Corporate Personality & Veil-Lifting

25-09-2023

Owner of the company: shareholder

Who runs the company: Directors ( employ of the company appointed by shareholder) Company
is the entity

Company is a separate legal entity with its own corporate personality( you can own your own
assets and loans , sue someone and you can be sued) (Salomon v salomon 1897 , Macura v
northern assurance , Giles, Lee)
Profit in the form of dividends-shareholder ko milte hain.
Benefit of doing business with company is:
•limited liability
•One becomes shareholder after buying shares and one is confident in buying shares from
company.
•for banks also, giving loan to company is more efficient for them.
But there are also loopholes - first, one needs to understand whole regulation and company
law. Other than that double taxation(benefit of double taxation is limited liability)

Veil of incorporation:
The directors, shareholders are behind the company so whatever nuksaan they do will be
compensated by the company this is known as veil of incorporation

However to ensure justice and to prevent people from misusing the veil of incorporation i.e
limited liability (corporate veil) the parliaments and courts have created situations where the veil
can be lifted. The veil lifting concept should be “narrow” and “certain” to prevent floodgates , and
the biggest benefit of incorporating a company is “limited liability” , if the veil lifting becomes
easy every other will start business with their own names rather than making a company
because it will end up with personal liability in both cases

For example: Ahad and Asma wants to invest in a new thing but in order to save themselves
from unlimitedliability, they both start their own company so just in case the company fails only
the assets owned by the company will be at risk.
Exceptions to Veil-Lifting:

Statues:
In terms of s213 of the insolvency act 2006 provides criminal liability for fraudulent trading :,
the veil can be lifted if there is evidence that the company was being used as a vehicle for
“fraud.”( fraudulent trading)
S213 uses word any person: shareholder , employee , director
- 213 fraud was made criminal offense by s993 of companies act 2006 that provides for
criminal liability for fraudulant tradings BOP beyond reasonable doubt
( re todd 1990) a director was held liable for fraudulent activities of the company
( Re pattrick and lyon 1933 ) fraud was explained in this case , it involves proving actual
dishonesty involving according to the current notions of fair trading among commemrcial men,
real moral blames , this case shows that very high threshold exist for fraud this is because , if
fraud is proved under s.213 , there is very high possibility that criminal liability may also be
imposed under s992 of the companies act 2006

S213 of the Companies Act 2006 makes fraudulent trading a crime(criminal offense)
previously civil , therefore the burden of proof to prove fraud is “very high”( beyond reasonable
doubt) . (liable everyone from the staff to the directors)
● (insolvency act applies when the company is completely insolvent)
The directors will contribute the money to the assets of the company and the company the virtue
of court order will pay the money to bank

In terms of s214 of the insolvency act, directors can be liable for “wrongful trading” i.e director
has crossed the point of no return and they knew or ought to know that the company has no real
prospects of operating but failed to close it.
( jab tak company bnd Honi chaiye thi but nahi hui so tb tk se lekar band honay tak jitna nuksan
hua woh director compensate karega )
Directors has to pay compensation even though the money is with the shareholders

The courts should keep this law narrow and not wide and should keep it certain and defined not
case to case basis.
( re produce marketing 1989) the director did not put the company into liquidation after ‫۔‬the
point of no return became apparent

Common Law:
Initially, the law of veil lifting was very uncertain since the veil could only be lifted if the company
was a “mere façade”but this term was not defined and a case-to-case analysis was done.
(Johns v Lipman1962) -land bought in the name of the company - the company was a mere
facade to conceal the true facts.
(Daimler v continental tyres 1916) - public policy issue- enemy cannot do business in UK.
There was a company located in Uk buy the shareholders were german. Common law ne
company band krdi kyunke shareholders were german when they lifted the veil.
(Gilford Motors 1933) - non compete - if leaving the job then cannot enter into same line , so
he opened a company so mere facade as he is using the company as front- veil lifted

This issue was further aggravated by lord denning who created the concept of “single
economic entity in DHN Foods case but the supreme court “disregarded this concept in the
(Woolfson) case and directed the court of appeal (COA) to clarify the law of veil-lifting which
they did in the (ADAMS v cape ) case where veil can only be lifted in three situations: (can be
lifted even if one met)
 1. Where the statute on its proper interpretation required the veil to be lifted, it will be lifted.
For eg: pk tax law states for tax purposes courts will see all the group companies eg
engro food, engro textiles as one but in some cases the tax are paid same
2. If the parents and subsidiary are considered as agents. Where the parent and
subsidiary have an agency relationship.( principal agent relationship ie contract)
-If har kaam parent company ke under ho raha hai so the courts will lift the veil. Agency
is either express(contract sign hua hai for being an agent) or implied(by virtue of
behavior shows that one is an agent).
3. Where the company is a “mere façade” i.e it is being used to avoid a pre-existing
obligation (john V lipman) (no veil-lifting in a future obligation). It was further clarified in
Prest vs Petrodel that veil-lifting is the matter of the last resort which will only be done if
there is evasion(evading a pre-existing obligation)of liability.
For eg: i corruption money in bank account and i have a company and transferred that money to
the company's account ( conceal asset) paper tracing se pata chal jayega no need to lift the veil
.
( veil will not be lifted on to protect from future obligation)

Pre existing: avoid any future obligation , promises made

*Veil lifting is the remedy of last resort. Veil will only be lifted if there is no other way than
lifting it.

