Lifting the Corporate Veil Essay Example | Topics and Well Written Essays - 2500 words

Lifting the Corporate Veil - Essay Example The extremely famous and somewhat revolutionary decision of Salomon v Salmon & Co Ltd [1897]1 introduced and upheld the corporate personality doctrine which was then defined in the Companies Act 1862. The effect of the decision was that creditors of a company that had gone insolvent would not be able to sue the shareholders of the company for its outstanding debts: the doctrine of separate corporate personality was effectively entrenched by the House of Lords. More noticeably, the House of Lords fully established the concept that the company exists as a separate personality from that of its members, causing the company to become its own entity, thus competent to sue and be sued,4 to enter into contractual agreements,5 to make profits and suffer losses in its own name,6 and to own property. The decision of Salomon also formed the beneficial concept that shareholders would be afforded limited liability in the event of insolvency of the company. Despite the passing of more than a centur y, the dicta of the House of Lords has stood strong as an â€Å"unyielding rock†,7 even enjoying codification in section 16(2) of the Companies Act 2006. The decision brought several new effects to the company law world. Lord Herschell claimed that â€Å"the company is ex hypothesi a distinct legal person†2 and Lord McNaghten stressed that â€Å"the company is at law a different person altogether from the subscribers to the memorandum†¦nor are the members as subscribers liable†¦except to the extent and in the manner provided by the Act’.3 ... When will the courts disregard Salomon and lift the corporate veil? Can a specific set of criteria be established in order to determine when the veil will be lifted, or does it depend on the particular circumstances of each case? It is arguable that the courts’ previous instances of lifting the corporate veil have been difficult to predict with any degree of certainty. It will be argued however that this is not necessarily disadvantageous and any alternative approach of the courts could prove more detrimental to company law as a whole. Attempts to establish specific criteria for lifting the veil have been fruitless, as the courts have remained adamant to keep derogations from Salomon flexible. This paper will evaluate when the courts have lifted the corporate veil, and under what circumstances they chose to as opposed to when the courts have specifically refused to lift the corporate veil. Potential for reforms in the law will be explored, though it will ultimately be argued t hat codification of the lifting of the veil will greatly reduce, even remove the flexibility enjoyed by the courts when lifting the veil. It will be argued that this flexibility is essential in order to make the principle apply as and when the courts see fit. Have the courts approached the lifting of the veil appropriately, or is the veil’s fate left arbitrarily in the hands of the court? Is more certainty required? When Is The Corporate Veil Lifted? It is clear to see that the debate surrounding the courts’ lifting of the corporate veil has centred around the need to balance between certainty and flexibility. The courts have been presented with extremely varied situations and circumstances under which they were required to decide whether the veil