Corporate veil piercing: The instrumentality

doctrine of veil piercing involves three elements. 1st a

corporation must be devoid of independence and
economic substance. 2nd, there must be an improper
purpose or conduct. 3rd, there must be a showing that
the “instrumentalization” of the corporation
proximately caused injury to the plaintiff.
Instrumentalization may include-
Fraudulent representation by corporate directors
Undercapitalization
Failure to /adhere observe corporate formalities
Absence/abuse of corporate records
Payment by the corporation of individual obligations
pervasive control and confused intermingling of business
activity
the corporation is a mere shell, serving no legitimate purpose,
and used primarily as an intermediary to perpetuate non-
business activities
insolvency of corporation at the time of transaction and
siphoning/use of corporate funds by the dominant shareholders
Three elements must be satisfied to establish a corporate veil
claim: (1) Control, not mere majority or complete stock control,
but complete domination, not only of finances, but of policy and
business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own (2) Such control must
have been used by the defendant to commit fraud or wrong, to
perpetrate the violation of a statutory or other positive legal
Ultra Vires: The responsibility to protect the
public welfare in general, the activities outside
of the corporation’s authority is void and illegal.
Fletcher’s Cyclopedia of the Law of Private
Corporations explains - An illegal act or
contract, defined as one expressly prohibited by
the charter or a general statute, or which is
immoral or against public policy, is ultra vires
and also something more. If an act or contract is
illegal, . . . it is doubtless ultra vires in the broad
sense as being without power. Consequently a
violation of the ultra vires doctrine would
empower Courts to impose a “death sentence”
UK Model:
Smith v. Henniker-Major & Co., 2001 WL 1135246, at 5:
The power of the 'board of directors to bind the company'
can sensibly only be to powers exercisable by the directors
when they gather together and act as a board. So where the
company's memorandum states that the object of the
company is to carry on business as a general company, the
company has power to do all such things as are incidental
or conducive to the carrying on of any trade or business by
it.
But if the companies be statutorily empowered
to dispense with objects clauses entirely and
the section permits a company to adopt an
expansive objects clause empowering it to
engage in essentially any lawful business, the
question of ultra vires is ineffective.
Question of actual knowledge, honesty and
personal liability.
USA Model: MODEL Bus. CORP. AcT, section 3.04
(1969)
(a) the validity of corporate action may not be
challenged on the ground that the corporation lacks or
lacked power to act.
(b) A corporation's power to act may be challenged:
(1) in a proceeding by a shareholder against the
corporation to enjoin the act;
(2) in a proceeding by the corporation, directly,
derivatively, or through a receiver, trustee, or other
legal representative, against an incumbent or former
Canada:
The Canadian Business Corporation Act
section 16, No act of a corporation, including
any transfer of property to or by a corporation,
is invalid by reason only that the act or
transfer is contrary to its articles or this Act.

Australia
Corporations Act section 125(2) (Austl. 2001)
- An act of a company is not invalid merely
because it is contrary to or beyond any objects
in the company's constitution.
Safeguard:
i. notice
ii. shareholders may apply to Court for injunction
to stop the board’s activity otherwise principle of
estoppel, disabling the shareholders from
contesting the validity of the transaction may be
applied
iii. writ
iv. Case file in High Court Division for winding