Tort Law:

Compensation can be claimed under tort law of negligence from directors/shareholders etc.
( negligent misstatement in line of business and special relationship same as tort law )
However, initially in Chandlers vs Cape, a parent company could be liable for omissions in
failing to supervise their subsidiaries which causes harm to employees or third parties if the
following is met:

1. The parent and subsidiary are in the same line of business . Eg: engro corp and
engro food are not the same line , so if the parent and the subsidiary does same
business of eg textile they are in same line of business so doc will be established
2. The parent controls the subsidiary. Parents could stop the subsidiary who had unsafe
system ( breach)
3. The parent company can be sued where The parent knew or ought to know that
there are unsafe practices( unsafe system of work- eg no helmet , gloves ) in the
subsidiary but failed to do anything. ( causation)
4. This concept is finished and the present rule in Okpadi case & AAA vs Unilever states
that the parent will only be responsible if there is sufficient intervention in the operation
of the subsidiary.

However this is very limited

Answer

Summary of facts:

We understand that CPLC has entered into a contract with BFL to sell the shares of AL and
under the contract there is a clause restricting CPLC from selling aviation fuel for 10 years. We
further understand that a more efficient fuel has been invented by CLPC and they have started
selling it through SBL. The first issue which we need to determine is whether SB or CPLC will
be liable for breach of contract with BFL. In addition, we also see that CPLC's second subsidiary
PL has an unsafe system of work which has been notified by the director of PL to CPLC but
instead of taking any action, they have removed her as a director and this unsafe system has
eventually resulting in injuries to employees of Petrol and our second issue is to determine
whether such employees will have a claim against CPLC. We shall discuss each case
separately

A)Breach of contract
As regards the first issue we note that the contract was entered into by CPLC which technically
is not involved in any aviation fuel selling business and such business is being undertaken by its
subsidiary’s standby ltd

General rule
In the light of the principles set out in ( salomon , macura, galilee, lee) a company is regarded as
a separate legal entity with its own corporate personality and can be sued , sue in its own name
and can own its. Own assets and such assets and liabilities will be separate from its
shareholders or directors .

Application:
CPLC being a separate entity has not breaChed its obligations as they are not engaged in fuel
sales however their subsidiaries standby a separate entity which is doing a fuel business but is
not under any obligation with burfast ltd to not make the fuel
Veil of incorporation:
However if the veil of Incorporation can be lifted then both entities can be considered as one
and there will be breach of contract for which burn fast can seek restraint order to stop standby
from selling fuel.

Lifting the veil of incorporation:

We know that the law for lifting veils stems from statute and common law but reliance can not
be placed on statutory veil lifting rules as they are set out under the insolvency act which is only
applicable either on insolvency of the companies which is clearly not the case here . ( statute
not applicable)

(Common Law) Reliance will be placed on common law where historically courts adopted more
lenient approach to lift the veil of incorporation, multiple case have been adjudicated by the
courts and veil have been lifted for reasons of public policy ( diamer) , mere facade ( john v
lipman) ( gilford motors) or in cases where the interest of justice required the veil to be lifted ,
this approach was also taken by Lord Denning in ( DHN foods ) where he considered group
companies as “ one single economic entity” by virtue of common control . This principle can
clearly be applied here as CPLC controls standby and the veil can be lifted but this principle has
clearly been disregarded by the Supreme Court ( Woolfson case). The pendulum of lifting the
veil in cases after (woolfson) has shifted to an approach which is conservative and narrow as
stated in the landmark case of ( ADAMS) where the judges created limited exceptions where
veil can be lifted ie. Where the statute or the superior law requires the veil to be lifted and the
courts being bound by such law will do the same ( smith , stone, knight v birmingham corp .) , if
there is an agency relationship either expressed or implied found between the parent or
subsidiary then the veil can be lifted ( RE FG films ltd ) or where there is an evidence of
company being used as a mere facade where this was defined as evading pre existing
obligation( john v lipman) , the third factor is truly the factor where common law veil lifting is
done , the others are based on general concepts.
Further to the above the courts approach for determining mere facade is extremely narrow as
reaffirmed in p( prest v petrodel) and the recent case of ( Rossendale v Hurstwood 2021) the
courts will only lift the veil as a remedy of the last resort and only based on the evasion principle
rather than the concealment principle.
Application: In our case the facts are very clear and show that the CPLC is using SBL to evade
its contractual obligations which were pre existing( after signing the contract) . It is irrelevant
when the SBL was incorporated - what is relevant is that they started using it after the obligation
contract was signed hence veil will be lifted and both will be considered as one , breach of
contract and restraining order will be given by sbl ltd the courts to stop the business

