Piercing the Corporate Veil
Adam v Cape Industries
o3 companies, Cape the parent company. They had mines in South Africa, but the
company was incorporated in England. The CAPASCO, wholly owned by Cape and did
they did the marketing. NAAC who was incorporated in the US< It was also wholly
owned by Cape and subsequently liquidated. AN action was brought because of an
asbestos claim against Cape, CAPASCO and NAAC and the action was settled, but the
English company claimed that the court had no jurisdiction. Before the first action was
settled a second was raised. NAAAC went into liquidation and a new company CPCC was
created in Lichtenstein. All the shares were owned by M who was the boss of NAAC
Fault judgement in the US was unsuccessful. 3 points were argued.
Single economic unit argument, the company should be treated as a single unit
The idea that member of a corporate group lost they legal identity and
became one was rejected. The notion that Salomon case should not be
applied because it would lead to injustice was also rejected.
Corporate veil point
Applied the test of Wolf v Strathclyde and led that it was not possible to
lift the corporate veil just because you want to avoid FUTURE liabilities.
It does not matter whether this is desirable or not, it’s the law
NAAC was a CAPASCO agent
NAAC was not an agent, it was a company in its own right
Wrongful/fraudulent trading
oWrongful trading: Directors of the company continue trading although the directors
know or should know that the company can’t pay its debts. As a result, in the case of
liquidation, the creditors can apply to the court that the directors have to make a
contribution to the assets of the company.
oOne does not look at the issue with the benefit of hindsight
oThere is a defence of doing anything reasonable in the situation to mitigate the loss
oReasonable person test of knowledge, skill and experience. The second part was the
individual knowledge, skill and experience of the person. See the insolvency act. There
might be different contributions from different directors.
Lifting/Piercing the Veil
oTo understand this we have to look at DHN Food Distributors 1976
Corporate group 4 companies. DHN groceries business part. It owned all the
shares of two other companies. Bronze limited, owned the premises on where
DHN traded it did not trade. Transport the third company did the transport
solely working for DHN. 3 companies had a the same directors. They sued for
business disruption and lost. DHN was not an owner, the companies all 3 went
into liquidation. Lord denning stated that they should not be treated separately
