Summary Company Law Essay Plans

COMPANY LAW ESSAY PLANS:

*NATURE OF THE COMPANY:

‘Separate personality and limited liability have been described as the “greatest … invention of
modern times.” However, this overplays the value of these two concepts and ignores the
significant challenges and harm that they can cause.’ Discuss. (Formative 1)

Intro:
define
 SLP - comp as distinct 'legal person' if formalities met, HL refued to unravel despite justice
gap (Salomon v Salomon)
 LL - member's liability is capped at capital contributed (s.3 CA 2006, Limited Liability Act
1855).
Main argument:
 The statement is correct. SLP/LL are foundational but uncritical praise ignores
1. The deliberate Salomon trade off prioritising capital over creditors
2. Predictable harms (moral hazard, tort creditor injustice)
3. The law's perpetual corrective struggle - narrow piercing (Prest), wider alternatives
(tort/statute) and the FVP/RVP dilemma.
Roadmap:
 Benefits -> Salomon's trade off -> harms -> judicial responses (piercing + alternatives) ->
FVP/RVP -> conclusion

P1- 'Greatest Invention' - Benefits (Acknowledge then Critique)
 Benefits
o Capital formation (Griffin) LL encourages investment, risk-taking and diversification
o Certainty: SLP enables contracting, property holding, perpetual succession
o Risk partitioning (Adams v Cape Slade LJ) groups allow sophisticated asset isolation
 But this framing is ideologically loaded. The system privatises profits while socialising risks
(tort creditors, environmental harm)
o Finch + Freedman argue LL is deliberately designed to shift risk from Sholders to
involuntary creditors
 Salomon itself exposes the trade-off.
o Mr S used his debenture to extract the company's last £1,000 during liquidation,
leaving unsecured creditors with nothing. Lord MacNaghten admitted the outcome
was harsh but necessary. This is not a bug - it's a feature. Certainty for capital
markets came at the cost of creditor protection.

P2 - The Downside - Predictable Harms:
 Moral Hazard (Stiglitz/Krugman) LL encourages excessive risk taking, controllers don’t bear
the full downside
 Tort Creditor Problem (Ogale v Shell) undercapitalised subsidiaries externalise
environmental and employee risks = social cost
o NB SC later found DoC
 Justice Gap (Lubbe v Cape) rigid application of Salomon leaves unredressed claims, forces
claimants into tort
 These harms are predictable manifestations of a model that separates legal personality from
human accountability. The law is forced to correct its own 'bedrock principles'.

, P3 - Piercing, The narrow Exception (Prest v Petrodel):
 Lord Sumption's key distinction
o Concealment cases where veil is 'lifted' - look behind façade to identify true actors
e.g. Trustor v Smallbone sham company -> doesn’t attack LL
o Evasion cases where veil is 'pierced' -> comp interposed to evade pre-existing
obligation e.g. Gilford Motor v Horne restrictive covenant -> does attack LL should
be rare
o Piercing the veil is rare and should be exceptional and is reserved for cases where a
person under existing legal obligation deliberately interposes a company to evade it
 Post-Prest, Wood v Baker (hide assets from bankruptcy), R v Sale (criminal confiscation) -
some argue courts used the evasion ground more liberally than intended


P4 - Alternatives, The Real Arsenal of Justice
 The real work correcting injustices happens through flexible alternatives that bypass SLP
without piercing it
1. Tort - direct DoC
 Chandler v Cape - 4 part test for parent DoC to sub's employees (same
business, superior knowledge, unsafe system attributable to parent, parent
knew sub would rely on it)
 Vadenta v Lungowe - generous approach, group wide policies + monitoring
sufficient
 Okpabi v RDS - overruled Oagle's narrow approach, confirmed Chandler
applies to communities not just employees
2. Statutory interpretation instead
 Hurstwood Properties and Ors v Rosendale BC - voluntary liquidation to
avoid business rates, liability attached to purpose of statute, veil intact. Lord
Briggs - not piercing but statutory construction
3. Inducement of breach of contract
 Stocznia Dganska v Latvian Shipping - parent liable where tight financial
control and knowledge of sub's breach.
 The existence of this arsenal proves the statement's correctness. If SLP/LL were purely
beneficial no such corrective mechanisms would be necessary.

P5 - Judicial Dilemma - FVP v RVP
 Lady Hale Prest , Canruh + Dignam
o FVP - make Sholder liable for corp debt, directly attacks LL should be rare (Gilford
Motor- if read as piercing)
o RVP - make comp liable for Sholder's personal debt -> leaves LL intact -> more
justifiable (Gilford Motor better read as RVP)
 FVP would unravel the risk-taking incentives that make SLP/LL the 'greatest invention'.
 RVP merely prevents abusive entity shielding (use comp to hide personal assets from
creditors).
 This framework allows courts to articulate WHY they intervene - not vague justice but
combating specific abuse while preserving the corporate form's core benefits.

Conc:
 SLP + LL key pillars for econ growth but - the 'greatest invention' characterisation is
overstated.
 Salomon itself expised the brutal trade off - capital market certainty at the cost of creditor
protection.