B) employee claim:
In respect of the claimOf the employees they can sue petrol ltd but they cannot directly claim
against CPLC as it is a separate legal entity however under tort law the courts created a claim if
in the case of nonfeasance ie omissions or misfeasance ie negligent acts on part of parents
which caused liability to employees of subsidiaries or third parties , it appears that CPLC has
been negligent in enforcing safe procedures in the form of an omission so the reliance will be
placed on ( chandler). Which states that if the employees can prove that CPlc and petrol are in
the same line of business , CPLC controls petrol and they knew or ought to know that there was
an unsafe system of work but failed to intervene then damages can be claimed .
Application: According to the facts if petrol and CPLC are in the same line of business , control
and knowledge of the unsafe practices are already there as the director has written a report
however recent developments in the company law particularly in this context show that the
courts are reluctant to apply ( Chandelier) and have disregarded the principle ( case) . The
proper approach now is that the parents will only be liable if they intervene in the management
of the subsidiary and such intervention is sufficient to establish liability . According to the
( Okpadi case) sufficient intervention can be found by the virtue of introducing group vise health
and safety measure and also to remove the director( acts)
Damages will be given

Q. (a) Sarah married John in 2000. By 2009, Sarah had decided that she no longer loved John,
and might well divorce him in the future. In 2010, Sarah inherited an office block in London
worth £50 million. She immediately transferred both her legal and her beneficial interest in the
office block to a company, Hidem Ltd. Sarah had formed Hidem in 1999 but it had never traded.
It had issued one share, owned by Sarah’s sister, Belinda. Belinda was also the only director of
Hidem.

In March 2016, Sarah finally began divorce proceedings against John, and John now wishes to
claim financial relief from Sarah.

Assume that the amount of financial relief will depend on Sarah’s wealth. Advise John whether,
as a matter of company law, he will be permitted to lift the corporate veil and treat Sarah as if
she still owned the office block.

(b) Desparate Ltd has been trading at a loss for many months. It has one director, Ollie. In
January 2016, Ollie persuaded George to lend £50,000 to Desparate. Ollie tells George: ‘Don’t
worry about getting your money back. I personally promise that Desparate is financially secure’.
In April 2016, winding-up proceedings are begun against Desparate. Its liabilities massively
exceed its assets. George has not been paid.
Advise Ollie whether he will be liable.
A.
We understand from that facts that there are certain issues given in the question and we identify
that these issues are related to the law of corporate personality. To understand these well, we
first have to know that what a company actually is. According to the case laws of (Salomon)
(Macura) (Lee) and (Giles), it is said that a company is a separate legal entity and has its own
corporate personality and simultaneously it can sue an entity and can itself be sued too. The
concept of separate legal entity has led to people committing fraud by the name of company
and for that purpose it was essential that there should be some ways in order to lift the veil of
incorporation and impose liability on owners of the company. We will now apply the veil lifting
methods in each case accordingly.
(a) The facts of this case depicts that there is a couple Sarah and John. Sarah, later on
realized that her relation will end up with divorce so she transferred the office block to
her company named Hidem in 2010, which was formed in 1999 but have not traded up
till now and have just one share holder who was Sarah’s sister Belinda. In 2016 the
divorce proceedings started the issue here in the case that whether the veil will be lifted
and Sarah will be considered as the owner or not.

In our case Hidem will considered as company to which the office block was transferred
and according to the general rule of company law, which is defined above, Sarah will not
be considered as the owner of the company. However, there are exceptions by virtue of
which the veil of incorporation can be lifted. The first exception is of statutory veil lifting
which is applicable in two scenarios, one is where there is fraudulent trading and the other
is where there is wrongful trading. Fraudulent trading has a charge of criminal liability
under S.993 of Companies Act 2006 and therefore the burden to prove the charge is very
high. In our case as there is no element of fraud hence, we will not rely upon this and
move on to the law of wrongful trading which is defined in S.214 of the Insolvency Act, this
is not applicable in our case as it is only applicable in the cases of insolvency. By this we
conclude that the veil here cannot be lifted by the method of statutory veil lifting.

The next method to lift the veil is by Judicial veil lifting, this was initiated by the courts and
they stated that the veil will only be lifted where the company is being used as mere
façade (Gilford Motors) (Jones v Lipman). However, the courts did not clarify the
meaning of façade which lead to uncertainty in the law and after that Lord Denning
introduced more uncertainty by initiating the concept of single economic entity which was
that if a group of companies had a common control then they will be treated as one entity
however this ruling was criticized by the HOL SC in (Woolfson) case and clarified façade
and stated that the veil can only be lifted in certain scenarios, firstly where a statute
requires a group of companies to be treated as one, in our case there are no such facts
that there are more than one company therefore we will not rely on this. Secondly, where
there is a principle/agent relationship between parent and the subsidiary company
(Adams v Cape), referring to the facts of our case there is no such evidence of a
principle/agent relationship hence we cannot rely on this and move on to the third
exception which is where the company is being used as a mere façade to avoid a pre-
existing duty (Jones v Lipman) (Prest), according to the facts of our case we can argue
that Sarah’s act of transferring the office block to Hidem in 2010 was to avoid a future
obligation which might arise after the divorce take place therefore this law is not applicable
in this situation as it is only used where the act is performed to avoid a pre-existing duty
which is not the case here. Hence by virtue the arguments done above it can be
concluded that John will not be able to lift the veil as the office block will be the legal asset
of Hidem.

