Course material

1. Answers: Introduction Company law is confused by the piercing of
Answers:
Introduction
Company law is confused by the piercing of the corporate veil doctrine. Because of the lack
of clarity in this area of law, this argument has arisen. The courts should really have gone
beyond the specific circumstances of a case because the vast number of cases that deal with
this doctrine's goal. In contrast, many academics have attempted to explain the extent and
the reasons why the piercing of the corporate veil theory plays an essential role in the area
of company law, concentrating primarily on two types of firms, such as Limited Liability
Company (LLC) and Joint Stock Companies.
Firm law in the United Kingdom refers to the premise that the rights and obligations of a
corporation are, in general, the responsibility of that company only. As a general rule,
shareholders, directors, and employees of a corporation are not bound by the rights and
responsibilities of the business unless they have openly or tacitly acknowledged
responsibility, guaranteed, or indemnified the corporation. When it comes to corporations,
the "veil of separation" between both the legal entity and its real-world shareholders has
usually been referred to as a metaphor.
This "lifting" of a company's veil, which allows its owners to be held responsible for its
debts or profit from its rights in a very restricted number of circumstances, is permitted by
the courts in the United Kingdom. It usually only occurs when there has been misconduct on
the part of the individuals or person in power. When a corporation goes bankrupt, unpaid
creditors will seek to collect their money if they can establish misconduct by the persons in
charge, which is why this matters most often.
Background Of The Study
By holding shareholders liable, a Common Law theory known as "piercing of the corporate
veil" makes an exception to the usual norm that limits the responsibility of shareholders to
creditors. It is therefore possible to lose all of the advantages of an LLC or a JSC, which in
general have only one risk: failing to safeguard the shareholders' capital if bankruptcy
procedures are brought against the firm. When a corporation is unable to meet the

2. creditor's demand, the creditor will decide that it is in their best interest to seek the
payment from other parties, such as the shareholders, which are typically their primary
target. Creditors would resort to legal action in such a scenario.
The legal distinction between a corporation and its shareholders was established in the
landmark House of Lords judgment Salomon v A Salomon and Co Ltd. "Like any other
autonomous person with its rights and duties suitable to itself," Lord Halsbury LC stated.
The Importance Of The Research
When a judge decides to breach the corporate veil under common law, shareholders and
directors lose their protection. To put it another way, this shifts the attention away from the
firm itself to the content of the company or the company's controllers. As a result, personal
accountability for the company's debts and obligations is transferred to the shareholders or
directors. The notion of penetrating the corporate veil is common law. The research is
relevant from the perspective of identifying the potential and effectiveness of the principle
of piercing the corporate veil and the effectiveness of legal system and courts at the time of
application of the law.
Aims And Objective Of The Research
The research aims at exploring the effectiveness of piercing the corporate veil and the
effectiveness of legal system and the law in applying the doctrine when required.
Objectives
To evaluate the efficiency of piercing the corporate veil
To understand the principle of lifting up the corporate veil
To know the effectiveness of the law in piercing the corporate veil when necessary
Research Questions
How effective is the doctrine of Piercing the Corporate Veil?
what is lifting up the corporate veil?
How effective the law is in piercing the corporate veil when necessary?
Literature Review
Concept Of Piercing The Corporate Veil
According to Baron Thurlow, The fundamental tenet of corporate law is that a corporation
is a distinct legal entity. As a result, a corporation exists legally apart from its owners. A
corporation is a legal entity. It is impossible for a company to be moral when it lacks a soul
to curse and no body to kick. As a result, a juristic person cannot perform human-like
functions, distinguishing them from ordinary beings. For many years, courts in the United
States and abroad have debated the idea. This idea has been around for a long time, but no
set of rules has arisen to clearly define how it should be used. According to Cape Pacific, the
law of breaching the corporation veil is "far from decided." This means that it is impossible

3. to forecast when courts would dismiss a company's independent legal existence.
"A corporation has a separate legal existence, totally different from its members," Lord
Macnaghten stated while discussing the Salomon case. An important South African case,
Dadoo Ltd v Krugersdorp Municipal Council (hence 'Dadoo,') put this theory into practice.
