Common Law Principles on Lifting the Corporate Veil

7/27/2019 Common Law Principles on Lifting the Corporate Veil

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COMM ON LAW PRINCIPLES APPLICABLE TO LIFTINGTHE CORPORATE VEIL IN MALAYSIA AND SINGAPORE

Berna Collier*Last year was the one hundredth anniversary of the decision of theHouse of Lords in Salomon v Salomon & Co Ltd', the case which morethan any other in the com mon law world has shaped the development ofcom pany law. The principle that a com pany is a legal entity sepa rate fromits corporators, and that as a m atter of law these parties are divided b y a"corporate veil", permeates commerce, the taxation system, corporate

structures, and the way in which business is carried on in many jurisdictions.Notw ithstanding the durability o f this principle - nd it continues to bethe rule rather than the exception2 the courts have also been prepared toadmit exceptions to the rule in appropriate circumstances. Defining theappropriate circumstances is, however, easier said than done.It is with this anniversary of Salomon v Salomon & C o Ltd in mind thatit seems appropriate to review the circumstances in which co urts will "liftthe corporate veil" between the com pany and its controllers. Th e courts ofMalaysia and S ingapore have considered this issue regularly in recent years,and it is the purpose of this paper to review Malaysian and Singaporecases, to identify principles app licable to lifting the veil o f corpora tion inthese jurisdictions.Salomon v Salomon & Co Ltd :a Review

Notwithstanding that the principle established by Salomon v Salomon& Co Ltd3 is well know n, it is appropriate in the con text of this paper tobriefly review the facts of this case and the princip le for which it stands.Sa lomon was a wea l thy boot and shoe manufac ture r who hadsuccessfully traded for over thirty years on his own account in London.He had a wife and family consisting of five sons and a daughter. Four ofthe sons worked w ith Salom on, and pressed Salomon for an interest in thebusiness. Consequently, Salom on incorporated a private limited com panyunder the CompaniesAct 1862 ( U K ) ,with an authorised capital of 40,000in 40,000 shares of 1 each. The sub scribers to the memorandum were M rSalom on, his wife, and five of his children. The directors were Mr Salomonand his elder sons. The company purchased the business from M r Salomonat an extravagant price, the mo de o f paym ent being in shares rather thancash. The sum of 10,000 was paid in debentures for a similar amount.Th e debts of the business at the time of transfer were paid out, leaving MrSalomon with 1,000 in cash, 10,000 in debentures, and half of thenominal capital of the com pany in fully paid shares. The other shareholders

* Clayton Utz Professor of Com mercial Law, Faculty of Law, Queensland University of Technology,Brisbane, A ustralia1 would like to thank Ms Jacqui Seligmann, l~ b ra r ~ a nt Clayton Utz Brisbane, for her assistancein collecting materials for this paper.1 [I8971 AC 222 See, for example, the recent cases Sarrro SA v Ku ~v alt nvestment Authorrw [I9971 1 LLR 113,Meridren Blao Bank GmbH v Bank oj'.Veu, York [1997] 1 LLR 437, and Hadoplane P q Lrd vEdward Rushton Ph; td [I9961 1 Qd R 1563 [I8971 AC 22


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Comm on Law Principles Applicable To LiftingThe Corporate Veil In Mala-ysia And Singa porein the com pany held only one share each. The company fell into financialdifficulties, and Salomon loaned the company funds. Further, his debentureswere cancelled and reissued to a third party, Broderip, w ho loaned moneyto Salom on, which Salomon then loaned to the company. When intereston Broderip's debentu res were not paid on time, Broderip appointed areceiver. The com pany went into liquidation, and the realised assets of thecom pany were sufficient to pay Broderip, but not the unsecured creditors.The liquidator brought an action against Broderip, to which Salomonwas also a defendant. T he liquidator disputed the validity of the debentureson the ground of fraud, and claimed rescission of the agreement for thetransfer o f the business, cancellation of the debentures, and repaym ent bySalomon of the balance of the purchase m oney.

