Liability of Company and Corporate Veil †Myassignmenthelp.Com

Question: Discuss About the Liability of Company and Corporate Veil? Answer: Introducation The investors who take risk to form a company usually have the guarantee the risk of debts and any liability usually will fall own the company because it is a separate legal entity and can sue and be sued in its own capacity. However, it bears noting that some investors such as is the case of Australian Careers Institute and the Sage Institute of Fitness, abuse the limited liability principle and the concept separate legal personality. The following two legal issues will apply to the Sage Institute of Fitness case study. Limited Liability of Company and Corporate Veil The concept of limited liability was established in the leading case of Salomon v Salomon Co Ltd[1] introduced the idea of separate legal personality of a company. Ideally, separate legal personality connotes that a company has a separate legal persona form the members of the company, the shareholders and the directors who have invested in it. [2] Under Australia law the principle of separate legal personality of a company has been provided under section 124 of Corporations Act 2001. In the case of Lee v Lees Air Farming Ltd[3] it was held that a company by having separate legal personality liability of the company is limited. Limited liability of a company means that the shareholders and directors are not liable in case any debts arise.[4] This implies that the shareholders have the assurance that they are protected from the effects of bankruptcy rules and insolvency during winding up of a company.[5] Because of the separate legal personality and limited liability of the company th e corporate veil is created which shields the shareholders of the company. However, the veil of incorporations may be lifted by the court if the company has is a sham and does not conduct the business it claims to in its article of association. Therefore, it has been held in Atlas Maritime Co SA v Avalon Maritime Ltd (No 1)[6] that when the veil of incorporation is lifted the shareholders of the company become personally liable for the debts of the company. The veil may also be lifted to prevent fraud or where the company formed is a sham and was merely intended to escape contractual or legal liability.[7] The principle lifting the corporate veil will help to prevent the mischief of the beneficial owners of Australian Careers Institute and Sage Institute of Fitness. The investors of the company will thus be personally liable for all the liabilities and debts which are being extended to the students and the stake holders. CompanyOfficer/Director Duties: Misleading and Deceptive Conduct Under section 180(1) of the corporation act the director has the duty to ensure that the care and due diligence that is expected of a reasonable person in his position.[8] These duties may also breached by the company officer who is regarded as any person who takes part in the decision making process of the company that in the end affects the entire business. In Lagunas Nitrate Co v Lagunas Syndicate[9] it was held that a director or company officer must act for the benefit of the company and that which is reasonable within his power after exercising his knowledge. According to section s1041H (1) a director or any company officer has the legal obligation to avoid practicing misleading and deceptive conduct during trade or any financial activity.[10] The main reason behind the sanction imposed by the duties given on directors is to protect investors of the corporation. As a matter of course, section 12DA of the Australian Securities Investment Commission Act prohibits any person from doing an act that is misleading or deceiving or is likely to do so while pursuing a financial activity. Based on the fact that this duty arises to persons dealing with a corporation or any business transaction it therefore means that the rule also applies to directors. It was noted in the case of Taco Bell of Australia Inc. v Taco Bell Pty Ltd,[11] that the information that is said by the director must actually be have a misleading and deceptive effect on the audience that the information targets. The audience that is being targeted by the representation must make a reasonable assumption that is not withdrawn from fanciful assumption.[12] In Australian Competition and Consumer Commission v Singtel Optus Pty Ltd[13] the court decided that if the intention of a director was to deceive and mislead if the information did not attain the desired result, the director will still be liable. The directors Australian Careers Institute and Sage Institute of Fitness will thus be personally liable for engaging in misleading and deceptive conduct through making advertisements for services which did not meet the expectation of a reasonable consumer Negligence is traditionally a common law action which is brought against one who has acted or omitted to do that which is in the ordinary course of his obligation, mandated to do.