Law of corporate governance question ( Criminalising corporate Essay

Law of corporate governance question ( Criminalising corporate governance failures is a step too far. Discuss ) - Essay Example To begin with, it was established in Salomon v. Salomon and Co. Ltd that a registered corporation is a legal person, separate from its members. This principle may be referred to as the veil of the incorporation. Therefore, the law will not evade this rule and go behind the separate personality of the corporation to the members.1 So many reason exist for corporate officials to hind behind the veil2; one which is to commit fraud, another many be to â€Å"confuse and conceal†3 But there are exceptions to the rule in Salomon’s Case where the veil is lifted, or pieced and the law disregards the corporate entity and pays regards instead to the economic realities behind the legal facade, that is, where the facts supersede form. The exceptions should however be classified between those provided by statute and those provided by law4 Why must the courts lift the veil of the corporation? The sole reason is because maintaining it will cause many problems to criminalize corporate go vernance failure. ... e personality to the individual members or ignores the separate personality of each company in favour of the economic entity constituted by a group of associated companies†6 The courts have adopted a more generalized approach based of the interest of justice as being the guiding light. Thus, Lord Denning M. R was prepared to lift the veil in Wallersteiner v. Moir7. Instead of relying in the interest of justice approach, the Court of Appeal in Adams v. Cape Industries plc8 had applied the test as stated by Lord Keith in Woolfson v. Strathclyde Regional Council9 that the veil would only be pieced where special circumstances exist indicating that it is a mare facade concealing the true facts. Therefore, there must be some improprietory before a veil can be lifted10 such as fraudulent trading11 or wrongful trading12. Instead of relying in the interest of justice approach, the Court of Appeal in the Adams case had applied the test as stated by Lord Reid in the Scottish case of Woolf son v. Strathclyde Regional Council above, that the veil would only be pieced where special circumstances exist indicating that there is a mere facade concealing the true facts. The case, like Adams concerned the issue as to whether a group of companies ought to be looked upon as a single company for the purposes of instituting legal proceedings. The court’s position is therefore even becoming clearer. There must and forever be some evidence of imporprietory. On the other hand, where the existence of some improprietory cannot be established, the courts will never lift the veil. Therefore, and in such cases, the company cannot be criminalized. This approach was taken by Toulson J in Yukong Line Ltd v. Rendsburg Investment Corporation13. A similar approach was also taken in the case of Ord v.