Vaughan Williams J at first instance held that to allow a man w ho carrieson business under another name to set up a debenture in priority to theclaims of the creditors of the company wou ld have the effect of defeatingand delaying cred itom 4 The C ourt held, inter a lia , that the business w asSalomon's bu siness, that the company w as his agent, and that accordinglythe creditors of the company could have sued Salomon per~onally.~isjudgm ent was affirmed on appeal by the Court of App eal.Salomon appealed to the House of Lords, which allowed his appeal.Lord Halsbury LC observed :I am sim ply here dealing with the provisions of the statute, and it seem s to me to be essentialto the artificial creation that the law should recog nise on ly that artificial existence- uiteapart from the motives or co nduct of individ ual corporators. In saying this, I do not at allmean to sugges t that if it would b e established that this p rovision of the s tatute to wh ich Iam adverting had not been complied with, you could not go behind the certificate ofincorporation to show that a fraud had been co mm itted upon the officer entrusted with theduty of giving the certificate, and that by some pro ceeding in the nature of scire facias yo ucould not prove the fact that the company had no real legal existence. But short of suchproof it seems to me impossib le to dispute that once the com pany is legally incorporated itmust be treated like any other indep enden t person w ith its rights and liabilities approp riateto itself, and that the motives of those wh o took part in the promotion of the com pany areabsolutely irrelevant in discussing what tho se rights and liabilities are.I will for the sake of argum ent assume the proposition that the Court of App eal lays dow nt h a t he formation of the company was a mere scheme to enable Aron Salomon to canyon business in the name of the company. I am wh olly unable to follow the proposition thatthis was contrary to the true intent and mean ing of the Com panies Act. I can only find thetrue intent and me aning of the Act from the Act itself; and the Act appears to m e to giv e acomp any a legal existence with, as I have said, rights and liabilities of its own , whatevermay have been the ideas or schemes of those who brought it into e x i~ te n c e .~

Accordingly, in the view of the Court the fact that the secured creditorhad originally been the major shareholder in the com pany did not preventenforcem ent of the secu rity to the detrim ent of the unsecu red creditors.Lifting the Corporate Veil : Com m on Law JurisdictionsSince the decision in Salomon j. case, the fundamental common lawprinciple applicable to corporate identity has been that the company isseparate from its members.' Within a relatively short time after the Salomon4 [I8951 2 Ch 323 at 3315 Ibid6 [I8971 AC 22 at 29-30; cf Lord Macnaghten at 507 See, for exam ple, cases In England (e.g Macaura c Northe rn Asszrrance Co Ltd [I9251 AC 619),Australia ( e.g. Walker v W ~ n b o r n e1976) 137 CLR 1) and New Zealand (e.g. Lee v Leek AirFarming [I9611 AC 12 (Privy Council))


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case was decided, however, the C ourts were recogn ising exceptions to theapplication of the rule, where the corporate veil would be "lifted", "raised"or "pierced" to attribute liability of the com pany to its c o n t r ~ l l e r s , ~r viceversae9 rimarily, circumstances where the Courts have been prepared tolift the corporate veil hav e involved the use of the com pany as a sham orfraud, however, situations where the veil has been disregarded do notnecessarily satisfy this criterion. In addition, legislation has intruded topermit the corporate veil to be raised in circumstances prescribed byParliament, an analysis of which is beyond the scope of this paper.''Malaysia and Singapore Law :The C orporate Veil Rem ains in Place

Cases emerging from the courts in M alaysia and Singapore within thelast twenty years firmly establish that the corporate veil between thecompany and its controllers continues in place in those jurisdictions. Thisso-called "primary principlen1'was recogn ised again as recently as 1996by the Federal Cou rt of Malaysia in Sunrise Sdn Bhd v First Proj?le (M)Sdn Bhd12 where the court observed:We are in complete agreement with the basic principle of the fundamental attribute ofcorporate personality, i.e. that the corporation is a legal entity distinct from its members,be they individuals or corporate bodies- principle firmly established since Avon Salomorzv A Salomon & Co Ltd [I8971 AC 22.')

Similarly in "The Andres Bon ifacio; Far East Oil Tanker SA v Ownersof the Ship or Vessel "Andres Bonijiacio" and other appeal^",'^ the Courtof App eal of S ingapore saidWe accept counsel's subm ission that there must be special circumstance s to exist beforelifting the corporate veil, such as the presence of a facad e or sham set up to deceive theapplicants . . . I 5

Like equivalent courts in other jurisdictions, the courts in Malaysiaand Singapore are prepared to lift the co rporate veil in a general range ofcircumstances, without adhering to strict guidelines in so doing. Thedifficulty arises in determining whether the facts of an individual casejustify the recognition of the controllers of the company, where the liabilityof the company itself is in question. Zakaria OCJ in Bumiputra Bank8 For example Re Darby: e xp ar te Brougham [I9111 1 KB 95, where a company was formed bytwo promoters to cloak fraudulent financial operations they wished to can y out. The court in thiscase allowed the liquidator of the company to prove in the bankruptcy of Darby, one of thedirectors of the company, on the basis that the fraud perpetrated through the vehicle of the companywas in reality perpetrated by Darby an d his associate Gyde themselves, and the company was asham.9 For example GrlfordM otor Co Ltd v Horne [1933] All ER Rep 109, where Ho me had incorporateda company to act as the vehicle for his business d ealings in breach of a restraint of trade clause to