(b) We understand from the facts that Ollie was the director of Desparate and in January
2016 he asked Geogre to lend money to Desparate Ltd and told him not to worry as he
will get the money back and so George did and lent $50,000 to the company. In April
2016, the company’s winding up procedures started as the liabilities exceeded and
George is left unpaid. We will now discuss whether George will be able to lift the veil of
incorporation and Ollie will be held liable or not.

In our case Desparate will be held as a company and according to the law of corporate
personalities, which is defined above, the amount which George lent will be the asset of D
and not of Ollie and according to the general rule George will be left unpaid. However
there the certain exceptions made to this law in order to lift the veil of incorporation which
we will discuss below.

The first method to lift the veil is by Statutory veil lifting and under this the first way is of
fraudulent trading under S.213 of CA 2006, law is defined above, we shall not rely upon
this as if this is proven then criminal liability arises and therefore the burden to prove is
really hard. Although there is a second way under statutory veil lifting which is Wrongful
trading under S.214 of CA 2006 which states that if the director knows or ought to know
that there is a situation where there is no point of continuing the company but still does
trading then the director will be liable for all the losses suffered due to the operation of the
 company (Re Produce Marketing). Referring to the facts of case it can be seen that O
asked G to lend the money on Jan 2016 and D winded up in April 2016 so on the basis of
the evidence we can assume that when O asked G to lend the money, it was the time
where O knew or he reasonably ought to know that in January he should not do trading as
previously also he suffered losses, as referred from the facts, but still he did by asking G to
give money on the name of D nonetheless he knew that the company will get insolvent
soon, based on this assumption we can conclude that the veil will be lifted as this will be
considered as wrongful trading done the O. However, this is just an assumption and if this
is not the case then there is another method to lift the veil also.

We could sue O under the law of tort of deceit (Standard Chartered Bank v PNSC)
(Williams), under this there is a direct DOC if pure economic loss occurred. In our case
there was a negligent misstatement given in line of trading by O to G that D was financially
secure despite the fact that D was suffering losses previously and there was voluntary
assumption of responsibility too that G lent the money when O told him that he should not
worry about his money as he will get them back and G relied upon O’s advise by this DOC
under tort has been established. Breach will also be proven as O should tell G the original
condition of the company but he did not, hence there is a breach to DOC and
simultaneously causation will also be established as if O did not asked G to lend the
money the loss would not have occurred. Hence under the law of tort of deceit the veil will
be lifted and O will be held liable for the loss suffered by G.

Q1) Gruber plc (“Gruber”) is a company which operates in the transportation sector. Gruber
does not directly carry on any customer-focused business itself, but rather functions as a
holding company within a larger group(sirf shares hain is company k pass, shareholder) .
Gruber is headquartered in London where its group board of directors meets each month to
discuss high-level group business policy matters. These matters customarily include
identification and mitigation of any compliance, reputational or other key group business risk
exposures. Gruber has two wholly owned subsidiary companies in its group, namely Nakatomi
Ltd (“Nakatomi”), which operates private taxi-cab services in various cities and formally employs
all its drivers, and Plaza Ltd (“Plaza”), which owns all the company’s assets including its depots
and fleet of taxi cabs. Nakatomi owns no assets and therefore leases all its depots and taxi cabs
from Plaza. Nakatomi recently lost a tort action brought by Joe, who suffered life changing
injuries after being hit by a Nakatomi taxi on a city street. It transpired that the driver of the taxi
had been heavily under the influence of alcohol at the time of the collision, and that Nakatomi
drivers were known to regularly drink alcohol in the company’s depots between hires. Although
Gruber’s board in London had been alerted to the alleged “drinking culture” in some Nakatomi
Depots, it had delayed investigating this matter due to other strategic priorities. Nakatomi was
ordered to pay £1 million in damages to Joe but has been unable to do so as the company is
now in insolvent liquidation. Joe now wishes to recover the damages he is owed from either
Gruber or Plaza instead. Advise Joe.

Summary of facts:
We understand that gruber is a holding company which owns plaza and nakatomi. Nakatomi
operates a taxi business and plaza owns all the assets and nakatomi itslef does not own any
assets but does all the business operations. Nakatomi has drinking culture between the drivers
which is unsafe. One of the driver has cause personal injury to the customers and has been
awarded 1 million in court orders . However nakatomi is insolvent. Our issue is whether they can
claim compensation from gruber or plaza based on company law rules.

General rule - company is a separate legal entity.

Solomen( facts ) , lee macora , company is a separate legal entity

Veil lifting 1 first discuss statute
( intro to veil lifting - veil lifting is vertical ( gubber ki jeb mein hath daalo) - statute s213 and
s214 - no fraud - Wrongful trading - no evidence - fail
Discuss common law
History( mere facade- policy reason undefined) cases examples( john v lipman - diamer) law
was not certain aggravated by lord denning in DHN “ lSingle group company” but courts
disregarded - supreme courts woolfson( COA ) cleared it in ( Adams case) , 3 points of Adams,
nakatomi is aent of plaza implied agency but not parent subsidiary but associated company but
veil lifting is vertical so not possible so we will go to commercial law( assuming lease arm's
length meaning full price then no agent , if yes the agent)- , principle can be liable for the action
of agent and get damages/compensation
No mere facade no pre existing obligation
Discuss tort law
Tort law is not veil lifting concept but parent can be liable.
Parent can be liable - chandeler - supervise - unsafe system of work - 3 points a- overrule- now
sufficient intervention. Cannot be claimed under tort law