[14] For an act or omission to amount to the tort of negligence a duty of care owed to the plaintiff, breached of the duty and harm must be proved to exist.[15] It is imperative to note that the concept of duty of care applies to negligent misstatements that may have been made by a professional without regard to the veracity of the statements. [16] The duty of care is created by reliance on professional advice and the defendant is usually liable for professional negligence. The issue in this case is whether Tina and Aristotle can bring a claim for negligent misstatement or professional negligence after relying on Professional advice from William a Financial adviser. Negligent Mistatement The concept of negligent misstatement and professional misstatement is primary illustrated in the case of Hedley Byrne Co Ltd v Heller and Partners Ltd[17] which affirmed that a person is liable for a negligent misstatement if another party relied on the professional advice that has been given. However, in Byrne the court held if a disclaimer if given during the process of giving the advice one may, the defendant may be excluded from liability for negligent misstatement. Today, section 951A states that a disclaimer given during financial advise is void and is not effective.[18] The relationship between common law duty of care and negligent misstatement was given meaning in Caparo Industries plc. v Dickman[19] in which the court held that the person that is rendering advice must comprehend the significance of the advice and must know that the other party will not rely on any other independent advice. In Mutual Life and Citizens' Assurance Co Ltd v Evatt[20] the High Court of Australi a established that negligent misstatements does not only apply to people who are traditionally regarded as professionals but it also extends but even to non professionals provided the essential elements of negligence have been proved. Conversly, in the case of Shaddock Associates Pty Ltd Anor v Parramatta City Council[21] the court ruled that a person who makes statements which are reasonably relied upon by another individual has a duty to ensure that the advice given entails correct information. It is apparent that the test applied in negligent misstatement or advise is that; the maker of statements must know that the other party trusts him, the advice or information passed must be of serious business value and it was reasonably expected that the other party would rely on the information. In Ali v Hartley Poynton Limited[22] the plaintiff was an elderly woman who relied on financial advise given by a stoke broker. The court held that the defendant was liable for negligent misstat ement because he failed to conduct due diligence and proper analysis and did not disclose the risk of taking the investments. The remedy sought in an action for is one of recovery of loss for pure economic or financial loss that has been suffered due to reliance on the information that has been give. [23] It bears noting that the defendant in an action for negligence misstatement may lean on the defense of Vonlentis non fit injuria by asserting that the claimant solely relied on independent advice and thereby voluntary invited the financial injury to himself. Misleading Conduct Pursuant to section 12DA(1) of the Australian Securities and Investments Commission Act[24] any person who takes part in any trade or commerce is not allowed to perpetrate misleading or deceptive conduct. It bears noting that misleading or deceptive conduct also includes representations or an omission to disclose important information. The Corporation Act also echoes similar sentiments by absolutely prohibiting misleading and deceptive conduct during the process of trade or commerce.[25] Misleading and deceptive conduct can be referred to unconscionable conduct in trade and commerce because it is unreasonable and is an utterly display of ignorance. It thus goes without saying that ignorance of the law is not a defense in trade or commerce. The duty to avoid misleading and deceptive conduct to people who are expected to give advise or information because of there special possession of a skill or knowledge. In the case of ASIC v Accounts Control Management Services Pty Ltd[26] it was r uled that people should avoid unfair business practices that put other people at risk. In this sense professional advise must be given with due regards to all duties and obligation expected from a n ordinary professional. It has been held in the case of Wardley Australia Ltd v Western Australia[27] that in an action for misleading and deceptive conduct the complainant has the remedy of damages for loss suffered although an action may not be brought until loss has occurred. It