which he w as bound in a contract with his form er employer. The court found in this case that thedirectors of the company in reality either took no part in the managem ent of the business or weresubordinate to Hom e, and granted an injunction against the company essentially to restrain Hom e'sactivities.10 Examples o f legislative provisions in Malaysia and Singapore whereby the corporate veil is raisedby statute are set out in an Appendix to this paper. For further disc ussion, see Guld e to Cornpan)>Law in Malaysia & Singapore (3rd edition) (CCH Asia Ltd, Singapo re, 1995) at 64 and KA rjunan& CK Low Lipton & Herzbergk Understand ing Comp any Law in Malaysia (LBC InformationServices, Sydney, 1995) at 1711 Yap Srng Ho ck v Publzc Prosecutor (1992) 2 MLJ 71412 [I9961 3 MLJ 533. Cf Zzzi Press Sdn Bh d v Sriba Hotels Sdn Bhd (1989) 1 MS CLC 90,282 at90,284 per Siti Norma Yaakob J13 Ihid at 543

14 ti993j 3 SLR 52115 Ibid per La1 Kew Chai J (delivering the judgment of the court) at 53 1


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Com mon Law Principles Applicable To LiftingThe Corporate Veil In Malaysia And SingaporeMalaysia BH D v Lorrain O sm anf 6 oted that the views of Professor G owerappeared consistent with decisions in that country, namely thatthe most that can be said is that the court's policy is to lift the veil if they think that justicedemand s it and they are not constrained by contrary binding authority."

The categories of purposes for which the court may lift the corporateveil are never closed, although the courts of Malaysia have recognisedpurposes warranting the corporate veil being pierced as including detectionof tax evasion, detecting trading with the enemy, ascertaining illegal orimproper purpose, and on account of equitable consideration^.'^ Reviewof cases dealing with this issue decided in Malaysia and Singapore,however, establishes certain broad principles and it is appropriate toconsider these principles in turn.I. THE COURT WILL NOT LIFT THE CORPORATE VEIL WHERE THE RELIEF

SOUGH T DOES NOT REQUIRE THE VEIL TO BE LIFTEDIn Sun rise Sdn Bhd v Fi rst Profile (M ) Sdn Bh d,I9 First P rofile enteredinto an agreement with Sunrise to sell all of the shares in Saga PrestigeSdn Bhd, a wholly owned subsidiary of First Profile. The underlyingpurpose of the sale was the acquisition by Sunrise of four parcels of landowned by Saga. First Profile purported to terminate the agreem ent prior tosettlement, and Sunrise sough t an injunction to restrain First Profile fromdisposing of the shares in Saga, and an interlocutory injunction to restrainFirst Profile from disposing of the lands registered in the name of Saga.Sunrise did not seek similar injunctions in respect of Saga. The judge atfirst instance refused to grant the interlocutory injunction, on the g roundsthat, inter al ia , the holding company had no right to dispose of or dealwith lands of the subsidiary company, and the injunction, even if granted,would not preven t the subsidiary from selling off the lands.The Federal Court allowed the appeal of Sunrise, and granted theinterlocutory injunction. Interestingly, on the facts of the case the Court

did not consider it essential to lift the corporate veil, however, it seemslikely that had this been necessary the court would have done so. ChongSiew Fai CJ, delivering the judgm ent of the court, observed that Saga wasa company wholly owned, managed and controlled by First Profile,20 ndthe fear of Sunrise that First Profile would dispose of the lands held bySaga to a third party was not without f~ u n d a t i o n . ~ ~is Lordship observed,however, that authorities, including Hadley v London Bank of ScotlandLtd22and Preston v established that it is clearly permissible in lawto grant an interlocutory injunction restraining the actual controller andmanager behind a com pany (as opposed to the company itself) from evadingthe contractua l obligations or duties undertaken by the company.24 n theview of his Lordship, "it was an undisputed fact that the subsidiary was16 Unreported, 26 Aprll 1995 at page 38-39 of the judgment17 LCB Gower Modern Conzpanj L U M4th edition at 13818 Yap Sing Hock I Publtc Prosecutor (1992) 2 MLJ 71419 [I9961 3 MLJ 53320 The directors of Saga were nominees of the holding company, and Saga was 100% owned byFirst Profile21 [1996] 3 MLJ 533 at 54222 (1 865) 46 ER 56523 (1884) 27 Ch D 49 724 lbtd at 545


