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)).