Piercing the Corporate Veil
Since the establishment in Salomon v Salomon, the separate legal
personality has been long recognised in English law for centuries,
that is to say, a limited liability company has its own legal identity
distinct from its shareholders or directors. However, in certain
circumstances the courts may be prepared to look behind the company at
the actions of the directors and shareholders. This is known as
"piercing the corporate veil".
There are numerous cases concerning the "piercing the corporate veil",
among which, Jones v Lipman was a typical case. Lipman sold land to
Jones by a written contract but refused to complete the sale because
of another good deal, instead he offered damages for breach of
contract. To put the house out of reach of Jones, he bought a company
"off the shelf" and conveyed the house to it. In an action against
Lipman and the company, the court granted the specific performance and
ruled that "the defendant company is the creature of the first
defendant, a device and a sham, a mask which he holds before his face
in an attempt to avoid recognition by the eye of equity."
Why should the courts "pierce the corporate veil"? For justice? A
disputing case was Creasy v Breachwood Motors Ltd. In that case,
Creasy was wrongly dismissed from his employment as the general
manager of the Welwyn Motors Ltd and was awarded a damage of more than
£60,000. Unknown to him, the Welwyn had already transferred its assets
to Breachwood and had been struck off the register of companies. In
the transfer, Breachwood paid all of the Welwyn's debts but did not
provide any provision for future possible claims. Breachwood then
carried on Welwyn's former business from the same premises as before.
Although Breachwood claimed that it was not liable to pay the
compensation to Creasy because Welwyn and Breachwood were separate
legal entities. The court pierced the corporate...