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wholly-owned by the holding company, and it had not been challengedthat the holding company, by proxy- hrough its nominees- anagedthe subsidiary. Thus, the composition, type, shareholding and control ofthe subsidiary stood in front of the veil, and there was no need to lift theveil to unveil them."25This is an interesting case in that although strictly speaking the courtdid not need to lift the corporate veil because of a legal technicalitypertaining to injunctions and thc clear ownership and control of thesubsidiary, in fact it seems that the corporate veil was pierced.As a matter of law, the subsidiary was a separate entity as was noted bythe trial judge, and on the strict Scllomon principle there would be no reasonto assume that the directors of the company would not act purely in theinterests of the subsidiary rather than acquiescing to the demands of theparent company. On the other hand, the decision of the Court of Appealwould appear to accord with the commercial realities of the situation. It ishowever surely no coincidence that cases cited by Chong Siew Fai CJ tosupport the proposition that it is permissible in law to grant an interlocutoryinjunction included Gilfbrd M otor C o Ltd v Horne2%nd Jones v Lipman,"leading cases where the court lifted the corporate veil.11. T HE P ASS ING OF T IM E MAY M AKE T HE COURT RE L UCT ANT T O L IF T T HE

CORPORATE. VEILThe passing of time may make the court reluctant to lift the corporateveil, particularly where the controllers of the company have changed overa period of time.In Lim Sung Huak v Sykt Pemaju Tanah Tikam Batu Sd n Bhd ZK ixteenyears had passed since the events occurred for which the plaintiff soughtthe corporate veil lifted. The High Court of Malaysia held that it was notappropriate to lift the corporate veil of the defendant company, as thefounding subscribers, who had signed the relevant contract on behalf ofthe company, no longer appeared in control.111. W HkR E T HE COMP ANY IS THE VICTIM O F FRAUD AND TH E PERPETRATORO F THE FRAUD IS THE CONTROLLING PERSON/ENTITY, THE COURT WILL B FRELUCTPlNT TO LIFT THF CORPORATb VEIL TO ABSOLVE THE CONTROLLING

PERSON/ENTITY FROM LIABILITYWhether a person who owns all the shares in a company, and controlsthat company, can, as a matter of law, perpetrate a fraud on that company,has been the subject of some conjecture. The English position is exemplified

by Attorney-General '7 Rgfkrence (No 2 of I 9U2),29where two men in totalcontrol of a limited liability company, and acting in concert, were chargedwith theft of money from the company. At the conclusion of the trial thetrial judge directed the jury that they had no case to answer, and the AttorneyGeneral referred the issue to the Queen's Bench. The court, comprisingWatkins and Kerr LJJ, disagreed with the trial judge, and hcld that the25 lhrd at 542-54326 [I9331 C h 93527 [I9621 1 All ER 44228 (19 93)3 MLJ 52729 [I9841 Q B 624


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Common Law Principles Applicable To LiftingThe Corporate Veil I n Malaysia And Singaporeaccused d id have a case to answer. In contrast, the Court of Criminal Appealin Victoria came to the opposite conclusion in R v R ~ f f e l , ~ ~here theconviction of an accused was overturned, where the accused had beenconvicted of stealing a cheque, being property of a company of which heand his wife were the sole shareholders and directors. The Court of CriminalAppeal held that the transaction w as consensual, and consent was foreignto the notion of usurpation which w as the elem ent of theft; further it waswrong that a man w ho was the directing mind and will of a company couldbe found to have stolen from that company.Although the Singapore courts do not appear to have considered thisissue, the Suprem e Court in Kuala Lumpur preferred to follow the Englishapproach in Yap Sing Hock v P ublic P r o s e c u t o ~ ~ 'nd declined to lift thecorporate veil to recognise an identity between the company and itscontrollers, where the com pany had been the victim of an alleged breachof trust by those sam e controllers.In Yap Sing, directors of a company were prosecuted under theMalaysian Companies Act 1965 section 67 (3) in relation to breach o f thefinancial assistance provisions of that legislation and criminal breach oftrust, in relation to two sum s of money. The two accused were directors ofthe company, and one of the accused was the beneficial owner of all theshares in the company. The accused were convicted, and appealed o n thegrounds that, inter alia, a person who is the sole beneficial shareholdercould not be liable for breach of trust. Peh Swee Chin S CJ delivering thejudgm ent of the court held :All the cases for which the courts have lifted the veil to do justice seem to be civil cases ordue to illegal and improper purposes directed against third parties or outsiders to thecompa nies in question who have or would have suffered damage but for the lifting of suchveil. In each of those cases, it urould seem that the com pany in question has been use d as a nengine of fraud or wrongful deprivation, etc. In our instant case, both appellants cannot bein the shoes of su ch persons and they were charged in a criminal case for offences againstthe property of the com pany in ques tion. The lifting of the veil in such crim inal cases willnot be supported by the decided cases but it will be patently irrational if one considers thereal reason for lifting the corporate veil.". . . .The consent or knowledge of a sole shareholder and director of even a one-man com panycan not be treated as the knowledge and consent of the company itself when the com panyis a victim of fraud or of any illegal deprivation of its assets. The concept of a person, eg adirector of a company being the company's directing m ind cannot apply when the compan yis such a victim of offences against the company, but only when the company is prosecutedfor an offence where the prosecution cannot rely on any statute or statutorily vicariouscriminal liability. We are prepared to say withou t hesitation that the said primary prin cipleapplies inviolably in cases in which a company is a victim of fraud or wrongful deprivationand in criminal offences against the property of the company.33IV. WHERE ILLEGALITY OR CRIMINAL PURPOSE IS ALLEGED, TH E COURT WILLBE PREPARED TO LIFT THE CORPORATE VEIL, TO THE BENEFIT OR DETRIMENT OF

