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　　4 In the context of company law explain:
　　(a) the doctrine of separate personality
　　and its consequences; (6 marks)
　　(b) the circumstances under which separate
　　personality will be ignored. (4 marks)
　　(10 marks)
　　答案：4 This question asks candidates
　　to consider the doctrine ofseparate personality,
　　one of the key concepts of company law. It also
　　requires some consideration of the occasions
　　when the doctrine will be ignored, and the veil
　　of incorporation pulled aside. This latter part
　　will demand consideration of
　　both statute and common law provisions.
　　(a) Separate personality
　　Whereas English law treats a partnership
　　as simply a group of individuals trading collectively,
　　the effect of incorporation is
　　that a company once formed has its own distinct legal
　　personality, completely separate from its members.
　　The doctrine of separate or corporate personalityis
　　an ancient one, but the case usually cited in relation
　　to separate personality
　　is: Salomon v Salomon & Co (1897). Salomon had been in
　　the boot and leather business for some time. Together with other
　　members of his family he formed a limited company
　　and sold his previous business to it. Payment
　　was in the form of cash,
　　shares and debentures. When the company
　　was eventually wound up it was argued that
　　Salomon and the company were
　　the same, and, as he could not be his own creditor,
　　his debentures should have no effect.
　　Although earlier courts had decided
　　against Salomon, the House of Lords
　　held that under the circumstances,
　　in the absence of fraud, his debentures were valid.
　　The company had been properly constituted and
　　consequently it was, in law, a distinct legal person,
　　completely separate from
　　Salomon. Prior to the Companies Act 2006
　　(CA 2006) true single person limited companies,
　　with only one member, could
　　be formed but these were exceptional and in
　　the event of the membership of an ordinary
　　company falling below one, the
　　remaining member assumed liability for the debts
　　of the company. Now under s.123 CA 2006,
　　if the number of members
　　of a limited company falls to one, all that is
　　required is that the fact be entered in the
　　company’s register of members, with
　　the name and address of the sole member.
　　A number of consequences flow from the
　　fact that corporations are treated as having
　　legal personality in their own right.
　　(i) Limited liability
　　No one is responsible for anyone else’s
　　debts unless they agree to accept such responsibility.
　　Similarly, at common law,
　　members of a corporation are not responsible
　　for its debts without agreement. However,
　　registered companies, i.e. those
　　formed under the Companies Acts, are not
　　permitted unless the shareholders agree
　　to accept liability for their company’s debts.
　　In return for this agreement
　　the extent of their liability is set at a fixed amount.
　　In the case of a company limitedby shares the level of
　　liability is the amount remaining unpaid on the
　　nominal value of the shares held. In the case ofa company
　　limited by guarantee it is the amount that shareholders
　　have agreed to pay in the event of the company being
　　wound up.
　　(ii) Perpetual existence
　　As the corporation exists in its own
　　right changes in its membership have
　　no effect on its status or existence. Members
　　may die, be declared bankrupt or
　　insane, or transfer their shares without
　　any effect on the company. As an abstract legal
　　person the company cannot die, although
　　its existence can be brought to an end through
　　the winding up procedure.
　　(iii) Business property is owned by the company
　　Any business assets are owned by the company
　　itself and not the shareholders. This is normally
　　a major advantage in that the companys assets
　　are not subject to claims based on the
　　ownership rights of its members.
　　It can, however, cause
　　unforeseen problems as may be seen
　　in Macaura v Northern Assurance (1925).
　　The plaintiff had owned a timber estate
　　and later formed a oneman company
　　and transferred the estate to it.
　　He continued to insure the estate in his own name.
　　When the timber was lost in a fire it was
　　held that Macaura could not claim on the insurance
　　as he had no personalinterest in the timber,
　　which belonged to the company. (iv) Legal capacity
　　The company has contractual capacity in its
　　own right and can sue and be
　　sued in its own name. The extent of the
　　company’s liability, as opposed to the members,
　　is unlimited and all its assets may be used to pay off debts. The
　　company may also be liable in tort for
　　any injuries sustained as a consequence
　　of the negligence of its agents or employees.
　　(iv) The rule in Foss v Harbottle
　　This states that where a company suffers
　　an injury, it is for the company,
　　acting through the majority of the members,
　　to take the appropriate remedial
　　action. Perhaps of more importance
　　is the corollary of the rule which is that anindividual
　　cannot raise an action in response to a
　　wrong suffered by the company.
　　(b) Lifting the veil of incorporation
　　There are a number of occasions,
　　both statutory and at common law,
　　when the doctrine of separate personality will not be
　　followed. On these occasions it is
　　said that the veil of incorporation,
　　which separates the company from its members,
　　is pierced, lifted or drawn aside.
　　Such situations arise as follows:
　　(i) Under the companies legislation
　　Section 399 of the Companies Act 2006
　　requires accounts to be prepared
　　by a group of related companies, thus
　　recognising the common link
　　between them as separate corporate
　　entities. Section 213 of the Insolvency Act 1986
　　provides for personal liability in relation
　　to fraudulent trading and s.214
　　does the same in relation to wrongful trading.
　　(ii) At common law
　　As in most areas of law that are
　　based on the application of policy
　　decisions it is difficult to predict when the courts will
　　ignore separate personality.
　　What is certain is that the courts
　　will not permit the corporate form to be used for a clearly
　　fraudulent purpose or to evade
　　a legal duty. Thus in Gilford Motor
　　Co Ltd v Horne (1933) an employee
　　had covenanted not to solicit his former employer’s
　　customers. After he left their
　　employment he formed a company to solicit those
　　customers and it was held
　　that the company was a sham
　　and the court would not permit it to be used to avoid the
　　contract.
　　As would be expected the
　　courts are prepared to ignore
　　separate personality in times
　　of war to defeat the activity of
　　shareholders who might be
　　enemy aliens. See Daimler Co Ltd v Continental
　　Tyre and Rubber Co (GB) Ltd (1917).
　　Where groups of companies have been
　　set up for particular business ends the
　　courts will usually not ignore the separate
　　existence of the various companies unless
　　they are being used for fraud. There i
　　s authority for treating separate
　　companies as a single group as in
　　DHN Food Distributors Ltd v Borough
　　of Tower Hamlets (1976) but later authorities
　　have cast extreme doubt on this decision.
　　See Woolfson v Strathclyde RC (1978) and
　　National Dock Labour Board v Pinn & Wheeler (1989).
　　The later cases would appear to
　　suggest that the courts are
　　becoming more reluctant to ignore
　　separate personality where the
　　company has been properly established
　　(Adams v Cape Industries plc (1990) and Ord
　　v Belhaven Pubs Ltd (1998)).