In this instance, the South African Republic's Law 3 of 1885 stated that only white people
were allowed to possess land. Two Indians, on the other hand, created a business named
Dadoo Ltd, in which they owned 100% of the stock. Dadoo leased a Krugersdorp stand from
the corporation in his own capacity. Law 3 of 1885 was violated, and the town council
requested a restraining order to prevent Dadoo Ltd. from acquiring the land. The court of
appeals ruled that a corporation is distinct from the individuals who make it up in terms of
its legal existence. As a result, Dadoo Ltd. was given ownership of the property.
Different authors and judges use different ways to explain the "lifting of the corporate veil."
Jurists use different ways to explain the term. Some use a narrow point of view, while others
use a wider or more flexible point of view to explain it. According to this definition, lifting
the corporate veil is ignoring or disregarding the corporate veil in order to find out whose
shareholders are responsible for any wrongdoing on behalf of the business. As you can see,
the more broad definition here is that "where a court looks at what is happening inside the
company entity in order to decide about its owners and controllers, rather than just
assuming that they're separate from each other." Pierce the corporate veil, McKay J said, is
not a principle. It's how the court gets to know who is working behind a company by taking
the cover off of it. Lifting a company's corporate veil is an exception to the rule of keeping a
company's separate legal personality after it's formed, so this should be made clear again.
Now, it's important to say why it's important to lift the corporate veil, because there's a lot
of debate about how important it is. For some, a danger to limited liability and the corporate
personality is a real possibility if theory of removing the corporate veil is accepted as true.
For example, Philip I Blumberg has said that a judge's decision to lift the corporate veil is
"irreconcilable and not entirely clear."
There are a lot of reasons why the corporate veil is going to be ripped off. Many directors,
shareholders, and other people who are in charge of the company abuse their power
because they have the power of corporate personality. To stop this kind of abuse, the
doctrine of lifting the corporate veil is a good thing. When the corporate veil is being
exploited as a cover for fraud or other crime, it is critical that it be lifted immediately. Lifting
the corporate veil is important to stop the corporation from being used as a cover or
defence for fraud or other illegal or unethical behaviour. This is what the statement means.
Courts are often willing to cut through the veil of a company's separate personality if it is
used to hide wrongdoing or avoid obligations. This is called a "sham" or "cloak."
The restricted definition of the term "lifting corporate veil" generates the impression that
this will unquestionably be detrimental to the interests of shareholders and investors.

4. That's not always true. In fact, It is not always damaging to the corporation or its
shareholders to reveal information. It can be beneficial to them at times as well. During
reverse piercing, things like this happen. When shareholders or the company itself try to get
through a corporate veil that separates them from the company, this is called a "reverse
pierce of the corporate veil." In some cases, reverse piercing is advantageous to the entire
community.
Corporate Personality: Justice V The Principle
According to some, the Companies Acts of the United Kingdom have never been
comprehensive codes since there have always been significant ambiguities in this field of
law, which is supported by the evidence. However, in order to cope with the unfair reality
that emerges as a result of the corporate structure, it was in fact the courts that devised the
notion of "through the corporate veil," not the legislators, as has been represented. The
opinions on whether or not the veil should be penetrated are inconsistent, which is why this
concept has been described as "rich but ambiguous body of case law."
By piercing the corporate veil, creditors can seize the personal assets of shareholders as
collateral for the repayment of a company's obligations. Allows either parent companies to
be held accountable for their subsidiaries or for groups of firms to be recognized as a single
economic unit. Although the courts recognize that the distinct entity doctrine frequently
results in unfairness, their formulations for overturning the theory fall short of adequately
addressing the challenges that the doctrine has produced in reference to groupings of
businesses and conflicts with delict law. As a result, the courts have been justifiably
criticized for being "timid" in their approach, failing to force or even encourage parent
corporations to answer for the debts and losses incurred by their subsidiaries.