THE CONTROLLERSIn a situation where the issue of illegality is raised, the Courts havebeen prepared to lift the corporate veil when necessary, on the basis that

31 t1992j 2 MLJ 71 432 (1992) 2 MLJ 714 at 726-72733 (1992) 2 MLJ 714 at 72 9


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the C ourts have a d iscretion to lift the veil for the purpose o f discoveringany illegal or improper purpose .34Three Malaysian cases and a Singaporean case illustrate this point:Lim K ar Bee v Duofortis Prope rties (M ) Sdn Bhd, 35 Tan Lai v MohamedBin M ~ h r n u d , ~ ~iu S hi Kian v Red Rose Res taurant Sdn Bhd3' and TradeFacilities P te Ltd v Public P r o ~ e c u t o r . ~ ~In Lim K a r Bee 5 case, Lim Kar Bee wa s a wealthy landowner who wasparty to an elaborate schem e to avoid paymen t of estate duty in respect ofthe land in the event of his death. A company, D uofortis, was incorporatedto pu rchase the r e l evan t l and , the cons ide ra t ion fo r wh ich wasfundamentally shares in the company. The directors and shareholders ofthe com pany were the wife and children of Lim Kar Bee . When Duofortis

sought to enforce the contract for the purchase of the land against Lim KarBee, Lim Kar Bee c laimed , inter alia , that the consideration for the transferwas illusory, and that the schem e was a deception on public adm inistrationand illegal. The Supreme Court of M alaysia noted that courts have alwaysset their face against illegality in any contract,39 nd were prepared to liftthe corporate veil of companies for the purpose of discovering any illegalor improper purpose.40 n this case, the court lifted the corporate veil ofDuofortis in order to recognise that the controllers of the com pany werethe wife and children of Lim Kar Bee who would otherwise have to payestate duty on the land in the event of his death, and held that the agreementfor the sale and purchase of the land and related documentation wereunenforceable.Although a plying the same principles, the court in Tan Lai v MohamedPin Mahmud4 was prepared to lift the corporate veil for the purpose ofvalidating - s distinct from avoiding- n instrument. In this case asawmill licence was g ranted toA and B to operate a sawm ill. The licencewas not transferable, however a company was incorporated to work thelicence, of which 25 percent of the shares were ow ned by A and B, an d theremainder owned by C. The court observed that the licence was non-transferable, and technically should not have been worked by the company.However, so long as the company was owned and managed by A and B,by lifting the veil of incorporation it could be held that A and B operatedthe sawmill and the company's operation was within the terms of thelicence. W here however the com pany was virtually wholly ow ned by Cand completely managed by him , A and B could not be held to have operatedwithin the terms of the licence, and the transfer of the licence to the com panywas unlawful.Thirdly, in Tiu Shi Kian v Red R ose Re staurant Sdn Bhd,42 ndividualswere convicted of civil contempt of court, and unsuccessfully sought tohide behind the corporate veil of a company under their control. The34 Llm K ar Bee v Du ofor t~s roperties &fj Sdn Bhd (1993) 3 MSCL C 90,95335 (1993) 3 MSCLC 90,95336 (1982) 1 MLJ 33837 (1984) 2 MLJ 3 13. See also Australia & New' Zealand Banklng Grozip Ltd v Rama D e v ~ illai(1991) 1 MSCLC 90,6 76, where the court was p repared to lift the corpora te veil to allow scrutinyof a loan transaction, in order to ascertain whether any provision of the Exchange Control Act1953 had been contravened.38 (1995) 2 SLR 47539 (1993) 3 MSCLC 90,953 at 90,95940 Ibid at 90,96141 (1982) 1 MLJ 33842 (1984)2MLJ313


