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    Guidelines to Corporate Law and Governance

    University: BPP University School of Business and Technology

    • Unit No: 3
    • Level: Undergraduate/College
    • Pages: 12 / Words 2973
    • Paper Type: Assignment
    • Course Code: LAW6000
    • Downloads: 305
    Question :

    Assessment Task

    Answer the following question:

    Does Salomon still reign? Briefly evaluate recent case law on lifting the veil of incorporation to determine in what circumstances the courts are willing to pierce the corporate veil.

    Learning Outcomes to be assessed:

    1. To generate a comprehensive and in depth knowledge of the law relating to companies and how those laws operate.

    2. To briefly evaluate, analyse and apply laws relating to company law to complex legal problems.

    3. To critically examine the effects of corporate governance in relation to PLCs and large private companies (as appropriate).

    Note: Footnotes and Bibliography will not be included in the word count but should not be abused.

    Answer :


    Corporate law and governance is explained as the process where rules and regulations are formed which board of director consider for the purpose of ensuring the accountability, fairness as well as transparency in relationship of organisation within their stakeholders. The stakeholders who are includes in corporate governance are financiers, customers, management, government authorities, workers and many more. The major objective behind the formation of corporate governance is just to make sure that interest of stakeholders are not affected in any of the situation. Corporate governance is not limited up to here but even it focuses on performing the work as per the guidelines which has been introduced by commercial law.

    In context of the file, there will be number of topics which will be covered and that will have a direct impact on overall understanding about the file. Proper concept will be explained which has a direct connection with corporate veil where laws like company law will play crucial role. Different cases will be included in the file which will allow to understand the file in detail and concept related to corporate veil. In the ending segments, effect of corporate governance will be discussed on the basis of public limited company and larger private organisation.


    Does Salomon still reign? Critically analyse recent case law on lifting the veil of incorporation to determine in what circumstances the courts are willing to pierce the corporate veil.

    In present situation, laws and regulations has a higher importance because working and decision making process becomes easier and faster in it. The guidelines of laws and regulations are very specific which allows different form of business to take decision according to the nature of working style of a company (Goshen and Squire, 2017). The law is not limited up to here, but they forms number of laws and regulations with the help of cases and requirement of situation to control unethical practises. The best part of cases is that it allows to solve future cases which are of similar in nature. Also, chances of obtaining unnecessary benefit from loop holes also decreases automatically.

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    Concept of Corporate Veil

    Corporate Veil is the most important concept which explains about the importance of corporation and shareholder. This concept simply explains that it is essential to understand that in any of the organisation, shareholder and corporations are separate from each other. This concept was necessary to protect the interest of investor because because there were number of situation where shareholder were held liable for the mistake which has been performed by other person. The concept not only ends here but it is also essential that any of the employee who is working for an organisation must have the knowledge that company is an artificial person and it is not possible to perform any of the work without the interference of people. If in any of the situation people do not perform any of the work as per the requirement of law and regulations then in that respective situation they are held liable (Lifting The Corporate Veil, 2015). But, to find the real person behind the errors it is necessary to take the help of corporate veil which allows to clarify about the concept in detail. This concept was simply introduced just from the perception of Salomon V Salomon & Co [U.K. 1897]

    There are number of cases which still plays the crucial role for taking any of the judgement which is related to similar topic. In the similar form, Salomon V Salomon & Co [U.K. 1897] is one of the famous example which can be included over here. The main summary of this respective case is related within classification of person as it states that organisation is a different person and its stakeholder are also apart from it (Klausner, 2013). Also, stakeholder will be liable for that part of damage up to which he or she holds the liability in the company.

    When discussion about the whole concept of corporate veil, it is among one of those concept which is used in those respective situation where shareholder or any other stakeholder tries to blur the overall situation of the case. If it founds that mistake has been performed from the side of company and concept of corporate veil allows to determine about the liability. Here liability are of two types and they are direct liability and secondary liability. The secondary liability always occurs just because of the mistake performed by the human agent who performs from the post of employment or shareholders.

