National law university odisha corporate law I national law university odisha
Download 0.88 Mb. View original pdf
|
| COMPANY LAW SEPARATE LEGAL ENTITIES: The judgment of the Court in the landmark case of Salomon v Salomon Co Ltd. 6 legitimated the “one-man company and then the evolution of the modern phenomena of the corporate group consisting of its subsidiaries owned by the corporate shareholders, each one also being a distinct separate legal entity from that of its shareholders began. The concept of shareholding in itself does not hold an entity as an agent of its shareholder, whether that shareholder is an individual or another company. 7 The Courts in the English Jurisdiction have been robust in applying the “Salomon principle in the context of Group. It was stated by the Court of Appeal in the case of Adams v Cape Industries plc. 8 that: “save in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon v Salomon Co Ltd 9 merely because it considers that justice so requires It was further opined that: “Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.” The crystal position in the jurisdiction is that companies in a group of companies are separate legal entities and are not the agents of their controlling shareholders However, there exist exceptions to this general principle. They are “agency” and the idea of “piercing the corporate veil.” It is possible that there exists an agency relationship between a parent company and its subsidiary company such that the subsidiary company acts like an agent for 6 Salomon v Salomon & Co Ltd [1897] AC 22 HL. 7 M.C.Bhandari, Company Law Procedures, (rd edn. LexisNexis Vol 3 2016). 8 Adams v Cape Industries plc [1990] BCLC 479. 9 Salomon v Salomon & Co Ltd [1897] AC 22 HL. NATIONAL LAW UNIVERSITY ODISHA CORPORATE LAW Ii its parent company. 10 Consequently, the lifting of corporate veil maybe done and the corporate veil can be pierced in cases where the subsidiary is a mere facade hiding the true facts of the case. 11 However, the sole fact that the shareholder controls the whole shares is not sufficient to make the company a facade nor is a group structure considered as a facade where it is setup with an objective to minimize the liabilities that might come in the future. 12 Sometimes, it is however, argued that this adherence to astringent approach laid down by Salomon giving the status of separate legal entity to each entity is not appropriate in the modern world of business where major commercial activities are taken on incorporate groups in ways that reasonably could not have been encapsulated during the year of 1897. Various other alternative approaches have been brought and proposed from time to time such as, for instance, that the courts must pierce the corporate veil more freely in the context of group. Furthermore, it is also suggested by some that the law must try to develop a mechanism whereby responsibilities and obligation can be attached to a group and not to individual separate existing companies. In this manner, the law can strive to reflect the economic realities that these companies are trading as a group, are raising capital existing as a group, and are considered by those dealing with them to be a group. 13 While a ray of hope arose when some support regarding the development of a group enterprise law was given by Lord Denning in the case of DHN Food Distributors Ltd vb iibTower Hamlets LBC, Download 0.88 Mb. Share with your friends:
|