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Conz?no?z a ~ t nnclples Applicable To LzftrtigThe Corporate Veil In Mala1 ~ z a nd Slnguporeplaintiffs operated a nightclub and restaurant in licensed premises in HotelShangrila, and were the subject of disturbance by the defendants - heproprietors of Red Rose Restaurant and the company which owned theRed Rose Restaurant. The parties entered an agreement whereby thedefendants agreed to permit the plaintiffs continued operation of thepremises, however three days later the plaintiffs were locked out of thepremises. The plaintiffs w ere granted an interim injunction restraining thedefendants from further action on the basis of their agreement, howeverthe plaintiffs remained locked out, and advertisenlents were placed advisingthe public of the closure of the premises. The proprietors of the restaurantwere also controllers ofH otel Berjaya Sdn Bhd, the company which ow nedthe Hotel Shangrila.At first instance, Wan Mohamm ed J rejected the plea that Hotel BerjayaSdn Bhd w as instrumental in breaching the order as ow ner of the hotelwhich had instituted the lock-out, rather than the individuals who controlledHotel Berjaya Sdn Bhd and R ed Rose R estaurant. His Lordship was of theview that the two entities were in fact one single authority, and the deviceproposed by the defendants ought not be allow ed to defeat justice.Interestingly, however, on appeal, the Federal Court did not find it necessaryto lift the corporate veil between the personal defendants and the twocompanies, on the basis that the individuals knew of the injunction andperformed acts to cause it to be disobeyed.13

Finally in Trade Facilities Pte Ltd v Public Pt~osecutor," Looi and thecompany he controlled, Trade Facilities Pte Ltd, were prosecuted for sellingand importing goods into Singapore, to which a trade mark had been falselyapplied. Looi owned all but one share in Trade Facilities, and was thedirecting mind and will of the company. The magistrate convicted bothLooi and the company, and both parties appealed aga inst the convictions.Yong Pung How CJ in the High Court in Singapore rejected the argu men tthat the com pany was criminally liable and not Looi:If the evidence shows that Looi's mind and will were behind Trade Facilities, then Looicannot hide behind the corp orate veil of Trade Fac ilities. Otherwise, the Act can be evade dwith impu nity by the simple dev ice of incorporating a S2 company to ca ny on the trading.In this case. the evidence does show that Trade Facilities was nothing mo re than the alterego of Looi. It was nothing more than a vehicle that Looi employed as and when it suitedhim . All but one of Trade Facilities' sharcs were held by Lo oi and the single directing mindbehind Trade Facilities belong ed to Looi. This was a n appropriate c ase to lift the corporateveil and the magistrate w as correct when he did so .45

V. WHERE THE COMPANY IS CNDER THE TOTAL CONTROL OF A THIRD PARTY,OR THERE IS "FUNCTIONAL INTEGRALITY" BETWEEN E N T I T I ~ S ,THE COURT MAY

BE PREPARED TO LIFT THE CORPORATE VEIL WHERE THE JUSTICE OF THESITUATION SO DEMANDS

This is arguably the most controve rsial aspect of the principle wherebycourts lift the corporate veil, in the sense that it is not uncommon norunlaw ful for companies to trade as parts of corporate groups, but with theintention of the limiting the liability for their debts within each separateentity. While there has been cautious approval in England for lifting the43 The appeal w as reported n5 Dntuk Hong K71v SIII i fir^ 5/71K7un (1985) 1 MLJ 145 at 14744 (1995) 2 SLR 47 545 ( 1995) 2 SLR 475 at 497


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corporate veil in circumstances where, for example, a wholly-ownedsubsidiary is completely under the managerial and financial control of itsparent,46 n Australia the principle has been generally d i~ a pp ro v ed .~ 'The M alaysian cases have tended to follow E nglish authority on thispoint, with the Singapore courts being somew hat more conservative onthe facts of cases decided in that jurisdiction.No twithstanding that the case primarily involved industrial law issues,the leading M alaysian authority for this principle is Hotel Jaya Pu ri Bhd vNational Union ofH ote l, Bar and Restaurant Workers.48The case involvedan industrial dispute, following the retrenchment of a num ber of workersemployed by Jaya Puri Chinese Garden Restaurant Sdn Bhd when therestaurant operated by the com pany closed. The restaurant was carried onin premises belonging to Hotel Jaya Puri Berhad, and em ployees claimedthat in reality they were employees of the Hotel, and had been dism issedrather than retrenched. The Presiden t of the Industrial Court found :

a. the hotel and the restaurant were inter-dependent;b. there was functional integrality and unity of establishm ent betweenthe Ho tel and the restaurant. In other words, func tionally the Hoteland the restaurant were in fact one integral whole and in terms ofmanagem ent they also constituted a single unit; andc. a number of senior officers including the secretary, personnel

manager and assistant man ager were com mon to both the Hotel andthe restaurant.Accordingly the Presiden t of the Industrial Court found that the Hotelwas the employer of the relevant employees.On appeal, Salleh Abas FJ upheld the decision of the President. HisLordship observed:

