Vol 7 Issue 4 July 2020-August 2020
Isaac Olaitan Okeya, Abiodun Thomas Ogundele, Dr. David Funso Dare
Abstract: The paper will capture the fundamental essence of governance of Corporate Group Structure and focus on the meaning of separate legal persons as provided by ss. 15 and 16 of the companies Act 2006 and judicially demonstrated in the landmark decision in Salomon v Salomon (1897) A.C. 22. The consequence of separate legal personality will be conceptualised. In other words, the dual nature of a company as an association of its incorporators and a person different from its shareholders will be pointed out.
This paper will strive to examine various theories that justify the lifting of the corporate veil. Theories like sham or fraud exception to the veil of incorporation as in Gilford Motors Co. V Horrne (1933) Ch.935 will be reviewed.
Indeed, a critical analysis will be made on why there is no generally accepted principle for the lifting of the corporate veil. More so, the controversy surrounding the lifting the veil in a group of companies where there are a parent and subsidiary relationships as in Adams V Cape Industries P.L.C.: (1990) Ch. 433; D.H.N. Food Distributors Ltd V Tower Hamlets Borough Council will be critically examined.
The ad hoc approach by the parliament in the enacting more dynamic legislation in this area of law as if Salomon V Salomon is sacrosanct will be discussed. The courts have equally adopted a relaxed attitude towards determining the validity of the conduct of corporate managers who evade liabilities under the guise of separate legal person- Marc Moore (2006), 180-203.
As far as the company in a group is concerned, a strong argument will be put forward on the need for the U.K. to toe the line of other E.U. countries like Germany and Portugal. They are now tilting towards joint economic enterprise, which makes it mandatory for parent companies to guarantee the liabilities of the subsidiary. Likewise, the E.C. Ninth Draft Directive proposed reform in the company broadly on the same lines - Birds. J. et al. (2007), page 81.
Equally, a critical analysis will be made on the duties of directors as provided in Companies Act 2006 ss. 171-177 to examine how effective these duties are, especially in respect of the relationship between the parent company and subsidiaries.
Again the effectiveness of the power of the shareholders to check the excess of directors will be given a critique. For example, how the Foss V Harbottle (1843) 2 Hare 461 rule affects a minority shareholder with particular emphasis on the relationship with the parent company and its subsidiaries. Also, the effectiveness of the minority shareholders remedy as provided by companies Act 2006, ss.260-264 (statutory derivative claims by members), and companies Act 2006, s.994 (protection of members from unfair prejudice), will be critically examined.
Finally, relevant questions will be asked on the way forward, and suggestions will be made to that effect.
Keywords: Corporate group structure; Companies Act; Corporate veil; Separate legal person and Corporate Managers.
Title: Critical Analysis of Corporate Group Structure
Author: Isaac Olaitan Okeya, Abiodun Thomas Ogundele, Dr. David Funso Dare
ISSN 2394-9716
International Journal of Novel Research in Interdisciplinary Studies
Novelty Journals