Q2) In 2018, Megatom plc decided to manufacture a new type of miniature nuclear power
generator. Megatom knew the manufacturing process would be very risky. Megaton wanted to
avoid liability for any accidents, so it incorporated a subsidiary, Subquark Ltd, to manufacture
the generators. It is now clear Subquark’s process for manufacturing the generators is defective.
The process was designed by Subquark, but taking account of Megatom’s health and safety
policies. Subquark also had to remove several safety features from the manufacturing process
to save money, after Megatom suddenly informed Subquark’s board that Megatom would be
investing less capital into Subquark than originally planned. Megatom’s board knew Subquark
was removing the safety features but did nothing to prevent Subquark doing so. Several leaks of
radioactive material have now occurred, injuring Subquark’s employees. Subquark is already in
severe financial difficulties and struggling to pay its creditors. Instead of stopping trading,
however, Subquark’sdirectors want to borrow another £10 million to pay for safety
improvements, in the hope that sales of its generators will then improve. The directors know this
is a very risky strategy. If it fails, Subquark will be wound up insolvent, and creditors will receive
far aless than if the company stopped trading immediately.
(a) Advise Megatom plc whether it can be held liable to Subquark’s employees for their injuries.
(b) Advise Subquark’s directors whether they will face any liability if they pursue their high-risk
strategy but the company is then wound up insolvent.

General law - company is a separate legal entity

Sue subquark
Veil of incorporation- mere facade no defined- 3 points - no mere facade as avoiding future
obligations - no claim
Tort law - intervention - can be claimed

B) s. 214 wrongful trading - claim

Knew or ought to know. They will be personally liable if they take loan they will have to take
liability.

Q3) Parent plc owns two subsidiary companies, Aster Ltd and Begonia Ltd. Until January 2022,
Parent owned another subsidiary, Daffodil Ltd, which made fertilizer. However, in January 2022
Parent agreed to sell all its shares in Daffodil to Lobelia plc. In the contract between Parent and
Lobelia for the sale of the shares, Parent agreed not to make or sell fertilizer for four years.
In October 2022 Aster accidentally invented a revolutionary new form of fertilizer. Aster’s
directors (who had all been appointed by Parent) decided that Aster should make and sell this
fertilizer, which it is now doing. Parent invested an additional £2 million of share capital in Aster
to enable it to develop this business. Parent’s other subsidiary, Begonia Ltd, makes explosives.
In 2022 a large explosion occurred at Begonia’s factory, injuring many workers and neighbours.
The explosion occurred because of safety defects in Begonia’s manufacturing process. Parent
had been aware of these defects for some months but took no steps to make Begonia address
them. Indeed, Parent removed one of Begonia’s directors when that director tried to get
Begonia’s board to increase spending on health and safety. Parent’s website proclaims that
Parent ensures the highest safety standards throughout all group companies. Begonia is now
insolvent.
(a) Advise Lobelia whether it can take action against either Aster or Parent in respect of Aster’s
manufacture and sale of fertilizer.
(b) Advise those injured by the explosion if they can sue their parents for compensation for their
injuries.

Summary of facts : sold daffodil to lobelia.

Our issue is to determine whether these parties can claim against the parent company and
there can be a breacg of contract claim against lobelia and the parent company. Discuss both
case separately.
General rule - can sue parent only who is not doing same business so not liable
A) breacg of contract
S214 - no fraud or wrongful trading not liable
Common law - pre existing obligation was there so there was mere facade using existing
company - contract was signed in January and the money was invested in October 22 therefore
pre existing obligation therefore breach - compensation can be claimed
B) tort law - chandler v cape - 3 points - sufficient intervention - liable

Q4) Schelp plc (“Schelp'') carries on a global oil extraction and refinery business. It is a UK
registered company and its head office is located in London. Schelp’s business operations
across the world are carried on by numerous subsidiary companies, which have their own
boards of directors. Schelp is the sole shareholder of all its subsidiaries and each subsidiary’s
board is expected to provide a quarterly financial and operating update to Schelp’s main group
board in London every three months. Meanwhile, each year Schelp’s main group board
organizes an annual group directors’ conference at which the directors of all companies in the
group can meet to discuss key business policy issues. Schelp’s oil extraction operations in the
Eurasian region are carried on by a subsidiary called Kaz Ltd (“Kaz”). Schelp’sgroup board and
management team in London have limited contact with Kaz’s board and management team,
other than quarterly updates and the occasional discussion at the annual group directors’
conference. Kaz’s quarterly updates to Schelprarely mention anything in relation to
environmental responsibility except a general statement every three months to the effect that
“Kaz’s board and management fully respects and adheres to Schelp’s high global group
standard of health, safety and environmental responsibility”. Neither Schelp’s board nor senior
management have ever questioned Kaz’s commitment in this regard. This is despite the above
statement having been repeated “word for word” in every one of Kaz’s quarterly updates to
Schelp for the past three years. Kaz recently lost a mass tort action brought by residents of a
Kazakh village where it carries on large-scale oil extraction operations, on account of a
negligent oil spill which caused widespread damage to the local water supply and farmland.
Unfortunately for thl local residents, Kaz has gone into insolvent liquidation and cannot pay the
damages that it owes them. The local residents are now seeking to sue Kaz’s holding company,
Schelp, instead and seek your advice in this regard. Advise the local residents.