A firm's dealings with an adversary during war, whenever the company is a "mere façade
hiding the actual facts," or when the company is a "cloak or sham," are all examples of
scenarios in which the courts can pierce the veil, according to the case law. In rare
situations, a business may be said to be functioning as an agent or that a collection of
companies constitutes a single economic unit, which is more relevant to delictual claims. A
few statute provisions render members personally accountable for certain corporate debts
and obligations, but these do nothing to hold members personally liable to others who
suffer harm as a result of delict.
Despite the existence of such exclusions, the courts have been regarded as "stockholders of
American companies are "basically exempt from tort liability so long as they maintain their
corporate entity with reasonable care," and the corporate veil is far from enthusiastic."
Furthermore, in the United Kingdom, there is no clear-cut category expressly for
circumstances when involuntary creditors incur loss as a result of the undercapitalisation
or insolvency of a legitimately established company, whether that firm is the parent or the
subsidiary of another legitimately-registered company. As a result, Blumberg's description

5. of limited liability as having "unthinkingly beyond the initial purpose" may be valid.
Reasonability Of The Approach Of English Courts In Applying The Principle
It has already become evident from the above debate that the courts in the United Kingdom
have been extremely reluctant to break the corporate veil in recent years. Some individuals
agree with the approach used by the English courts, while others disagree. They make an
attempt to support their position by citing various arguments. They believe that this is the
appropriate approach given the fact that it is a highly sensitive subject. Because there is
now no alternative to limited liability in the United Kingdom, the court should be
conservative in its decision. In this regard, "the argument is frequently advanced, both by
judges and jurists, that the government should establish a clear norm."
The notion that the UK court has no authority and that only the legislature has the authority
to act is a vague and unrealistic assertion. The UK court system has the authority to take the
necessary actions to ensure that the judiciary is properly responsive to the situation at
hand. In truth, the courts of the United Kingdom have already demonstrated that they are
capable of making fair and flexible decisions anytime they want. Lord Denning's
accomplishments are worthy of mention on this particular occasion. In terms of the lifting of
the corporate veil, he was able to make several substantial and flexible judgments
throughout his tenure.
Indeed, the courts of the United Kingdom have paved their own path to the removal of the
corporate veil, with no help from anybody else. Typically, judges have been hesitant to raise
the curtain, and when a judge has attempted to do so, the other judges have either criticized
him or overturned his judgment later on in the process. The demand for judicial flexibility in
relation to corporate personhood made by Lord Denning is praiseworthy, but his logical
reasoning in this paragraph is subject to question. Several other judges, including members
of the House of Lords, had openly criticized his approach as being too flexible and
acceptable given the circumstances.
When it comes to business transactions, English law is one of the most popular alternatives
throughout the world. Sadly, the 'Doctrine of Piercing the Corporate Veil' is not one of those
areas. To put it another way, this concept has threatened to undermine both the separate
corporate identity and limited liability that are essential to contemporary business. The UK
Supreme Court judges in Petrodel Resources Ltd v. Prest endeavoured to bring clarity once
again after numerous unsuccessful attempts to shed light on this issue by circumscribing
the theory to excessively restrictive bounds. To show that the decision's underlying
confusion has in fact exacerbated the mess, this article "pierces" that apparent veil of clarity
by analysing three subsequent rulings and shows that an "unnamed" and "unrestricted"
doctrine has now spread among conventional remedies as a result of the decision.
Prest v. Petrodel is a case that better illustrates the position of English law when it comes to

6. applying the idea of corporate veil. In Prest, Lord Sumption seeks to reduce the mere façade
idea to a more straightforward and limiting criterion than previously existed. The allegation
that misusing a company's distinct identity does not represent an evident improvement
over the part of the building in terms of clarity and certainty is difficult to dispute, however
there is some evidence to support this point of view. All of the restrictions imposed by Lord
Sumption effectively render the hypothesis of breaching the veil completely ineffective. If
evasion happens, it appears that it is still feasible to disregard the idea of a separate legal
person, but it is impossible to provide a specific example of evasion in this situation. In
reality, the avoidance principle is primarily intended to prevent the use of the piercing
doctrine to hold shareholders liable for obligations that are the responsibility of the
business (i.e., the concept of 'forward piercing' is met with an internal obstacle). At the very
least, it effectively eliminates the notion of piercing the veil from the legal setting since it
will be increasingly difficult (if not impossible) to create new exceptions to the Salomon
principle. The concealing principle, on the other hand, refers to additional remedies that
might be applied if the corporation is used to prevent others from exercising their rights.