    Does Salomon still reign

    Talking about Salomon V Salomon & Co [U.K. 1897] , it is the popular case which still reign. It is because the concept which was introduced with the help of this respective case still remain at the top with English legal System or even at any of the other corporation law. This case had the problem that Salomon was the major shareholder within the company and looking at this creditors of company where seeking the money from Salomon. On this ground he gave the justification where court also agrees that both are separate from each other. This was one of the make appropriate argument made by Salomon which is allowing to led the ruling of this this as still reigns. In present situation, there is not a single company or stakeholders who can force shareholder to pay creditors because both are separate from each other (Hansmann and Kraakman, 2017). Also, any of the incorporated organisation gets the opportunity to register the business organisation on its own name, they gets the right to purchase any of the property which they are willing and even they can seek and pay for the debt amount which can be crucial in the process of development of any company. It is among the main reason which makes the ruling of Salomon stays at the top and predominant and even it still continue to reinforce the regulations of company law.

    Concept of Companies Law and how those laws are being operated

    Companies Law 2006: It is the law which the companies which are being incorporate for the purpose of performing any of the specific duty. In any of the circumstances, it is essential that any of the organisation which has been incorporated must follow the rules and regulations which has been formed by the law and if they fails to do so then legal charges can be imposed upon that respective organisation (Hopt, 2015). The main reason to commence this respective act to guide business organisation that how they are needed to conduct any of activity which can allow to accomplish the goals. Also, on the other side if any of the company fails to do so, then legal action can taken against the business organisation. Also, the concept of company law is helpful to identify about the person who is involved within the fraudulent and illegal activity due to which organisation has to suffer from multiple problems.

    In addition, this law has been been helpful for any of the business organisation but it will be also necessary to understand that there are some of the concept like Secretarial Standards which overrules some of the laws. The power has been given in it because it allows cover some of the weak aspects which can create issues for the business organisation. Also, some of the cases which is allowing to determine that how any of the organisation can perform its daily activity and the best example is case between Salomon v Salomon Co. Ltd.

    Critically analyse recent case law on lifting the veil of incorporation to determine in what circumstances the courts are willing to pierce the corporate veil.

    There are number of cases which are directly or indirectly connected with lifting of corporate veil. This concept has been really helpful because directly or indirectly it has helped to maintain the dignity of company law. It is necessary for those shareholder or directors who thinks about personal benefit which is against the law (Griffith, 2015). Under the concept of pierce of corporate veil, the liability of shareholder who has been found guilty will not be allowed to raise the point that their liability is limited. It is because the problem upon the business has occurred just because of the activity which has been performed by the side of shareholders. The concept of piercing the corporate veil occurs upon those corporation which are mostly closed and unable to perform their business activity. One of the case where circumstances of corporate veil has raised is in the case between Prest v Petrodel Resources Ltd & Others [2013] UKSC 34. It is the case where situation related to pierce the veil has raised. Below, the case has been discussed in detail.

    Introduction to the case

    It was among one of those case since the end of Salomon V Salomon where it was decided that UK law related to companies has been commenced in best possible manner. Here, it was decided that member and organisation will be two different person where liability will be limited in it. Also, there are some of the situation where court has to pierce the veil. Here, corporate personality has to find the person who performed default and then they must be made liable for default (Pistor, 2019). But, the case of Prest v Petrodel, the supreme court of UK found a new way or unique opportunity which can allow to solve one of most difficult case where they had explained that what are those situation where corporate veil can be pierced.

    The Facts

    The main of occurrence of case was divorce which was going to take place between Mr. and Mrs. Prest. They both were wealthy. It was found that they had had owned number of matrimonial home within UK and Nevis. Mrs Prest has explained that business has increased significantly in recent period of time which were owned by him. It was noted that although the matrimonial home was itself owned by the companies. On the other side, appeal on the court was made that of trust and Mr. Prest also didn't form the part of appeal to the Supreme Court.

    There was the reason that case was filed within the family court because the case was all about divorce. In addition, any of the principle were not found through which Lord Moylan can decided that whether concept of corporate veil can be lifted or not in that is respective case. But, it can be possible by taking the help of Matrimonial Causes Act under section 24(1)(a). The decision on this case was declared which were challenged at a greater platform which is Supreme Court by Mrs. Prest (Gorga and Halberstam, 2013).

