Lifting the veil” redirects here. If he sets up a company which competed with his former company, technically it would be the company and not the financial theory and corporate policy 4th pdf competing. But it is likely a court would say that the new company was just a “sham”, a “cover” or some other phrase, and would still allow the old company to sue the man for breach of contract.
For example, English law conferred entity status on corporations long before shareholders were afforded limited liability. Therefore, this shareholder limited liability emanates mainly from statute. There is no record of a successful piercing of the corporate veil for a publicly traded corporation because of the large number of shareholders and the extensive mandatory filings entailed in qualifying for listing on an exchange. German corporate law developed a number of theories in the early 1920s for lifting the corporate veil on the basis of “domination” by a parent company over a subsidiary. Today, shareholders can be held liable in the case of an interference destroying the corporation.
The corporation is entitled to a minimum of equitable funds. If these are taken away by the shareholder the corporation may claim compensation, even in an insolvency proceeding. The corporate veil in UK company law is pierced very rarely. After a series of attempts by the Court of Appeal during the late 1960s and early 1970s to establish a theory of economic reality, and a doctrine of control for lifting the veil, the House of Lords reasserted an orthodox approach. There are also significant statements still among the judiciary in support of a broader veil lifting approach in the interests of “justice”.
In this case, the claimant was an employee of Cape plc’s wholly owned subsidiary, which had gone insolvent. Court of Appeal held that if the parent had interfered in the operations of the subsidiary in any way, such as over trading issues, then it would be attached with responsibility for health and safety issues. Arden LJ emphasised that piercing the corporate veil was not necessary. There would be direct liability in tort for the parent company if it had interfered in the subsidiary’s affairs.
The High Court before it had held that liability would exist if the parent exercised control, all applying ordinary principles of tort law about liability of a third party for the actions of a tortfeasor. The restrictions on lifting the veil, found in contractual cases made no difference. The effect of this rule is that the individual subsidiaries within a conglomerate will be treated as separate entities and the parent cannot be made liable for the subsidiaries’ debts on insolvency. Furthermore, it can create subsidiaries with inadequate capitalisation and secure loans to the subsidiaries with fixed charges over their assets, despite the fact that this is “not necessarily the most honest way of trading”.
The rule also applies in Scotland. Salomon is subject to exceptions are thin on the ground. However this has largely been repudiated and has been treated with caution in subsequent judgments. Salomon had been circumvented were merely instances where they didn’t know what to do.
Despite the rejection of the “justice of the case” test, it is observed from judicial reasoning in veil piercing cases that the courts employ “equitable discretion” guided by general principles such as male fides to test whether the corporate structure has been used as a mere device. They are not instances of the corporate veil being pierced but instead involve the application of other rules of law. There have been cases in which it is to the advantage of the shareholder to have the corporate structure ignored. Courts have been reluctant to agree to this. Mr Macaura was the sole owner of a company he had set up to grow timber. In English criminal law there have been cases in which the courts have been prepared to pierce the veil of incorporation.