Nothing else was mentioned at this time by Lord Sumption. Nothing else was mentioned at
this time by Lord Sumption. The absence of clarity in the Lord Sumption’s ruling may
inspire judges to draw more on traditional instruments, which are incorporated inter alia in
agency, trust and tort law, and implement them into business law setting. This is likely to
indicate a certain risk of excessive intervention in the way the business structure may be
exploited in the commercial reality, which is likely to be the case. What should be kept in
mind is that the company's liability for the commitments of its shareholders should be as
limited as the liability of its shareholders for the collapse of the company.
Discussion among different scholars on the Prest case demonstrates that practically all
situations addressing the abuse of legal persons may be remedied by applying more
traditional procedures. Therefore, Lord Walker was right arguing that breaching the
corporate veil is “actually a description to characterize the different instances on which
some rule of law provides apparent exceptions to the norm of the independent juristic
personality of a corporate body”. In creating the difference between evasion and
concealment, it appears that Lord Sumption's purpose was to urge the courts to base their
rulings on more traditional remedies rather than on ideas that were dubious at the time of
their formulation. That he did it in the veiled and unneeded words of avoidance and
concealment is the source of the problem.
"Lifting of the corporate veil" or "disregarding of the corporate personality" are terms that
are frequently heard in the modern business arena. The English courts have been requested
on several occasions to overlook a company's and its shareholders' independent legal
personalities, which they have done. The courts in the United Kingdom, on the other hand,
rarely address this problem. The courts have frequently shown their unwillingness to break
the curtain that protects corporations. In practically every circumstance, they make every
attempt to save the legal entity of the business, even if it means removing the corporate veil
in order to obtain justice. In this article, an attempt has been made to explain the reluctance

7. with which the courts in the United Kingdom operate. A number of situations have been
discussed in this context, and the anatomy of the reluctant approach has been examined in
detail.
In some cases, the courts will take the veil of incorporation from a limited company in order
to force shareholders or directors to contribute to the repayment of outstanding obligations
to creditors if the firm becomes bankrupt. There are a few exceptions to this rule in the
United Kingdom, though. The "concept" in Salomon v A Salomon & Co Ltd is often cited as
inspiration for this. Companies Act 1862 was used in this instance by a Whitechapel cobbler
to form a company. It's possible that the lawmakers thought a partnership was the best
business structure for fewer persons at the time, which is why seven people were needed to
form a corporation. With the help of six family members, Mr. Salomon was able to meet this
criterion. When he provided the firm cash, he made the corporation issue debentures to
cover his obligation in the event of insolvency, placing it above other creditors. The firm did
go bankrupt, and the company's liquidator proceeded to sue Mr. Salomon personally on
behalf of unpaid creditors. But even though Mr Salomon was found to have broken
Parliament's intent by creating fake investors, and would have had to compensate the
business, the House of Lords found him to have done so only if he had complied with a few
basic formal conditions of registration. In general, there could be no removing of the veil.
Research Methodology
Doctrinal approach is ideal for this study, which is an analytical and comparative research
project with a specific goal in mind. An examination of main and secondary sources of law,
such as legislation, case law, journal articles, textbooks and the internet, was conducted as
part of this study's methodology. The rules of the United Kingdom on piercing the corporate
veil will be used in the comparative research since English company law concepts have had
a long-standing link with South African company law, and so will be compared. Because of
the accuracy with which the relevant UK statutes addressing the piercing of the corporate
veil have been formulated, the legal framework of the United Kingdom has been utilised to
provide useful interpretation to the doctrine in this case.
