The inroads developed by the courts to the doctrine of separate juridical personality

Abstract

The first Chapter is intended to serve as an introduction to the other chapters. In the first part of the Chapter, an analysis of the twin concepts of limited liability and separate juridical personality of companies is proposed. In the second part of the Chapter, an explanation of the doctrine of the 'lifting of the veil' is given and a distinction is created between the statutory inroads and the judicial inroads. Examples of both types of inroads are given with special emphasis upon the judicial inroads. Finally, an examination of the various terms used by the courts and authors in this area of company law is carried out. In Chapter Two, the concept of agency is analysed as a possible means of lifting the veil of incorporation by the courts. An explanation of the way agency has been used by the English and American courts is put forward and this is followed by the Maltese position in relation to agency. With regard to the latter, only arguments based on hypothetical situations are given, since, as at the time of writing, there have not been any cases in Malta where agency principles were used as a means of lifting the veil of incorporation. Towards the end of this Chapter the question as to whether agency can be described as a means of lifting the veil of incorporation or otherwise is dealt with. Chapter Three includes a comprehensive study of the way the courts have ensured to safeguard the legitimate use of the corporate form by reserving the right to ignore a company which is formed or used merely to perpetrate a dishonest scheme. It is sought to give a breakdown of the different elements taken into account by the courts such as, the relevance of the mental element, and the timing of incorporation of the subject company. A detailed analysis of the English and Maltese cases dealing with the fraudulent or improper use of the corporate form and cases are compared and conclusions are drawn accordingly. Whilst the similarity between English and Maltese decisions is highlighted, the use of general principles of civil law in Maltese cases is also evident. Chapter Four deals with the intriguing question as to whether a group of companies should be treated as a single economic unit or as a bunch of different companies each enjoying their own separate legal identity. The treatment of groups of companies under statutory law is examined and then a more detailed analysis of the way groups of companies are treated by the courts ensues. The conclusion is reached that English case law evidences a more conservative outlook in favour of the separate legal entity theory whilst American law favours the single business unit theory. The way the concept of corporate groups has been treated by the Maltese Courts is analysed with reference to English and American case law. The final Chapter reaches a number of conclusions, amongst others, that the inroads created by the courts cannot be compartmentalised. Some comments and predictions are attempted as to the development of the inroads in the near future and their practical importance whenever one seeks to ensure that the corporate form is not abused.