LLM Company Law Tutorial 1.

1. Rick has inherited a vast fortune from his father which he has, on advise from his
accountants and lawyers, invested in some one hundred companies through his
company Pax Ltd. All the shares in Pax Ltd are owned by Rick but Rick does not
sit on the board or take part in any day to day management. Pax Ltds major client
is Rick but it does have some other significant clients. One of the companies
wholly owned by Pax Ltd is called Abby Ltd and has been specifically formed to
hold Pax Ltds growing art investments. Some years ago Rick bought a valuable
Picasso painting which was the subject of a legal dispute over ownership. Rick
has recently lost the ownership dispute and must return the painting. Rick now
claims he cannot return the painting, as it is no longer owned by him but by Abby
Ltd.
Discuss the veil lifting issues that arise in this problem question.
1. S v S
2. Abby holds the property for the benefit of Rick (trust? Prest applied)
3. Fraud (no as was not created specifically for that purpose)- need to establish
intention, hard to prove, so trust is a more favourable approach
4. If he was a director, there might be tort. But he is just a shareholder, so tort is
inapplicable (Williams v Natural Health- all elements of tort must be
established; injury, causation, breach)
5. Agency ( its problematic because of Smith Stone; documentary evidence
needed Cape Industries, in this case there was no documents in this case, so
doesnt apply)
6. Statutory: Insolvency Act (s. 213; s. 214- wrongful/ fraudulent trading)
2. Read Prest v Petrodel and be prepared to discuss in your tutorial why it is such an
important veil lifting case.
Sumption leading judgment: lifting/ piercing (Ryan- lifting is an examination
behind the veil, piercing is attributing responsibility; other academics use these
terms interchangeably)
Better to use alternatives as concept of lifting/ piercing is confusing
If alternatives dont apply, only then apply lifting/piercing the veil ( as
a last resort)
Lifting/ piercing discourages investment (as parents are discourage to
create subsidiaries) and it would cause floodgates
Concealment (similar to lifting)/evasion (similar to piercing) theory
introduced (p.137-138)
Easterbreak &Fischel- in favour of Salomon v Salomon , since it
allows for parties (e.g. creditors) to investigate

If bought before marriage, family law would unlikely to apply, therefore court would
go with fraud exception.
In problem question structure:
Salamon
Lifting/ piercing (with things that are not even good law)
Alternatives (quote Sumption s judgement in Prest )

Essential Reading
Alan Dignam & John Lowry, Company Law, 8th ed. (2014) [hereinafter D&L]
D&L, Chapter 2 and 3;
Paul Davies & Sarah Worthington, Gower & Davies: Principles of Modern
Company Law, 9th ed. (2012) [hereinafter Gower])
Gower, Chapter 2, Chapters 8 & 9 (ch 9: 9-1 to 9-11 and 9-17 to 921 only);
Prest v Petrodel (2013) on Company law QM plus site and sent by email.
Further Reading:
Moore, M A Temple Built on Faulty Foundations:
Piercing the Corporate Veil and the Legacy of
Salomon v Salomon, (2006) Journal of Business Law
180;
Muchlinski, P Limited liability and multinational
enterprises: a case for reform? (2010) 34 Cambridge
Journal of Economics 915;
Rixon, Lifting the veil between Holding and Subsidiary
Companies [1986] Law Quarterly Review 415.

Notes:
S v S- separate legal personality
Parent creating subsidiary, creditor wants some money from subsidiary, but subsidiary
is dissolved
Lifting:
1) Faade
2) Justice (rejected in Cape Industries)

3) Single Economic Entity (DHN Food Distribution: Denning- we generally treat

them as one; Shaw- closely connected, so have the same business interest, so
better to treat them as one, it will be just to treat them as one; rejected in Cape
Industries)
Alternatives:
1) Agency (Cape Industries- must be express agreement or documentation,
implied agreements are not accepted)
2) Statute
3) Trusts (Prest- )
4) Contract
5) Tort(Chandler v Cape)
Cape Industries- tried to go back to Solomon by narrowing down faade exception;
justice is too vague, rejected DHN Food Distribution)