Research Design
It is the researcher's primary goal to use doctrinal and secondary sources to provide an
outline of the comparative study to be conducted by focusing on legal elements in a
thorough way. The basic goal of documentary legal research is to add to the substantial
body of law in order to advance the overriding purpose of legal theory. In the end, justice is
the goal of the legal system, not a collection of procedures, laws, or terminology. Legal
content enrichment and codification, as well as the interpretation of legal legislation,
commonly employ doctrinal legal study. Legal doctrine research seeks to advance the field
by generating new ideas, gathering new data, and establishing a solid framework for future
socio-legal inquiry. The legal content of laws must be reinforced and they must be drafted

8. correctly. For political reasons, legislators typically leave vague or unclear portions of the
legislation so that the courts may address any issues that may arise in the future. A legal
study that focuses on doctrinal legal principles can increase confidence in judges, attorneys,
and jurists. In the middle of a case, a lawyer can perform a legal inquiry utilizing a
methodological approach. Using this knowledge, a judge can make an informed judgement
in a legal matter.
Research Philosophy
Doctrinal study suggests what the law is in a certain situation. It focuses on the history and
development of legal doctrine, as well as its application. Likely the most well recognized
definition, this is a completely theoretical study that involves either basic investigation to
find an obscure legal declaration or in-depth investigation to uncover a specific legal
statement. The "one true answer" to particular legal challenges or concerns is the focus of
this library-based study endeavour. Hence, the purpose of this strategy is to ask particular
questions in order to obtain specific information. Doctrinal legal research relies on positive
or analytical law as its jurisprudential base.
Research Strategy
Since it helps researchers examine the research topic by explicitly answering research
questions, the research plan is an essential part of each study. Background information and
an adequate research strategy are necessary for researchers to guarantee that their findings
are understood. Quantitative, quantitative, and hybrid systems are the three most common
types of research programs used to address research challenges. Mixed designs involve both
mixed method techniques, which include non-numerical depth as well as and why how in
the quantitative design. A wide range of testing techniques may be used by researchers to
reach their study aims and objectives, including reviewed literature, surveys, evaluations
and interviews, as well as questionnaires, case analysis, and focus group analyses.
It is typical for researchers to utilize either inductive or deductive tactics to reach their
study's aims and objectives. Inductive procedures do not need any assumptions or
hypotheses, but deductive ones must. In positivism, the deductive technique is useful, while
in interpretivism, the inductive strategy is smooth. There are no strict rules to follow while
developing assumptions or hypotheses; hence, inductive reasoning is a valid method of
generating them. Users' created material and the copyright problem in the UK context will
be compared using descriptive analytic studies, which the researchers will utilize to conduct
this research. This means that the doctrinal researcher always uses a qualitative method to
analysis while doing legal research, because they help interpret the relevant legal texts
completely. The analytical and legal reasoning parts of doctrinal study necessitate a
qualitative methodology.
Data Collection

9. When conducting a research project, considerable data collecting from a number of sources
is required in order to reach the desired results. Researchers must gather the relevant
information in order to have a deeper understanding of the study issue. Data collection
approaches such as primary and secondary data collection are the most often used in
research (use of available sources like books, journals, articles, etc.). So primary data
gathering methods are perfect for directly interacting with individuals to obtain a
knowledge of their study viewpoints, rather than conducting secondary data collection. In
many circumstances, secondary data collecting gives for a more in-depth grasp of the
subject matter under investigation. Secondary sources should also be investigated in order
to create a thorough picture of the literature on the research topic and to assess the
effectiveness of the legal system in implementing the law of piercing the corporate veil
doctrine in the context of the study.
Ethical Considerations
Data collection is the most time consuming and hardest element of any theological study. As
a researcher, you must be able to distinguish between primary and secondary sources of
data. Doctrinal legal researchers are often criticized for their ambiguity because of the
difficulty of their task. In a time of heightened competition for research money, when
multidisciplinary work is highly prized and nonlawyers are involved in the assessment of
grant applications, lawyers conducting doctrinal research must be more transparent and
clear about their methodology. Presuming the law exists in a social context or framework
rather than an objective doctrinal vacuum, doctrine methodology does not provide an
adequate foundation for addressing issues that arise. Consequently, the issues that occur
are not appropriately addressed. A lawless society does not exist. Since it is a component of
society, it has a direct effect on the world around it. To better comprehend the law and the
way it works, it is possible to borrow ideas and methods from other domains. More than
doctrinal or library-based research talents may be required by attorneys who wish their
research to be more relevant to the rest of the world.
