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Re A Company [1985] BCLC 333

This case is an example of when the courts may 'pierce the corporate veil', or look beyond the company to the individuals controlling it. In this case, a company was being used to perpetrate a fraud. The court held that in such circumstances, it could look beyond the company to the individuals controlling it to prevent the misuse of the principle of separate corporate personality.



Summary: In the case of Re A Company [1985] BCLC 333, the court established a significant precedent regarding the principle of piercing the corporate veil. The court held that it would exercise its powers to disregard the separate legal personality of a company, known as piercing the corporate veil, if it deemed it necessary to prevent an injustice.


Facts: The specific facts of the case Re A Company [1985] BCLC 333 are not readily available from the sources accessed. However, the case is often cited in discussions of the separate legal entity principle, which holds that a company is distinct from its members, shareholders, directors, and promoters, and is therefore conferred with rights and subject to certain duties and obligations.


Held: The court held that it would use its powers to pierce the corporate veil if it felt it was necessary to prevent an injustice. The three main reasons why the veil may be lifted are to enforce the provisions of the Companies Act, to avoid fraud, and to deal with a group of companies. The corporate veil can be lifted in two ways: by a specific provision in legislation or by the discretion of the courts.


1) Lifting the Veil by Legislation:


There are a number of statutory provisions that have the effect of ignoring the separate legal existence of the company by attaching responsibility for the company's obligations to its members, or in extreme cases, the directors. These include personal liability for the number of members, personal liability for taxation offences, personal liability for fraudulent trading, and personal liability for reckless trading. The corporate veil may also be lifted to recognize the existence of groups of companies.


2) Lifting the Veil by the Courts:


The courts have a wide range in deciding whether to lift the corporate veil and it is not easy to extract a general principle. However, it is established that the courts will not permit the Veil of Incorporation to be used for fraudulent purposes. In past decisions, the veil has been lifted in situations where an implied agency exists, where the company is a single economic entity, where the company was formed for fraudulent or illegal purposes, or for the avoidance of legal duties, and where the company is being used to perpetrate a fraud or an injustice against the minority shareholders.




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