of page 55

Subscribe to view the full document.

BUSINESS ORGANISATIONS AND AGENCY CORPORATE PERSONALITY 379 20.6.1 LIFTING THE VEIL IN CORPORATE GROUPS In some circumstances, companies in a group may be treated as a single business, effectively lifting the corporate veil. This would happen where the group structure was a sham or mere façade, or used to commit fraud, or where the subsidiary was an agent of the parent. 20.6.1.1 Sham, façade or fraud Where the group structure is a sham or façade designed to conceal the true state of affairs, the veil of incorporation may be lifted so that the companies in the group may be treated as one. In Woolfson v Strathclyde Council (1979) 38 P & CR 521 , it was held that the corporate veil should not be lifted except in cases where the relationship between a group of enterprises was that of a façade. Download free eBooks at bookboon.com Click on the ad to read more
Image of page 56
BUSINESS ORGANISATIONS AND AGENCY 380 CORPORATE PERSONALITY 20.6.1.2 Agency Where a company acts as the agent or trustee of another, the corporate veil may be lifted for the benefit or advantage of the principal company. Thus, where a subsidiary company does the business of the parents as its agent, the companies may be treated as one. The following cases illustrate this principle.
Image of page 57

Subscribe to view the full document.

Image of page 58
  • Fall '19
  • Corporation, Managing Partner

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes