Incur liabilities knowing that the company would be

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incur liabilities, knowing that, the company would be liable, not themselves Therefore the law has created exceptions to limited liability – when these exceptions apply, not only is the company liable for the liability but the individuals behind the company (either s/h or directors) are also liable Imposing liability on shareholders or directors in this way is referred to as ‘piercing’ of ‘lifting’ the corporate veil Under the common law there is ‘ no common, unifying principle which underlies the occasional decision of courts to pierce the corporate veil’ {Briggs v James Hardie} It is only in rare circumstances that the courts will pierce the corporate veil – however will usually do it when one of the following instances occurs The corporate veil will not be pierced simply because one company ‘exercises complete dominion and control over another’ {Industrial Equity v Blackburn} A corporation will be generally treated as a separate legal entity until sufficient reason to the contrary appears {United States v Milwaukee} B.1 Company is an Agent of the Shareholder/Holding Company If it can be established that company is an agent then ultimate responsibility for liabilities incurred will fall on the members (as principles) However note that the agency argument was rejected in {Salomon} o This has meant that the courts are reluctant to infer agency o Even if 100% of shares are owned by one person, this is not necessarily an agency-principle relationship Holding Companies: Hadi Mazloum [email protected]
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Need to establish that the Company has no independent decision making ability and Holding Company (or other principle) controls the Company to the extent that it is just an agent {Re FG Films} Courts will need convincing evidence that the undertakings, activities and resources of the agent company: o “were so small as to be practically negligible” { Re FG Films} o agent was effectively “carrying on the business” of its Holding Company {Smith, Stone & Knight} For example in { Smith, Stone & Knight} : o It was a wholly owned subsidiary company o Books and accounts were kept by Holding Company and Subsidiary Company had no knowledge of their content o Subsidiary Company Board members were also Holding Company directors o No dividends paid to shareholders of Subsidiary Company o All profits went to Holding Company Court identified six questions to be asked {Smith, Stone & Knight} o 1) Were the profits treated as the profits of the HC?
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