Legal aid oyo journal of legal issues vol. 1, Issue 1, 2017
(b)It is an ideal vehicle for fraud
Download 384.7 Kb. View original pdf
|
Company Law Notbeook
| (b) It is an ideal vehicle for fraud Ever since the House of Lords handed down its decision in Salomon's case, legal doctrine regards each corporation as a separate legal entity. When coupled with the consequent attribute of limited liability, the Salomon principle provides an ideal vehicle for fraud. Because of its malleability and facility for protecting directors and members against the claims of creditors, the corporate form has been responsible for the development of many 454 different forms of fraudulent or antisocial activity. (c) Limitations on shareholders bringing proceedings on behalf of the company There are procedural difficulties for shareholders to bring a court action on their own behalf and on behalf of their company. Historically, the so-called rule in Foss v Harbottle(1843) 2 Hare 461was illustrative of such a problem. In that case two shareholders brought an action on behalf of themselves and all other shareholders against the directors, solicitor and architect of their company. They alleged that the defendants had fraudulently misapplied company property and that the board was not properly constituted. The defendant's argued that the plaintiff's plea, even if proved, did not entitle them to succeed. The Court held that the injury of which the plaintiff's complained of was not an injury to themselves but to the company. Therefore the company should sue in its own name. 452 Khan-Freund, Some Reflections on Company Law Reform, (1944), 7 MLR 54 at p. 56 453 Goulding, Si Principles of Company Law,(London: Cavendish Publishing Limited, 1996), p. 49 Gonzalo VillaltaPuig, A Two-Edged Sword Salomon and the Separate Legal Entity Doctrine Volume 7, Number 3 (September 2000) Corporation Law – Australia http://www.murdoch.edu.au/elaw/issues/v7n3/puig73a_text.html , December 17, 2014 at 12: 07 pm |