Since the Salomon case, the doctrine of separate corporate personalities constitutes the corner stone of British company law. Thus, a properly incorporated company is considered as having a legal personality of its own and ought to be treated as a legal entity distinct from its shareholders even if in reality they operate its business and control its activities. The Salomon doctrine also applies in the case of "groups" of holding and subsidiary companies. This means that each company in the group has a separate legal personality; thus, a parent company won't in theory, be held liable for the debts of its subsidiary. For Sealy, the authority of Salomon "is unshakeable; and yet exceptionally in some instances the law is prepared to disregard or look behind the corporate personality and (it is claimed) have regard to the ?realities' of the situation". In other words, the judiciary are sometimes invited to "pierce the corporate veil" in order to prevent decisions that might be regarded as unjust, particularly where groups of companies are involved. However, it will be argued that even though the courts have in some specific cases decided to lift the veil of incorporation, it appears that such situations were exceptional. When groups of companies are concerned, the judiciary are wise to show themselves cautious and reluctant to pierce the corporate veil.
[...] Cases and Materials in Company Law, 7th edn, London: Butterworths p [1978] S.L.T Birds J. & Boyle A.J. Boyle and Birds' Company Law, 6th edn, Bristol: Jordans p Industrial Equity Limited and Others v. Blackburn and Others [1977] 137 C.L.R. Rixon, F.G. “Lifting the Veil Between holding and subsidiary companies”, Law Quarterly Review p. 417-8 Whereas it might be said that in the DHN case for example, the court lifted the veil at the insistence and for the benefit of the holding company itself. [1983] 3 W.L.R Birds J. & Boyle A.J. [...]
[...] Avalon Maritime Ltd, The Coral Rose [1991] 4 All E.R Davies, P. Gower and Davies, Principles of Modern Company Law, London: Sweet & Maxwell p. [...]
[...] Therefore the judges might be asked to pierce the veil. This arrives for instance when an relationship seems to exist between a parent company and its subsidiary that is when the activities of a subsidiary are so closely controlled by its parent that it is clear that the latter uses the former as an agent to carry on its business.[4] In Smith, Stone & Knight v. Birmingham Corporation[5], the claimant company held almost all of the shares of its subsidiary and de facto fully controlled its activities. [...]
[...] Since Adams v. Cape Industries plc[23], the judiciary are adopting a very strict approach and lifting the veil has become extremely rare. In Adams, the court had to decide whether judgements obtained in the US against an English registered company (Cape) would be enforced by British courts. For this purpose, the judges had to establish whether Cape could be said to have been “present” in the US through its wholly owned subsidiaries. There were several arguments that sought to make Cape liable, including the “single economic unit” argument (according to which, as in DHN, all companies within a group should be treated as one), the one suggesting that one of Cape's subsidiaries was a and the argument. [...]
[...] In Atlas Maritime Co SA v. Avalon Maritime Ltd[29], Staughton LJ even observed that although a situation when a subsidiary is controlled by its parent and when it operates with the parent's funds without exposing the parent to liability doesn't reflect most honest way of trading”, it remains that it is quite a common way of carrying on a business. Thus, hold that it creates an agency relationship between the subsidiary and the parent would be revolutionary doctrine”.[30] Bibliography Davies, P. [...]
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