Professional Documents
Culture Documents
Facts
The company went bankrupt when the business failed.
The company didn`t have sufficient assets to pay its unsecured creditors.
Liquidators of the company sued the individual shareholder, Salomon.
Issue Was Salomon obliged to pay the debt?
Decision No
Reasoning
The House of Lords held that a corporation is an entity separate from its members.
Only the corporation held the debt; the individual shareholders did not hold the debt.
If a company fails to pay its debts, the person to be sued is the company, not its members.
[Slide 12] Gilford Motor Co v Horne (1933)
Facts
Mr Horne was an ex-employee of the Gilford motor company and his employment contract provided that he could not
solicit the customers of the company.
In order to defeat this, he incorporated a limited company in his wife`s name and solicited the customers of the company.
The company brought an action against him.
Issue Did court lift the corporate veil against the company set up by Horne?
Decision Yes
Reasoning
The court was satisfied that the company was formed by Horne for the purpose of avoiding liability under the agreement.
The court noted that while a company usually has its own separate legal identity, the company was formed as a device, a
strategem, in order to mask the effective carrying on of business of Mr Horne, in which it was clear that the main purpose
of incorporating the new company was to perpetrate fraud.
[Slide 12] Adams v Cape Industries plc(1990)
Facts
The plaintiffs obtained a judgment against Cape an English registered company in the American courts.
As Cape had no assets left in the US, they then sought to enforce the judgment against the parent company in the group in
the English courts.
The plaintiffs sought to ignore the separate legal personality of a parent (Cape) and its subsidiary company and to hold the
parent company liable for the obligations of the subsidiary.
Issue Did court lift the corporate veil against Cape?
Decision No
Reasoning
The court concluded that although Cape`s motives in dealing its US its business through its various subsidiaries was to try
to minimise its presence in the US to avoid tax and other liabilities and that that might make the company morally
culpable, but there was nothing legally wrong with this.
[Slide 12] Prest v Petrodel Resources Ltd (2013)
Facts
Wife asked the court to lift the corporate veil to procure the transfer of seven properties legally owned by two companies
within the Petrodel Group, which is controlled by the husband, in partial satisfaction of the lump sum to the wife.
Issue Was there abuse of corporate form?
Decision No
Reasoning
The court held that there was no evidence that the husband had been seeking to conceal or evade any legal obligations to
his wife.
There was legal interest in properties vested in company long before the marriage broke up.
The properties had been acquired before the companies had their own resources to do so.