Hi, I'm confused with the statement that says Compare this decision with the decision and approach taken by the court in:

Company Law 313 under the Act. It was held that the company was a legal person separate from its members, and Mrs Lee could claim compensation as her husband had been employed by the company. Self check questions If you owned shares in a limited company would you be able to: nim Claim on an insurance policy on the company's property? Be employed by the company? YES/NO Sue the company? YES/NO YES/NO Answers 1. No - As illustrated in Macaurav Northern Assurance Co., a shareholder has no insurable interest in the company. 2. Yes - because the company is a legal entity separate from its members and it has to employ people to run its affairs. 3. Yes - for the same reason given in the answer to question 2. 4 Lifting the corporate veil Although the corporate veil principle is regarded as fundamental to company law, there are instances where it has been lifted or ignored in favour of the economic realities of the situation. This occurs where the courts are prepared to take judicial notice of the identities of the owners or controllers of companies with a view to fixing them with some legal liability. Exceptions to the rule of separate legal personality have been established by statute and common law. There is no underlying principle to the occasions or reasons the courts give for lifting the corporate veil and the law is by no means clear in this area. All that can be said with any degree of certainty is that a number of examples of occasions where the veil has been lifted in the past do exist and could occur again in the future. 4.1 Statutory exceptions (a) Intent to defraud creditors - If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court, on the application of the official receiver, or the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct. On the hearing of any application under this subsection the official receiver or the liquidator, as the case may be, may himself give evidence or call witnesses (Insolvency Act 1986, ss. 213 and 214).Company Law 315 land, which has been assessed in excess of f360,000. Second, compensation for disturbance in having its business closed down. The figure has not yet been assessed. But the firm and its property were not in one ownership. It was owned by three companies. The business was owned by the parent company, DHN Food Distributors Ltd. The land was owned at the time of acquisition by a subsidiary, called Bronze Investments Lid. The vehicles were owned by another subsidiary, DHN Food Transports Ltd. The parent company DHN held all the shares both in the Bronze company and in the Transport company. The directors were the same in all three companies. As the result of the business having to be closed down, all the three companies are in liquidation. companies? .. The question is: what is the effect of the firm being in truth the three Mr Dorby, for DHN, took three points before us; first, that they had an equitable interest in the land; second and alternatively, that they had an irrevocable licence; third, that we should lift the corporate veil and treat DHN as the owners. And that, in one or other of these three capacities, they were entitled to compensation for disturbance. ... Third, lifting the corporate veil. A further very interesting point was raised by Mr Dorby on company law. We all know that in many respects a group of companies are treated together for the purpose of general accounts, balance sheet, and profit and loss account. They are treated as one concern. Professor Gower in Modern Company Law, 3rd ed. (1969) p. 216 says: "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group" This is especially the case when a parent company owns all the shares of the subsidiaries - so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says. A striking instance is the decision of the House of Lords in Harold Holdsworth & Co. (Wakefield) Lid v Caddies. So here. This group is virtually the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point. They should not be deprived of the compensation which should justly be payable for disturb- ance. The three companies should, for present purposes, be treated as one, and the parent company DHN should be treated as that one. So DHN are entitled to claim compensation accordingly. It was not necessary for them to go through a conveyancing device to get it. I realise that the President of the Lands Tribunal, in view of the previous cases, felt it necessary to decide as he did. But now that the matter has been fully discussed in this court, we must decide differently from him. These companies as a group are entitled to compensation. Not only for the value of the land, but also compensation for disturbance. I would allow the appeal accordingly. GOFFLJ: ... [I]n my judgment, this is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil. I wish toCo Company Law 314 (b) Omission of the company name - If an officer of a company or any person on its behalf signs a cheque, bill of exchange, letter of credit or the like, and the company's name is not mentioned that person shall be personally liable for the amount involved unless it is duly paid by the company (Companies Act 1985, s. 349(4)). 4.2 Common law exceptions These exceptions show the use of a number of different legal principles as justification for the lifting of the corporate veil. (a) Agency. In Smith, Stone & Knight Lid v Birmingham Corporation (1939) the court ignored the corporate entity of a subsidiary company and held that it was not trading on its own behalf but was in fact an agent for the parent company. (b) Nationality. The courts will often need to determine the true nationality of a company in order to apply statutory provisions as in Re FG (Films) Lid (1953). (c) Fraud. If the concept of separate corporate entity is being used for fraudulent purposes the courts will ignore it. In Jones v Lipman (1962) the defendant, in order to avoid an order of specific performance to sell land to Jones, created a company to which he sold the land. The court, ignoring the separate corporate entity of the company, considered it to be a sham to 'avoid the eye of equity', and granted the order of specific performance against the company. (d) Groups. Many companies trading in the UK are just one of many forming a large multinational group. Company law provides no special rules or regime to regulate groups of companies and this often causes problems -- see below for example: DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 1 WLR 852, CA A group of three companies had separate interests in property subject to compulsory purchase. If the companies were treated as separate entities the total compensation would be less than if the property were regarded as owned by the group as a whole ignoring their separate legal personalities. The court was willing to pierce the corporate veil and award the group the higher assessment of compensation. LORD DENNING MR: This case might be called the 'Three in one'. Three companies in one. Alternatively, 'One in three'. One group of three companies. For the moment I will speak of it as 'the firm' ... Now comes the point. It is about compensation. Compensation under the statute is to be made for the value of the land and also compensation for Act 1961. disturbance of the business, see s. 5(2) and (6) of the Land Compensation If the firm and its property had all been in one ownership, it would have been entitled to compensation under those two heads; first, the value of theCompany Law 316 safeguard myself by saying that so far as this ground is concerned, I am relying on the facts of this particular case. I would not at this juncture accept that in every case where one has a group of companies one is entitled to pierce the veil, but in this case the two subsidiaries were both wholly owned; further, they had no separate business operations whatsoever; thirdly, in my judgment, the nature of the question involved is highly relevant, namely, whether the owners of this business have been disturbed in the possession and enjoyment of it. They could not have been criticised, still less prevented, if they had chosen to do so. Yet if the decision of the Lands Tribunal be right, it made all the difference that they had not. Thus no abuse is precluded by disregarding the bonds which bundled DHN and Bronze together in a close and, so far as Bronze was concerned, indissoluble relationship. Why then should this relationship be ignored in a situation in which to do so does not prevent abuse but would on the contrary result in what appears to be a denial of justice? If the strict legal differentiation between the two entities of parent and subsidiary must, even on the special facts of this case, be observed, the common factors in their identities must at the lowest demonstrate that the occupation of DHN would and could never be determined without the consent of DHN itself. If it was a licence at will, it was at the will of the licensee, DHN, that the licence subsisted. Accordingly, it could have gone on for an indeterminate time; that is to say, so long as the relationship of parent and subsidiary continued, which means for practical purposes for as long as DHN wished to remain in the property for the purposes of its business. The President of the Lands Tribunal took a strict legalistic view of the respective positions of the companies concerned. It appears to me that it was too strict in its application to the facts of this case, which are as I have said, of a very special character, for it ignored the realities of the respective roles which the companies filled. I would allow the appeal. Compare this decision with the decision and approach taken by the court in: Woolfson v Strathclyde RC (1978) 38 P & CR 521, HL Shop premises including street numbers 53/61 (odd) were occupied by a company, C Lid, and used by it for the purpose of its business. Nos. 57 and 59/61 were owned by the first appellant, W. Nos. 53155 were owned by the second appellants, S. Ltd, the shares in which were at all material times held as to two-thirds by W and one-third by his wife. The issued share capital of C Lid was 1,000 shares, of which 999 were held by W and one by his wife. W was sole director of C Lid and managed the business, being paid a salary taxed under Schedule E. His wife also worked for C Ltd. C Lid was shown in the valuation roll as occupier of the premises, but its occupation was not regulated by lease or other formal arrangement.\\ From 1952 to 1963, when Schedule A taxation was abolished, payments by way of rent for nos. 59/61 were credited to W in C Lid's books. No rent was ever paid or credited in respect of no. 57. From 1962Company Law 317 to 1968. C Lid paid rent to S Ltd in respect of nos. 53155. Various financial arrangements were entered into between W and C Ltd. In 1966, a compulsory purchase order was made in respect of the premises by the predecessors of the respondent highway authority, the date of entry being January 19, 1968. The appellants jointly claimed a sum of 2 80,000 as compensation for the value of the heritage under s. 12(2) of the Land Compensation (Scotland) Act 1963 and a further sum of 295, 469 in respect of disturbance under s. 12(6). They argued that this was a case for piercing the corporate veil. Held: That in the present case there was no grounds on which it was proper to pierce the veil. LORD KEITH OF KINKEL: .. . I can see no grounds whatever, upon the facts found in the special case, for treating the company structure as a mere facade, nor do I consider that DHN Food Distributors Lid v Tower Hamlets London Borough Council is, on a proper analysis, of assistance to the appellants' argument. . . . It was held by the Court of Appeal (Lord Denning MR, Goff and Shaw LJD that the group was entitled to compensation. However, I feel that the facts here are sufficiently distinguishable on the grounds that the companies are not in common ownership. Activity Can you find any real differences? It could be said that the judges appear to be very confused when trying to deal with groups of companies. For example, note the differences in the approach of the judges in the DHN case to the issue of piercing the corporate veil. Problem Critically analyse the extent to which the courts are prepared to pierce the veil of incorporation. Suggested answer - an answer plan Use the following answer plan to construct your own answer. 1. Preparing the answer (a) What does the examiner require in this answer? - critical analysis. (b) Subject-matter of the answer - extent to which the corporate veil will be pierced by judges (c) Main thrust of answer - Is piercing the corporate veil basically a good idea? Is the way in which it is approached by the judges sound? Does it leave the law clear, certain and easy to apply? 2. Main content of the answer (a) Definition of separate corporate personality, corporate veil. Use cases Salomon v Salomon; Macaura v Northern Assurance; Lee v Lee's Air Farming