Sometimes the corporate entity works like a boomerang and hits the man who was trying to use it” (Kahn Freud – Some Reflections on Company Law). What do you think the writer meant this statement?

The writes uses these words with reference to circumstances in which persons have attempted to use the corporate personality for other purposes but failed. For example using the company to perpetuate fraud or misconduct or to avoid a legal obligation.

• Fraud: In reBuggle Press Ltd where the majority shareholders of a company desirous of acquiring minority interest formed another company which made an offer to acquire all the shares in the first company which offer the majority accepted and the new company purported to use Sec 210 of the Companies Act to enable it acquire the shares of the minority who objected, the court lifted the veil and disallowed the take over bid.

• Improper conduct:Courts of law have lifted the veil of incorporation to prevent persons from using the company to evade existing legal obligations. As was the case in Gilford Motor Co V Home and Another where the first defendant had covenanted not to solicit the plaintiff‟s customers after leaving employment. He formed a company which solicited the customers. The court granted an injunction to restrain the defendant and his company from soliciting since the company had been formed to enable the first defendant evade an existing legal obligation.

• A similar holding was made in Jones V Lipman and Another. In Macaura VNorthern Assurance Co Ltd the appellant owned a forest. He formed a company Irish Canadian Saw Mills Ltd to which he transferred the forest in return for 42,000 fully paid shares. He was the principal shareholder. He lent the company 19,000. The company fell the trees and stored the timber. The appellant insured the timber against fire with the respondent company but in his own name. Two weeks thereafter the timber was destroyed fire. Macaura‟s claim for indemnity for the

loss was refused. He sued. It was held that he was not entitled to indemnity as he had no insurable interest in the timber as it belonged to the company.

These cases illustrate circumstances in which the corporate entity has worked like a boomerang.

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