Subsidiary Kaz Kaz is insolvent

General law
Veil lifting - no statute. S13, no fraud or wrongful trading, no pre existing
Common law: no agency , no statute no mere facad‫۔‬
Tort- negligence- chandeler cape - adam - omissions - quarterly report no investigation ( no
sufficient intervention
Q18) Oiltraders plc owns a number of subsidiary companies which make, and sell,
oil-based products. Petrochem Ltd is one such subsidiary. It makes oil-based
medicines. In 2018, Petrochem entered into an agreement, with the Local Authority in
the city where its factory is located, not to operate its factory at night-time for a period
of five years. However, Petrochem now wishes to avoid this restriction, and Oiltraders
has decided that Petrochem will transfer the factory to Oiltraders, which will then
operate it at night. Solvents Ltd is another subsidiary of Oiltraders. Solvents refines
fuel for aircraft. A health and safety report, prepared by Oiltraders, found that
Solvents’ operations were very dangerous, and the risk of a major accident occurring,
which might injure many employees and cause damage to the surrounding
neighbourhood, was very high. The report recommended a number of expensive
safety measures be introduced. Unfortunately, Solvents is in financial difficulties.
Oiltraders’ board has told Solvents that it cannot provide any funding to Solvents to
enable it to introduce these safety measures. Solvents has therefore decided not to
introduce them. Advise Lorraine, who is a director of Oiltraders: (a) if Petrochem’s
factory is transferred to Oiltraders, whether Petrochem or Oiltraders will be liable to
the Local Authority if Oiltraders begins operating the factory at night; and (b) if an
accident occurs at Solvents’ operations, whether Oiltraders will be liable to those
injured.

Summary of fact:
Solvent has dangerous system of work and accident can occur. If an accident occur
will oil traders be liable.
Company is a separate legal entity soloman, mc
Contract signed by petro. No breach. Unless veil is lifted. Statute only applied in
company where compaby becomes insolvent.
Cannot sue unless u lift the veil.
Statute 213, 214.

Common law: history first unclearz but today in adams case.

3 points. Agr nahi lag rhay tou veil cannot be lifted.
Mere facade:
Pre existing obligation is there as contract was signed in 2018. Veil will be lifted and
hence breach.

Tort:
There is no evidence of fraud or unlawful trading. But they can not rely on company
but tort law. Company will be liable for omission.
Three point:
Same line of business….
Negligent act: parent will only be liable for negligent act where there is sufficient
intervention. In our case there is omission(knew about it huy never put money)
therefore not liable in tort law.

Q17) Biochem Ltd is a wholly owned subsidiary of Megaholdings plc. Biochem

manufactures chemical products. Until 2018, these included a range of paints.
However, in 2018 Biochem sold its paint business to Paintstuff Ltd. In clause 25 of
the sale contract between Biochem and Paintstuff, Biochemagreed not to manufacture
or sell any paint products for five years. In 2019, Biochem invented a revolutionary
new type of quick drying paint. It wanted to make and sell this paint. To avoid the
restriction in clause 25 of the contract between Biochem and Paintstuff, Megaholdings
arranged for the quick drying paint to be made and sold by Subsid Ltd, another
subsidiary of Megaholdings, which had been formed some years earlier. In 2020,
Subsid sent a report to Megaholdings. Subsidreported that the process for making the
new paint, which involved combining several volatile chemicals, was more dangerous
than expected. It said it intended to introduce a number of expensive changes to its
manufacturing systems designed to make the process safer. Megaholdings instructed
Subsid not to make these changes(act- intervention), as they would reduce Subsid’s
profitability. Subsid’s board of directors followed Megaholdings’ instruction. Two
months later, a large explosion occurred at Subsid’s factory, which injured several of
Subsid’semployees, and several neighbours of Subsid’s factory. Subsid is now on the
verge of insolvency. Advise: (a) Paintstuff whether it can take any action against
Biochem, Subsid or Megaholdings to enforce clause 25 of the sale contract between
Biochem and Paintstuff; and (b) those injured whether they can bring proceedings
against Megaholdings.
Summary of facts:
Two subsideries.
Contract of 5 years.

Not liable unless lifted veil.

No insolvency , 213 no evidence of fraud.

Comman law:
Agency relationship.
Mere facade: yess- pre existing obligation is being avoided here. Veil will be lifted.
No breach and megaholding is not doing paint business and subsid it doing. So no
breach.

Tort law:
If omission then chandler k through ho skta tha ab nhi hotaa. But if act then liable. In
our case, liable as there is act and there is sufficient intervention.

