Question

When can the corporate veil be lifted under the Corporations Act to make directors liable for

corporate debts?

Please answer this question without plagiarism. thank you very much.

Answer 1

Corporate Veil means that there is a distinction between the company and its owners/managers. They cant be held responsible in the event of any financial crisis in the company. This concept was establsihed in the Saoman vs Saloman case. However there are certain cases where this veil may be lifetd and the directors were personaaly liable. Following are the case

1. To protect the interest of Revenue i.e if the company is establsihed with a motive to divide the income into sub parts so that tax liability can be escaped. (Sir Dinshaw Maneckjee Petit case)

2. If the enemy character of a company is to be checked / verified. For example if a company is subsidary of another company established in enemy country. (Diamler company ltd Vs Continental tyre and rubber company ltd)

3. If the company is formed with a motive to avoid a binding contract on the individual or to perform any illegal activity (Gilford Company vs Horne)

4. If the company was formed to distribute the income of the parent company into various small comapneis so that the bonus payment can be avoided. (association of rubber industries limited vs Workmen)

5. If there is any misrepresentation in the prospectus, then directors shall be personally responsible