Lifting the corporate veil the Act Common LawIn Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra Malaysia Bhd (1988)

Aspatra and 21 Others were actually the companies of Lorrain Osman

BBMB brought an action against Lorrain Osman alleging that he had received over RM27.6 million which BBMB alleged were secret profits in breach of Lorrain Osmans fiduciary duty as a director of BBMB.

Lifting the corporate veil the Act Common LawIn Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra Malaysia Bhd (1988) BBMB obtained court orders in order to seize certain assets of Aspatra and 21 other co which Lorrain Osman owned and was described as his alter ego. One of the grounds in the appeal was whether the corporate veil of the appellant companies (Aspatra) could be lifted so that the assets of the appellant companies could be held or deemed to be the assets of Lorrain Osman.

Lifting the corporate veil the Act Common Law

It was held that the court would generally lift the corporate veil in order to do justice particularly when an element of fraud was involved.

The Supreme Court put aside the independent legal entity theory and pierced the corporate veil on the ground of fraud.

Lifting the corporate veil the Act Common LawUse of company to evade legal obligations or to commit fraud(a) If a person uses a company as a device to evade a contractual obligation to use the company to do what he himself is prevented from doingGilford Motor v HorneHorne was the former MD of the GM co. He covenanted not to solicit customers of the co GM, after the termination of his employment.

Lifting the corporate veil the Act Common Law

However, when he left the company GM, he set up a new company through which he solicited the plaintiffs customers.

Held : that the court said the new company is a sham and an injunction was granted against both Home and his new company preventing him from stealing the customers of GM.

COMPANIES AND PARTNERSHIPS COMPARED

The major difference between companies and partnerships may be considered under the following headings : Formation: A company needs to go through all the formalities required by registration under the Companies Act 1965. A partnership is created by agreement which may be express or implied from the conduct of the partners and is subject to the Partnership Act 1961. No special form is required , though partnership agreements are usually written.

COMPANIES AND PARTNERSHIPS COMPARED

Status AtLaw :A company is an artificial legal person with perpetual succession. Thus a company may own property , make contracts and sue and be sued. It is an entity distinct from its members. A partnership is not a legal entity though it may sue and be sued in the firms name. Thus the partners own the property of the firm and the partners are liable for the contracts and debts of the firm jointly as well as severally.

COMPANIES AND PARTNERSHIPS COMPARED

Number Of Members : A private company must have at least two members and maximum 50 members. A partnership cannot consist of more than 20 persons (unless professional partnerships)

Management : Members of a company are not entitled to take part in the management of the company unless they become directors. Partners are entitled to share in the management of the firm unless the articles provide otherwise.

COMPANIES AND PARTNERSHIPS COMPAREDAgency: A member of a company is not an agent of the company or that of other members , and he cannot bind a company by his acts. Each partner is an agent of the firm and his partners, and may bind the firm by his acts.

Liability Of Members: The liability of a member of a company may be limited by shares or by guarantee. The liability of a partner is unlimited.

COMPANIES AND PARTNERSHIPS COMPAREDPowers: The affairs of a company are closely controlled by the Companies Act, 1965 and the company can only operate within the objects laid down in the memorandum of association. Partners may carry on any business as they please so long as it is not illegal and make whatever arrangements they wish with regard to the running of the firm from time to time.

COMPANIES AND PARTNERSHIPS COMPAREDTermination : No one member of a company can wind up the company, and the death, bankruptcy or insanity of a member does not mean that the company must be wound up. A partnership may be dissolved by any partner at any time unless the partnership is entered into for a fixed period of time. A partnership is also dissolved by the death or bankruptcy of a partner.

Questions and Answers

Nature of Registered Companies QuestionExplain the nature and effect of registration of companiesAnswer- May sue external parties and can be sued in its own namePerpetual successionTransferability of shares subject to AAM & AA are the written constitutionMust file statutory accounts and hold meetingsMay own its own property and property does not belong to the shareholders

Nature of Registered Companies QuestionWhat does the principle of separate legal personality mean and what are the exceptions to this principle? AnswerMembers are separate from the company and are not responsible for the companys debts and liabilities and vice versa Salomon v SalomonExceptions SS. 36, 169(5) and 304 of the CAAspatra v BBMB, Gilford Motor v Horne

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