The “corporate veil” symbolizes the differences between the company and the shareholders. The effect of “lifting” the corporate veil is that the shareholders are regarded as relevant actors rather the company, on whom the obligation of the company s placed.
Corporation is a legal entity separate from it members. It is capable of enjoying rights and being subject to duties which are not the same as enjoyed by its members.From the juristic point of view, a company is a legal person distinct from its members ever since the decision in case of Salomon v. Salomon and Co. Ltd. (1897) A.C 22.
Following are the cases where the courts lift the corporate veil under case law :
Daimler Co. v. Continental Tyre & Rubber Co. (1916) 2 AC 307:
A company was incorporated in England for the purpose of selling tyres manufactured in Germany by a German company. The German company held the bulk of the shares in the English company. The holders of the remaining shares (except one)and all the directors were Germans, resident in Germany. During the First World War the English company commenced an action to recover a trade debt. And the question was whether the company had become an enemy company and should, therefore, be barred from maintaining the action.
It was held that a company incorporated in the United Kingdom is a legal entity, a creation of law with the status and capacity which the law confers. It cannot be loyal or disloyal. It can be neither friend nor enemy. But it may assume an enemy character when person in de facto control of its affairs are residents in any enemy country or, whether resident, are acting under control of enemies. Accordingly the company was not allowed to proceed with the action. If the action had been allowed the company would have been used as machinery by which the purpose of giving money to the enemy would be accomplished. That would be monstrous and against the public policy.
Gilford Motor Co. v. Horne, [1933] 1 Ch 935:
Mr. H was appointed as a managing director of the plaintiff company on the condition that he shall not at any time while he shall hold the office of a managing director or afterwards, solicit or entice away the customers of the company. Shortly afterwards, his employment was terminated under an agreement and he opened a business in the name of a company and began solicit the plaintiff’s customers.
It was held that the company was a mere cloak or sham for the purpose of enabling the defendant to commit a breach of his covenant against solicitation. The defendant company was just a channel used by Mr. H for the purpose of enabling him to obtain the advantage of the customers of the plaintiff company, and the defendant company ought to be restrained as well as the defendant H.