As we observed with the Salomon, Lee and Macaura cases, the consequences of treating the company as a separate legal entity or not can be extreme. Over time the judiciary have swung from strictly applying the Salomon principle in these difficult situations to taking a more interventionist approach to try to achieve justice in a particular situation. The following cases should give some flavour of the types of situations that have arisen and the approach taken by the judiciary at the time.
In Gilford Motor Company Ltd v Horne [1933] Ch 935 a former employee who was bound by a covenant not to solicit customers from his former employers set up a company to do so.
He argued that while he was bound by the covenant the company was not. The court found
that the company was merely a front for Mr Horne and issued an injunction against him.
In Jones v Lipman [1962] 1 WLR 832 Mr Lipman had entered into a contract with Mr Jones for the sale of land. Mr Lipman then changed his mind and did not want to complete the sale.
He formed a company in order to avoid the transaction and conveyed the land to it instead.
He then claimed he no longer owned the land and could not comply with the contract. The
judge found the company was but a façade or front for Mr Lipman and granted an order for
specific performance.
In Lee Willian Leitch Bros. Ltd. the directors of the company carried on business even after the insolvency and purchased dome goods on credit. During the transactions the creditors knew that they would not be able to pay. The company was carrying on business with intent to defraud the creditors. Thus, the directors of the company would be personally liable for the debts.
Further reading click here.
In Gilford Motor Company Ltd v Horne [1933] Ch 935 a former employee who was bound by a covenant not to solicit customers from his former employers set up a company to do so.
He argued that while he was bound by the covenant the company was not. The court found
that the company was merely a front for Mr Horne and issued an injunction against him.
In Jones v Lipman [1962] 1 WLR 832 Mr Lipman had entered into a contract with Mr Jones for the sale of land. Mr Lipman then changed his mind and did not want to complete the sale.
He formed a company in order to avoid the transaction and conveyed the land to it instead.
He then claimed he no longer owned the land and could not comply with the contract. The
judge found the company was but a façade or front for Mr Lipman and granted an order for
specific performance.
In Lee Willian Leitch Bros. Ltd. the directors of the company carried on business even after the insolvency and purchased dome goods on credit. During the transactions the creditors knew that they would not be able to pay. The company was carrying on business with intent to defraud the creditors. Thus, the directors of the company would be personally liable for the debts.
Further reading click here.
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