Separate Entity

The fundamental principal of company is well established by the Solomon case, where a company is an independent legal entity and separates from its management and its shareholders. The judgment in Solomon was seemed to be influential towards company law in the following century. It was widely accepted by the court in case like Lee v Lee, where a sole owner of a business is allowed to claim compensation against a company that is wholly controlled by him. However, the court in certain circumstances will try to depart from the Solomon rule to counter illegality and fraud that is committed by the business owner, who deliberately escapes from liability. Subsequently, the judgment in Malyon is opposed against final decision of Solomon, but is corresponding to the Court of Appeal decision in Solomon. The court in Malyon is finding a way to look behind the fact of the case in relation to human and commercial reality of the situation and deny the absolutism of the corporate principal. Thus, Veil of incorporation will be lifted by the judiciary or by statute. Nevertheless, the application of this principal is lack of consistency due to there is not a precise guidance informing the removal of veil. It is further rejected by the court in Adams v Cape, where the court held “there is no general principal that all companies in a group of companies are to be regarded as one. On the contrary, the fundamental principal is that ‘each company is a group of companies is a separate legal entity possessed of separate legal rights and liabilities”.

The above statement made in the Adam case is supported by the recent cases VTB Capital Plc v. Nutritek International Corp and Others and Prest v Petrodel Resources Limited and others. Following the VTB case, a company VTB lent US$225,050,000 to a Russian company, Russagroprom LL C (“RAP”), under a Facility Agreement. The advance was primarily to enable RAP to buy six Russian dairy companies and three associated companies from Nutritek...