It is true that while the principle that a com pany is an entity sepa rate from its shareho ldersand that a subsidiary and its parent o r holding com pany are separate entities having sep arateexistence is well established in com pany law, in recent yea rs the court has, in a nu mbe r ofcases, by-passed this principle if not made a n inroad into it. The court seem s quite willingto lift the "veil of incorporation" (so the exp ressio n goe s) when the justice of the case sodemands. The facts of the case may well justify the court to hold that despite separateexistence a subsidiary company is an agent of the parent company or vice versa as wasdecided in Smith, Stone and Knight v Birnzinglzam Cor poration [1938] 4 All ER 115; ReFG (Films) Limited [1955] 1 WLR 483; and Firestone n r e & Rubber Co v Llewe1,vn[I9571 1WLR 464. . .In my judgm ent, by giving reason to [the fact that the employ ees in question were in factwork ing in one group en terprise], the President did not cause any violence to the sanctityof the principle of separate entity established in Salomon v Salomon. . . But rather gaveeffect to the reality of the Hotel and the Restaurant as being in one enterprise. ... In myview, the finding by the President is in no w ay against the principle of separate entity andI am therefore not prepared to interfere with the aw ard on this a cco un t.. 49The principle in Hotel Jaya Puri was subsequently applied in TengkuAbdullah ibni Sultan Abu Bakar v Mohd La tiffb in Shah M ~h d , ~~ Bu nz ip u t ra

46 For example, Smith, Stone and Knight v Birmingham Corporation [1938] 4 All ER 11547 For example, Walker v IEmbovne (1976) 137 CLR 1 and Industrzal Equrty v Blackburn (1977)137 CLR 567, although note some relaxation of this approach in circumstances where the actionis brought against a subsidiary company in tort :Bviggs v James Hardie & Co Po . Lt d ( 1 989) 15N S W L R 54948 (1980) 1 M LJ 10949 Ibrd at 11250 ( 1996) 2 MLJ 265 (Court of Appeal (Kuala Lumpur)) at 3 18-3 19


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Cornrnot~ uw Pr,znc~ple~lr,pllcuhlc To LrftzrzgThe Corpot-ate Veil /ti Muluy\lu Atzd Slngapor-eBank Mala~ v ,~ iuj f D v Lorrain O.~man,' ' and at first instance in Tiu S hiKiun v Red Rose Restuurant SdrzPrecisely what is meant by "functional intcgrality" sufficient to lift thecorporate veil is a matter of some speculation. Aspects of the rclationshipbetween thc parties which secm necessary to establish this environmcntinclude primarily control, and common directorships and shareholdings.However it seeins likely that the demands of justicc will be a factorinfluencing the court in deciding to lift the veil, irrespective of therelationship bctween a corporate entity and its controller.In Tengku for example, the first and second appellants, and others fromthe Philippines, planncd to incorporate a proprietary club in Malaysia.They acquircd all of the shares of a company called Raintree DevelopmentSdn Bhd, which owned land which was the proposed site of the club house.In 1980 a new company, Allied Capital Sdn Bhd, was incorporated to buildthe club's premises, the shareholders of which were the first and sccondappcllants, and the fourth appellant. Together, these parties controlled theboard of the two companies. In 1981 a "p ro tern " committee of the clubwas elected, with the first and second appellants being appointed presidentand vice-prcsident respcctivcly. The "pr*o tetn "committee passed aresolution to grant provisional membership to about 300 mcmbers(including the appellants), thcn later authorised the first and secondappellants to enter into a sale and purchasc agreement on behalf of theclub whereby the entire issued and paid up capital of Raintree Developmentwas to be purchased by the club from Allicd for RM 47 million. The shareswere to be resold to applicants who applied for membership. Anextraordinary general mceting of the club was held approving this shareacquisition agrcemcnt, Iiowevcr the provisional mcmbcrs of the club (otherthan the appellants) wcre not invited to attend, and the club ~ncmbcrswerethcn informed that the cost of acquiring club prcmises from Allied wouldbe much morc than $47 million due to additional costs.The membcrs of the club brought an action against the appellants inthe High Court claiming, inter aliu, damages for breach of fiduciary dutyas promoters of the Club in respcct of the share acquisition agreement.Allied brought a separate action against the mem9ers of the club to recoverthc amount owing under the share acquisition agrecmcnt. At first instance,the trial judge found in favour in favour of the mcmbcrs of the club inrelation to the fiduciary claim. Further, the trlal judge found in favour ofthe members of thc club and against Allied on the contractual claim, onthe basis that the agreement was procured by the undue influence of thepersonal appellants, who wcre ~na~jorhareholders of both Allicd andRaintree Dcvclopmcnt.Allied appealed on the ground that, inter aliu, the existence of a fiduciaryrelationship between the mcmbers of thc club and the respondents did notcxtcnt to Allied, as Allicd was a separate corporate pcrsonality.The Court ofAppeal in Kuala Lumpur found that the personal appcllantswere thc de facto controllers ofAllicd : thc "puppet-masters of the p~ppet".~ 'Accordingly in the vicw of the Court, the knowledge of the personalappellants was the knowledge ofAllicd, and they could be regarded as the51 Unreportcd, OCJ (Takaria Y a t ~ n i ) 2 6 Apr~ l19x5 at 3 852 (19 x4) 2 M1.J 3 13 (Wan M o h a m e d ) at 3 2 953 Pcr Ciopal Srl Ram JC'A a1 (1 09 6) 2 M1.J 2 65 at 31 6.