Q16) Fireproof plc is a company that manufactures heat-resistant gloves for industrial
purposes. By 2018, Fireproof was facing significant competition from other
manufacturers of heat-resistant clothing. Fireproof’s management decided to respond
to this growing competition by restructuring its manufacturing process. It established
a new, whollyowned, subsidiary, Glover Ltd, to take over the manufacture of the
gloves. Glover subsequently leased factory premises from Fireproof to make the
gloves, but otherwise owned no assets of its own. Glover’s directors, with the
knowledge of Fireproof, started making the gloves from a thinner, but cheaper, fabric.
This enabled Glover to sell its gloves at a much lower price than that previously
charged by Fireproof. Sam, Fireproof’s ‘product safety officer’, reported to
Fireproof’s board that Glover’s gloves were significantly less resistant to extreme
temperatures than those which Fireproof had previously made. Fireproof’s board
ignored Sam’s concerns because of how well the new cheaper gloves were selling. In
the past few months, many people have suffered severe burns to their hands when
using Glover’s gloves. Some of these have successfully sued Glover in tort for their
injuries. However, Glover has now entered into insolvent liquidation, preventing these
claimants from enforcing their tort judgements against Glover. Advise the claimants
on any further course(s) of action that might be available to them in order to recover
the sums owing to them for their injuries.
Summary of facts:
General rule:

Veil lifting: there is insolvency.

213 raised but will fail. Burden of propf high.

Common law:
Agency: this can be argued as principle agent concept. Liable.
No mere facade.

Tort law:
There is no distinction between fireproof and glover ltd. Same people same directors.
There is act.

Q15) Head-shield plc is a company that manufactures protective headwear for

participants in contact sports. In 2016, Head-shield negotiated to secure a lucrative
contract to make and supply helmets for a London-based American football team, the
London Lions. To maximise profits, Headshield decided that helmets supplied to
London Lions would use a lower grade material than was normally used in the
industry. Just before Head-shield was about to enter into the contract with London
Lions, Head-shield decided that the helmets would be made and supplied by a new
company, Skull-screen Ltd, which Head-shield incorporated, and in which Head-
shield was the sole shareholder. Headshield’s chief executive officer, Brett, was also
appointed Skull-screen’s only director. In December 2016, the contract with London
Lions for the supply of helmets was entered into by Brett on behalf of Skull-screen. In
2017, Head-shield appointed Tom as its ‘player welfare officer’, with responsibility
for ensuring that all products manufactured by Head-shield or any of its subsidiaries
conformed to adequate safety standards. Although Tom found evidence showing that
Skull-screen helmets posed a significantly greater risk of brain injury than other
higher quality helmets, his concerns were never acted upon by either Head-shield or
Skull-screen. Numerous London Lions’ players have recently succeeded in claims for
damages against Skull-screen, on account of long-term memory loss resulting from
persistent negligent exposure to unnecessary head trauma. However, the players have
been unable to enforce their respective judgments against Skull-screen because Skull-
screen has recently entered insolvent liquidation, and has no funds or assets remaining
to cover the amounts payable. Advise the London Lions’ players on any further
course(s) of action that might be available to them in order to recover the sums owing.

Insolvency- fraud- supplied helmet to save money and used bad material. Difficult to
prove.

Common law:
Statute- no
Principle agent relationship: all the manufacturing is done in the name of headshield.
Veil lifted.
Re fg films case
No mere facade and contract was signed afterward.

Tort law:
There is omission
No intervention.
Therefore not liable.

Q13) Until 2019, Aviation Ltd, which makes aviation fuel, was a wholly owned
subsidiary of Conch plc. In 2019, Conch sold all its shares in Aviation to Burnfast plc.
It was a term of the sale contract between Conch and Burnfast that Conch would not
make or sell aviation fuel for 10 years. In 2021, scientists working for Conch
accidentally invented a new, and much more efficient, type of aviation fuel. Conch
has decided that Standby Ltd, another of its wholly owned subsidiaries, will make and
sell this aviation fuel. Petrol Ltd is another wholly owned subsidiary of Conch. Delia,
a director of Petrol, wrote a report for Conch’s board. The report described a number
of safety issues concerning the design and maintenance of Petrol’s production
facilities, and outlined a number of expensive safety improvements Delia was
intending to introduce. In response, Conch removed her as a director of Petrol. No
safety improvements were made at Petrol. However, Conch did issue detailed health
and safety guidelines to all its subsidiaries, although it takes no steps to enforce these
guidelines. Conch also states on its website that it “maintains the highest safety
standards at all the group’s operations”. A large number of Petrol’s employees have
now suffered serious injuries at work. (a) Will Standby or Conch be liable to Burnfast
plc under the 2019 sale contract? (b) Will Conch be liable in tort for the injuries
caused to Petrol’s employees?
Director fired- there is act.

Conch not making at fuel so no breach

Common law:
Statute- no
Agent- no
Mere facade- yes as pre existing duty. Standbys veil will be lifted and behind it there
is
Breach.

Tort:
Intervention- liable. Director fired so act.