thus follows that where the misleading and deceptive conduct is an omission to give adequate financial advice, am action will only be valid if there is proof of financial loss or damages. Application It is advised to Tina and Aristotle the financial advise that was given by William amounts to negligent misstatement. This is because their relationship with William was founded on the concept of duty of care where they trusted the information that was given to them and actually relied on it. Additionally, by applying the tenets of Ali v Hartley Poynton Limited[28] William neither revealed the risks that were involved in pursuing the investment option nor did he exercise due diligence before giving the information. It is instructive to note that the defense of volentis non fit inujria will be defeated because Tina and Aristotle did not rely on any independent advice. Ideally, William will be liable for negligent misstatement and will be compelled by the court to pay full amount of pure financial loss that Tina and Aristotle suffered. Tina and Aristotle must also evince that they have suffered damage for them to bring an action of misleading and deceptive conduct pursuant to the Austr alian Securities and Investments Commission Act. Williams conduct amount to a misleading and deceptive conduct because he failed to give important information which should ordinary be submitted it course of his practice. Conclusion It can be conceded that Tina and Aristotle have a strong claim of negligent misstatement or professional negligence against William. On the other hand, they can claim the financial suffered provided they all prove all the essential legal elements required in an action for negligent misstatement. References Article and Books Cathy S. Krendl, et al., Piercing The Corporate Veil: Focusing The Inquiry, Denver Law Journal 1 (Vol. 55, No. 1, 1978) Gonzalo Villalta, A Two-Edged Sword: Salomon and the Separate Legal Entity Doctrine, Murdoch University Electronic Journal of Law 2000 William J. Reader, Versatility Unlimited: Reflections on the History and Nature of the Limited Liability Company, in Tony Orhnial, Ed., Limited Liability and the Corporation 191 (Croom Helm, London Canberra, 1982). Ali v Hartley Poynton Limited[2002] VSC 113 - 20 ACLC 1006 ASIC v Accounts Control Management Services Pty Ltd [2012] FCA 1164 ASIC v Macdonald (No 11) [2009] NSWSC 287 AstraZeneca v GSK [2006] ATPR Atlas Maritime Co SA v Avalon Maritime Ltd (No 1) [1991] 4 All ER 769 Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (2010) 276 ALR 102 Blyth v Birmingham Waterworks Company (1856) 11 Ex Ch 781 Caparo Industries plc. v Dickman (1990) 2 AC 605 Grant v The Australian Knitting Mills [1935] UKPC 2, [1936] A.C. 562 Hedley Byrne Co Ltd v Heller and Partners Ltd [1964] AC 465 Lee v Lees Air Farming Ltd (1961) AC 12 Mutual Life and Citizens' Assurance Co Ltd v Evatt [1968] HCA 74 Salomon v Salomon Co Ltd [1897] AC 22, 48 San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (NSW) (1988) 162 CLR 340 Shaddock Associates Pty Ltd Anor v Parramatta City Council (1981) 150 CLR 225 Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530 Taco Bell of Australia Inc. v Taco Bell Pty Ltd (1982) 42 ALR 177 Turner v Garland and Christopher (1853) cited in Hudson's Building Contracts (4th ed., 1914) Vol. 2, p. 1 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Legislation Australian Securities and Investments Commission Act 2001 (cth) Corporations Act 2001(cth [1] [1897] AC 22, 48 [2] Gonzalo Villalta, A Two-Edged Sword: Salomon and the Separate Legal Entity Doctrine, Murdoch University Electronic Journal of Law 2000 [3] [1961] AC 12 [4] Cathy S. Krendl, et al., Piercing The Corporate Veil: Focusing The Inquiry, Denver Law Journal 1 (Vol. 55, No. 1, 1978) [5] William J. Reader, Versatility Unlimited: Reflections on the History and Nature of the Limited Liability Company, in Tony Orhnial, Ed., Limited Liability and the Corporation 191 (Croom Helm, London Canberra, 1982). [6] [1991] 4 All ER 769 [7] Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530 [8] ASIC v Macdonald (No 11) [2009] NSWSC 287 [9] [1899] 2 Ch. 392 [10] Corporations Act 2001(cth) [11] (1982) 42 ALR 177 [12] AstraZeneca v GSK [2006] ATPR [13] (2010) 276 ALR 102 [14] Blyth v Birmingham Waterworks Company (1856) 11 Ex Ch 781 [15] Grant v The Australian Knitting Mills [1935] UKPC 2, [1936] A.C. 562 [16] Turner v Garland and Christopher (1853) cited in Hudson's Building Contracts (4th ed., 1914) Vol. 2, p. 1 [17] [1964] AC 465 [18] Corporations Act 2001(cth) [19] (1990) 2 AC 605 [20] [1968] HCA 74 [21] (1981) 150 CLR 225 [22] [2002] VSC 113 - 20 ACLC 1006 [23] San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (NSW) (1988) 162 CLR 340 [24] 2001 (cth) [25] Section 1041H of the Corporations Act 2001 [26] [2012] FCA 1164 [27] (1992) 175 CLR 514 [28] [2002] VSC 113 - 20 ACLC 1006