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SEMINAR I : CORPORATE PERSONALITY AND LIMITED LIABILITY

Discussion

The discussion will consider the implications for regulation of companies of the recognition of separate corporate personality.

1. What influence will an economic analysis approach (e.g. Easterbrook and Fischel) have on the recognition of separate corporate personality?

2. Drawing on the above reading and the arguments encountered there, consider whether the veil should be lifted in the following situations:

a) Cypher Ltd is a company which operates several salt mines in Russia. 35% of the issued voting shares in Cypher are owned by Martinet plc, a company that heads a group of companies successfully operating in the area of mining research and development. A further 20% of the shares in Cypher are owned by other members of the Martinet group. By an agreement with the other shareholders Martinet has a right to appoint a majority of the board of directors of Cypher.

There have recently been several accidents at the Siberian mines and workers are seeking compensation for personal injuries and loss of earnings. Moreover the company has incurred massive liabilities for damage caused to the environment. Cypher has always been undercapitalised and has insufficient assets to meet these claims.

b) Dennis was the main shareholder (holding 90% of shares); the sole director; and sole employee of Gouda Cheese Shop Ltd. The other 10% of shares were held by his wife. This company was formed in 1995 to operate a cheese shop. Dennis and his wife live in a large house in the centre of Leicester. In order to save money Dennis opened the cheese shop in the ground floor of this house. Unfortunately this was not a successful business venture and the company recently went into liquidation (i.e. "bankrupt"). Dennis today received a writ from a customer, Nicholas, who bought a Brie sandwich from the company two months ago. Nicholas contracted food poisoning and tests have revealed that the Brie was the cause of the poisoning. Nicholas is aware that the company has gone into liquidation (and has insufficient assets to pay him any compensation) and he wishes to instead sue Dennis for negligence and for breach of the contract under which Nicholas bought the sandwich. Nicholas is particularly unhappy that Dennis is still living in the house where the shop was and that Dennis has recently opened a new shop in the ground floor of the house.

  1. Do the approaches suggested by Whincup and Blumberg as applying in the USA allow for greater consistency or fairness in dealing with the consequences of limited liability compared to the Salomon case.

Reading

  1. For the UK legal rules in this area read Davies and Gower Chs. 8 and 9 or Hannigan Chapter 7.
  2. Salomon v Salomon [1897] AC 22 - the "founding case" of UK Company Law. What are the problems with, and benefits of, this approach? - there will be a brief talk on this case at the beginning of the seminar to stimulate discussion of the issues it raises.
  3. Easterbrook and Fischel, Limited Liability and the Corporation (1985) 52 University of Chicago Law Review 89 (also available in Wheeler (ed.), Company Law (1993) at 29 and available on Westlaw). This is a classic of Chicago School Economic Analysis of Law.
  4. Douglas Litowitz Are Corporations Evil? (2004) 58 University of Miami Law Review 811. A discussion of some recent US debates about whether the corporation, with its separate personality, is essentially harmful to society. Available on Westlaw only.
  5. P.I. Blumberg, Asserting Human Rights Against Multinational Corporations under United States Law: Conceptual and Procedural Problems (2002) 50 American Journal of Comparative Law 493 - available on Westlaw. A recent examination of the "fairness" and "realist" problems with the Salomon/Chicago School approach as adopted in the USA
  6. A J Boyle, The Company Law Review and "Group Reform" (2002) 23 Company lawyer 35-36 - available on Westlaw a brief UK equivalent.
  7. Whincup, Inequitable Incorporation (1981) 2 Company Lawyer 158 - a useful but old US/UK comparison.
  8. T.Morgan, He That is without sin among you, let him first cast a stone (2003) 24 Company Lawyer pp194-195 - a brief outline of the problems of abuse of offshore shell companies.

Additional if you want to take this topic further

  1. Anil Hargovan and Jason Harris, "Piercing the Veil in Canada: a Comparative Analysis" (2007) 28 Company Lawyer p 58 - a Canadian/Australian comparison
  2. Karen Vandekerckhove, "Piercing the Corporate Veil" (2007) 4 European Company Law p 191 - an interesting cross country comparison involving UK, US Belgium, Netherlands and Germany.
  3. For a UK Consultation on tackling the problem of anonymous ownership here see the DTI/ HM Treasury Consultative Documents at - http://www.hm-treasury.gov.uk/
  4. Dobson, Lifting the Veil in Four Countries(1986) 35 International and Comparative Law Quarterly 839
  5. Ireland, Grigg-Spall and Kelly, The Conceptual Foundations of Modern Company Law (1987) 14 Journal of Law and Society 149 - a Marxist perspective.

And, on a similar, but lighter, note, from the post-Enron era:

  1. Joel Bakan, The Corporation: the Pathological Pursuit of Profit and Power (hb2004,pb2005), Constable and Robinson and DVD of the film The Corporation both available in the library.
  2. Halpern, Trebilcock and Turnbull, An Economic Analysis of Limited Liability (1980) 30 University of Toronto Law Journal 117 - a focused test of legal rules against Economic Analysis of Law/Chicago School Theory..
  3. Cohn and Simitis, Lifting the Veil in the Company Laws of the European Continent (1963) 12 International and Comparative Law Quarterly 189 - a classic of Comparative Law.
  4. David M. Albert, Addressing Abuse of the Corporate Entity in the People's Republic of China: new thoughts on China's need for a defined veil piercing doctrine (2002) 23 University of Pennsylvania Journal of International Economic Law p.873 -Westlaw - on why PRC needs to develop veil lifting techniques.
  5. Elham Youabian Reverse piercing of the corporate veil: the implications of bypassing "ownership" interest (2004) 33 Southwestern University Law Review 573 - an interesting discussion of some recent US developments and of the issues involved in the decision whether or not to pierce the corporate veil.
  6. René Reich-Graefe Changing Paradigms: the liability of corporate groups in Germany (2005) 37 Connecticut Law Review 785
  7. Christopher Ruane, Metaphysics and the Corporate Veil (2005) 26 Company Lawyer 62-64