Saloomon Case Study

1090 Words 5 Pages
Salomon set out the principle of a company having a separate legal personality from its members. Encouraging investors to provide money for businesses without the threat of liability. This increased the country’s economic prosperity with the assurance of limited liability . The effect created a metaphoric veil to show a distinct legal personality and limited liability. This essay will be discussing the current approach by courts and whether specific rules should be laid down.

There is a reluctance from the courts to withdraw from the Salomon principle in order to protect the corporate form. Auld LJ noted the “readiness of the courts…to draw back the corporate veil to do justice when common sense and reality demand it…this view must be tempered
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The courts will not allow the Solomon principal to be used as a mechanism of deception. In Gilford Motor Co v Horne the courts described the company as a “ a stratagem…a mere cloak or sham” to avoid liability for breach of contract. The Court of Appeal referred to it as a “mere sham to cloak his wrongdoings”. Secondly Jones v Lipman, Russell J described the company as “a mask which hold before his face in an attempt to avoid recognition by the eye of equity”. This approach is an attempt to discourage wrongdoings. Having the law to be fluid allows adaptability on cases. If there is a list of grounds of lifting the veil it could give companies the opportunity to pick out loopholes, leading to more cases arising for abuse of the corporate form. Leading to fewer people willing to buy into companies without facing a big risk of full …show more content…
Currently courts may look at s.213-214dealing with fraudulent or wrongful trading. It purpose is to protect the interests of outside creditors and to minimise the extent the Salomon principle could be used as an instrument of fraud. A new statute that set out guidelines of when the veil can be lifted would perhaps clear up much of the grey area and inconsistency surrounding it. Creating clear headings would aid the courts to justify whether lifting the veil. The consequence of this could impact the economy of this country discouraging people to invest in businesses fearing of full liability. Common law has shown a contradictory relationship. However the fluidity allows the courts to shape it on a case by case basis. The courts are not afraid to lift the veil but they have also set a high standard to when that can occur. Lord Denning suggested that the veil perhaps can be lifted in the interest of ‘justice’ like in the case of Wallersteiner v Moir describing the subsidiaries as “puppets’. He stated “we should look at the motive of the incorporator regardless if all requirements of the Companies Act is

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