    The Issues

    The main problem which judges of supreme court could face is related with deal with this respective case. It is because the case was all about divorce and single-man companies. Also, They were in concern that how they can apply the theory of company law and maintain the assets and liability by considering the principle of Salomon v Salomon case.

    The Decision

    The decision in this respective case was given by Lord Sumption where it was found that he changed the whole scenario of the case the case by overturning the Court of Appeal's decision. The judges over here found that there is possibility that court can pierce the corporate veil with the help of “inadequate reasoning”. Number of other judges found that confusion is being created within the court related to law and its formation but on the other side, Lord Sumption, took the help of case which was held between Adams v Cape Industries where where it has been explained that for the point of uplifting corporate veil, there is the requirement of some dishonesty from the side of companies member (Miller, 2017). This can be one of the reason which can allow the judges to take any of the strong decision. Also, judges uses Trustor AB v Smallbone (No 2)13 where dishonesty was involved as per the guidelines of company law where true ownership was not disclosed.

    Also, Lord Sumption declared that term sham must be replaced with the term 'evasion' and 'concealment'. There has been also liable for hiding the facts and also argued that there will not be any of the requirement for pierce the corporate veil as even Lord Neuberger also agreed on the argument. The only facts which were required is related with looking back at the establishment of veil. Lord Sumption asserted about the position which has been adopted by Lord Neuberger in VTB16, but he argued about fact that the court in that case had not needed to pierce the veil, which will not allow to use it as a authority in this respective case as well.

    In simple words, the judgement in this case clears that concept of piercing the corporate veil can only be used in that circumstances where company law has been not used as per the requirement. It was the reason that in this particular case the application of trust principles helps to ensure that Mrs. Prest is entitled all of the benefits and interest within the property (Moore, 2013). The case of Prest clarifies that corporate veil can be pierced in number of situation but those condition are still not clear. It is one of the reason that the decision failed to take additional advantage of opportunity to clarify the law.

    VTB Capital plc (Appellant) v Nutritek

    International Corp and others (Respondents)

    This is also one of the case related to piercing of lifting of corporate veil. It is one of the famous case whose judgement came out in the year 2013. It can be easily understood that in any of the limited company the liability of member are just because of the concept of separate legal personality. Any of the barriers which occurs between company assets and its members assets is called as “Veil of incorporation”. The power to lift any of the veil is given to court who takes action in some of the circumstances where fraudulent activity has been performed.

    Talking about the case VTB Capital plc v Nutritek

    International Corp and others, the judges of this respective case disregard the case on the ground that contractual liabilities of a corporation cannot be attributed to its controller by means of "piercing the corporate veil" (Bruner and Sjåfjell, 2019). Here, the panel of three judges among whom two judges have explained that they are not going to give any of the legal rights to start the proceeding in this respective case. The main point in this case explains that VTB's contention is that the finding in this particular Court Jurisdiction is over the defendant which is a an issue of tort. It was committed in the jurisdiction area which is itself a place of declaring the judgement and deciding what is right and wrong.

    In short, it can be explained that the concept of lifting of corporate veil can be done only in that respective situation where strong points have been given to judges. The corporate veil mainly focuses on fraudulent activity. This is among the most important concept because company will not have to suffer in any of the circumstances as liability will raise upon that respective person who has performed errors. Also, this concept overrules the concept of limited liability of members as if they performs any of the mistake then in that respective situation they will have to pay the amount of damages suffered by the company.

    All of concept has its own importance but in any of the circumstances it cannot be said that Salomon v Salomon Co. Ltd case has been omitted. It will be necessary for any of the organisation to understand that they must work ethically and director and any of members role within the organisation will be limited up to the part of investment which they had made within the organisation (Klausner, 2018). 

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    From the detail analysis on the file, it is concluded that corporate governance is among the most important concept while helps perform all of the necessary activity in required manner. It is essential for any of the business to understand that they must be able to follow the guidelines of company law. The file easily helps to classify that organisation and shareholder of a company are two different person where one is artificial and another one is natural. It is essential for natural person to take fair decision and if they fails to do so then concept of corporate veil is applicable. This concept states that the person who has perform fraudulent activity should be given punishment.

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