Q12) Aztec Group plc (“Aztec”) operates a nationwide warehousing and delivery
business. The group’s operations are structured such that Aztec functions as the
group’s listed holding company. Aztec’s board of directors has overall responsibility
for setting group-wide strategic and financing policies, which includes establishing
and overseeing a health and safety policy for the group’s general workforce. Aztec
Group plc has also vested one of its non-executive directors, Bernie, with
responsibility for representing the interests of the group’s workforce on the board. The
group’s distribution warehouses and delivery vehicles are owned by Aztec. However,
the group’s warehouse staff are all employed by a separate company, Storage Ltd, of
which Aztec is the sole shareholder. Aztec is also the sole shareholder of Transport
Ltd, which employs all of the group’s delivery drivers. In March 2020, following the
outbreak of the Covid-19 pandemic in the United Kingdom, Aztec’s board made it a
mandatory requirement for all warehouse and delivery staff to wear properly-secured
face masks while undertaking any work tasks. It was also announced that any
warehouse or delivery staff found to be in breach of this rule would be sanctioned.
However, due to cost factors, no arrangements were made for the effective monitoring
of workers’ face mask usage. This was despite many warehouse staff complaining that
the intense physical demands of their job made it difficult for them to breathe with a
face mask on. In December 2020, over 30% of Aztec’s warehouse staff were
hospitalised with a severe strand of the Covid-19 virus, which appears to have spread
rapidly within the group’s business premises. Many of those workers have since
suffered long-term health damage. It has transpired that, despite the company’s formal
face mask policy, many staff had been working without properly-secured face masks
throughout the whole period of the pandemic. The affected workers are now seeking
to sue Aztec for damages on account of the injury that they claim they have been
negligently exposed to. However, Aztec has refuted any legal responsibility on the
basis that Storage Ltd, which is now in insolvent liquidation, is the proper defendant
in respect of the harm suffered. Advise Aztec Group plc.

Common law:
Principle agent: acting as princple agent of one and another so veil will be lifted.
Liable
No mere facade.

Tort law:
Unsafe system of work.
There is intervention, so liable.

Q9) Schelp plc (“Schelp”) carries on a global oil extraction and refinery business. It is
a UK registered company and its head office is located in London. Schelp’s business
operations across the world are carried on by numerous subsidiary companies, which
have their own boards of directors. Schelp is the sole shareholder of all its subsidiaries
and each subsidiary’s board is expected to provide a quarterly financial and operating
update to Schelp’s main group board in London every three months. Meanwhile, each
year Schelp’s main group board organises an annual group directors’ conference at
which the directors of all companies in the group can meet to discuss key business
policy issues. Schelp’s oil extraction operations in the Eurasian region are carried on
by a subsidiary called Kaz Ltd (“Kaz”). Schelp’sgroup board and management team
in London have limited contact with Kaz’s board and management team, other than
quarterly updates and the occasional discussion at the annual group directors’
conference. Kaz’s quarterly updates to Schelprarely mention anything in relation to
environmental responsibility except a general statement every three months to the
effect that “Kaz’s board and management fully respects and adheres to Schelp’s high
global group standard of health, safety and environmental responsibility”. Neither
Schelp’s board nor senior management have ever questioned Kaz’s commitment in
this regard. This is despite the above statement having been repeated “word for word”
in every one of Kaz’s quarterly updates to Schelp for the past three years. Kaz
recently lost a mass tort action brought by residents of a Kazakh village where it
carries on large-scale oil extraction operations, on account of a negligent oil spill
which caused widespread damage to the local water supply and farmland.
Unfortunately for the local residents, Kaz has gone into insolvent liquidation and
cannot pay the damages that it owes them. The local residents are now seeking to sue
Kaz’s holding company, Schelp, instead and seek your advice in this regard. Advise
the local residents.

No statute
No agency
No mere facade.

Tort law:purely omission. Not liable as there is no sufficient intervention.

Essays
1. ‘The law in relation to corporate veil piercing has been rendered irrelevant by
recent developments in tort law concerning assumption of responsibility within
corporate groups. This is a positive development in terms of justice and legal
certainty.’ Discuss.
We disagree bec the concept of veil lifting is completely diff and cover diff situations
and scenarios and give justice is always very narrow.
History: mere facade
Last resort situation. It is narrow principle but tort law itself is very flexible. Historic
developments happened

3. Critically evaluate ONE of the following two issues: (a) the wrongful trading rule
under section 214 of the Insolvency Act 1986; or
(b) the equitable restrictions on alteration of a company’s articles of association.
(Ellen v )

S214 targets directors for wrongful trading etc.

analysis:

B) . 75% pr article anend and minority can not be happy.

Bonafide ground (ellen v gold) it is narrow and for the benefit or the company.
Minority rights and all have to be balanced as minorities can misuse the rights.

4. ‘The common law position on corporate veil piercing today is relatively clear and
settled. By contrast, the corresponding common law position in relation to assumption
of responsibility by parent companies for social harms inflicted by their subsidiaries is
neither clear not settled.’ Discuss.
Common law

2. ‘The “evasion principle” for veil piercing is too narrow and too unclear. Judges
should be free to pierce the veil whenever justice requires this to be done.’ Discuss.
Disagree wuth the statement.
Company intro
Common law only(evasion principle). Do not write statute
Adams case 3 exception but 2 of them are clarifications. Cleared in adam and made it
the last resort.
Certainty is very important.

1. ‘Parent companies should be held liable for all the debts and the torts of their
subsidiaries. Fortunately, UK law has moved in this direction through its approach to
veil piercing and through its approach to a parent company’s duty of care in tort.’
Discuss.
Disagree. Parent and subsidiary are two differnt. Parent company should not be liable.
Adams case
Exception prest v per

Tort law:
Chandler x
Okpadi case. It has been clear if parent intervenes than will be liable.