Chapter 4

EFFECT OF REGISTRTION
upon registration, a company comes into

existence as a separate body corporate.

Because a company is a separate legal person:
It can sue and be sued
Continue to exist despite changes to its

membership
It can acquire, hold and dispose assets

Does this attribute allow a shareholder to sell the

assets of the corporation.

Enter into contracts and incur liabilities in its

name.

What are phoenix

companies?
It is used to describe a company that has

failed, leaving behind unpaid creditors but,

soon after, rises from the ashes with the
same directors, operating under the guise of a
new company.

Salomon v. Salomon

What is the power of the ASIC in

this respect?
It can liquidate abandoned companies.
Assetless Administration Fund provides

money to liquidators to investigate

contravention to Corporations Act.
Reverse lifting of the corporate veil
To hold the corporation liable for the debts of

the shareholder.

Usually, it is outsiders who wish to lift or

pierce the corporate veil in order access to

assets.

How can the veil be lifted?

by specific statutory provision; or
applying general law principles.
What is the purpose of lifting or piercing

the veil of corporate fiction?

In order to address the abuses of the
companys separate legal status.

Distinguish forward lifting from

reverse lifting of corporate veil
Forward lifting holds the shareholder liable

for the debts or tort committed by the

corporation.
Reverse lifting holds the company liable for

the debts or tort committed by the

shareholder.

STATUTE
Insolvent trading
Uncommercial transactions
Unreasonable director-related

transactions
Employee entitlements
Company officer security interests
Financial assistance

GENERAL LAW
Basis: overriding policy reason
Repatriation Commission v. Harrison
Briggs v James Hardie & Co. Pty (1989)

CORPORATE GROUPS
When are companies considered related with
each other?
Control the composition of the subsidiarys
board; or
Be in a position to cast or control the casting
of more than one-half of the maximum
number of votes at a general meeting; or
Hold more than half of the subsidiarys issued
share capital.

Control
If one company has the capacity to determine

the outcome of decisions about the second

companys financial and operating policies.

Patrick Stevedores v. Maritime Union

of Australia
Reorganization on September 1997
The employer companies sold their property plant and equipment

as well as contractual interests.

Their business was reduced into supplying labour.
The consideration paid for the sale of PPE and contracts, were
used to pay off debts.
Some of these were also used to buy back shares from the
shareholders (Patrick Stevedores Group) which were immediately
cancelled.
As a result, the employer companies became insolvent.
The companies were subsequently placed into voluntary
administration.
When the administrators tried to dismiss the employees, the MUA
filed an action to enjoin the dismissal from going ahead.