1. CASE: Littlewoods Company attempted to pass of a capital purchase as a running cost. The Inland Revenue (IRC) claimed that in reality Littlewoods was acquiring the freehold for a sum of £ 997,900, whilst having it assessed as tax deductible because rent was tax deductible as a running expense whereas the purchase of a tangible asset was not. The court detained that Fork Manufacturing Co. Ltd, the company wholly subsidiary owned by Littlewoods was not a separate and independent identity, the extra rent was enable Littlewoods to acquire the freehold, and so the rent was not deductible (Dignam, 2011).
2. Principle
2.1. 'veil of incorporation' - fictional veil between the company & its members
2.1.1. Explanation: - in number of circumtansces, the Court will pierce / ignore the corporate veil to reach the person behind the veil / to reveal the true form & character of the concerned company - not allow the corporate form to be misused - if misused : 1) rip through the corporate veil 2)expose its true character & nature disregarding
3. DEFINITION
3.1. 1. Disregarding the corporate personality and looking behind the real person who are in the control of the company.
4. Littlewoods Mail Order Stores Ltd v Inland Revenue
4.1. Judgement
4.1.1. The basic fact here is that Littlewoods, through their wholly owned subsidiary, have acquired a capital asset — the freehold of Jubilee House: and they have acquired it by paying an extra £19,006 a year. So regarded, the case is indistinguishable from the Land Securities case. Littlewoods are not entitled to deduct this extra £19,006 in computing their profits.
4.1.2. The doctrine laid down in Salomon v Salomon has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see.
4.1.3. The courts can and often do draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind.
5. CONCLUSION
5.1. Exceptions to the principle in Salomon v Salomon
5.2. The corporate veil may be lifted in certain circumstances.
5.2.1. Statutory exceptions
5.2.1.1. Provisions in Companies Act
5.2.2. Judicial exceptions
5.2.2.1. Court or judges are prepared to lift the corporate veil based on justice
6. STATUTORY EXCEPTIONS
6.1. Section 121 (2) of Companies Act
6.1.1. Signing or authorizing certain documents
6.2. Section 303 (3) and Section 304 (2)
6.2.1. Debts are contracted at the time the company has no ability of repayment
6.2.1.1. Where any officer of the company entered into a contract of a debt with no reasonable ground that the company is able for repayment, the officer will be liable for the debts
6.3. Section 304 (1) of Companies Act
6.3.1. Fraudulent trading
6.4. Section 365(2)(b) of Companies Act
6.4.1. Dividends are paid out of capital
7. JUDICIAL EXCEPTIONS
7.1. Perpetration of Fraud
7.1.1. Case: Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra Malaysia Bhd & Anor (1988)
7.2. Evasion of Legal Obligation
7.2.1. Case: Gilford Motor Co. Ltd v Horne (1933)
7.3. Holding and Subsidiary Companies
7.3.1. Case: Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers & Anor (1980)
7.4. Tax Avoidance
7.4.1. Case: Unit Construction Co Ltd v Bullock (1960)
7.5. Enemy in Times of War
7.5.1. Case: Daimler Co Ltd v Continental Tyre & Rubber Co (Great Britain) Ltd (1916)