Research Reliability And Validity
Research equality is assessed in accordance with the standards of validity and reliability. All
components of the research are evaluated on a regular basis by means of tests, techniques
or processes. Validity and reliability are intrinsically related, despite the fact that their
definitions diverge. Measuring it might provide a lot more information. Truthfulness is an
important component of a valid measurement. Reliability is a term used to describe
processes such as validity, consistency, and measurement precision. As soon as the study
design is finalised, the results are compiled, and the processes are established, it is critical
to check for research validity and dependability. Because of its possible connection to
qualitative research technique, this study must be undertaken with extreme care to ensure
its validity and reliability. Researchers must rely on their own judgement because the data

10. they collect cannot be checked by software or equipment.
Expected Outcome Of The Study
The research will be evaluating the significance and effectiveness of the law at the time of
applying the doctrine of piercing the corporate veil. The research will be an in-depth study
of the doctrine and its implication for the organisations in the English legal system.
References
Articles/Books/Website
Alanazi B, 'Piercing The Corporate Veil In Various Jurisdictions – Principled Or
Unprincipled?' (2020) 16 Corporate Board role duties and composition
Alcock A, 'Piercing The Veil – A Dodo Of A Doctrine?' (2013) 25 The Denning Law Journal
Ali S, 'Doctrinal Research In Law Field' [2013] SSRN Electronic Journal
Banoo S, 'Lifting Of The Corporate Veil: Decoding The Doctrine Of Separate Legal
Personality' [2018] SSRN Electronic Journal
Biswas L, 'Approach Of The UK Court In Piercing Corporate Veil' [2011] SSRN Electronic
Journal
Davies G, 'The Relationship Between Empirical Legal Studies And Doctrinal Legal Research'
(2020) 13 Erasmus Law Review
Grier N, 'Piercing The Corporate Veil: Prest V Petrodel Resources Ltd' (2014) 18 Edinburgh
Law Review
Hickey D, and Richards D, 'Piercing The Corporate Veil: Supreme Court Clarifies The English
Law Position - Corporate/Commercial Law - UK' (Mondaq.com, 2013) accessed 3 January
2022
Hutchinson T, and Duncan N, 'Defining And Describing What We Do: Doctrinal Legal
Research' (2012) 17 Deakin Law Review
Hutchinson T, 'The Doctrinal Method: Incorporating Interdisciplinary Methods In
Reforming The Law' [2016] Erasmus Law Review
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'Piercing The Corporate Veil' (Offshore-protection.com, 2021) accessed 3 January 2022
'Piercing The Corporate Veil: When Llcs And Corporations May Be At Risk' (www.nolo.com,
2022) accessed 3 January 2022
Schall A, 'The New Law Of Piercing The Corporate Veil In The UK' (2016) 13 European
Company and Financial Law Review
S?up P, 'Piercing The Corporate Veil – A Common Pattern?' (2019) 24 Comparative Law
Review
Taekema S, and van der Burg W, 'Legal Philosophy As An Enrichment Of Doctrinal Research
Part I: Introducing Three Philosophical Methods' [2019] Law and Method
Taekema S, 'Methodologies Of Rule Of Law Research: Why Legal Philosophy Needs
Empirical And Doctrinal Scholarship' (2020) 40 Law and Philosophy
Tan C, Wang J, and Hofmann C, 'Piercing The Corporate Veil: Historical, Theoretical And
Comparative Perspectives' [2018] SSRN Electronic Journal
Cases
Prest v Petrodel Resources Ltd [2013] UKSC 34
Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530
Salomon v A Salomon and Co Ltd [1897] AC 22