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Common Law Principles Applzcahle To LiftingThe Corpo rate Veil In M alu~vsiuAnd Singaporel i a b i l i t i ~ s . ~ ~lthough the court has a duty to look behind the register inorde r to determ ine the beneficial ow ner of the ship," the main issue in thiscase was whether it was permissible for the court to picree thc corporateveil to examine the "one ship" shipping compan y structure to identify thebeneficial own er of the com panylcom panies, and to equate that person a sthe beneficial owner of the shiplships." As Am arjeet JC observed, theexercise entailed the lifting of several veils, namely over Corsair, Filey,and Pontina which ow ned all the sha res in Corsair and Filcy." The plaintiffurged the court to lift the corporate veil on the basis of functiona l integrality,as evidenced by facts includ ing that :

I . the ships were mortgaged and shares of the owning companiespledged to secure the indebtedness of Skaw Sh ipping;2. Corsair and Filey did not keep separate accounts;3. Skaw Shipping made d ecisions regarding the utilisation and sale ofships for the purpose of alleviating the financial difficulties of thegroup; and4. the companies had common directors.In essence, the plaintiff argued that the two ship-owning companies,Corsair and Filey, had no separate or independent existence apart fromtheir parent, Skaw Shipping, and w ere nom inees or a sham.66O n the facts of this case, Am arjcet JC d eclined to lift the corporate veilas requested. His Lordship pointed out :1. it is possible for ship-owners to run a series of genuine one-shipship-owning co mpa nies as a group, w ithout a sham;"'2. the relevant corpora te structure was already in place w hen the claimarose;3. the subsidiary com panies in question were entirely legitimate;4. the Skaw G roup was entitled to makc operational and m anagem entdecisions in respect of the one-ship companies, and the assets of

those com panies could legitimately bc utilised for the benefit of thegroup; and5 . there w as no evidenc e that Corsair and Filey did not keep separateaccounts. In any event, the accounts of subsidiary compan ies wereoften consolidated into a holding com pany's a c c ~ u n t . " ~His Lordship said :

. . the corporate veil should only be lifted if the ship or ships the subject o f the claim havebeen transferred to a ncw owne rship and with a view to ascertaining whether the beneficialowners remain the sa me or w here a facade or situation is shown w here deliberate fraud hasbeen perpetrated through fictitious transactions or through the vehicle of non-cxistcntcompanies. None of these situations arosc in the present case on the cvidenc c addu ccd bythe plaintiffs.. .Th e law is plain. A parent com pany or a shareholder has no property in theasse ts o f i ts subsidiary o r o f thc company i t ~ c l f .~ "62 Il~rd t 38663 lhld at 38464 lhrd at 38665 Ihid at 38666 lhld at 38667 /hid at 385-386, follow~ ng ord Donaldson M R In The Evpo A g ~ i i c I9881 2 LLR 41268 1h1dat 38969 [hid at 389. Cf U~zi-Frur7c.eO[f;;ho~-t>n'nginrerlng P f e Ltcl v fh c Owttrr,.s i ~ f ' l h ~h i p o r ~ . s s e l" I n t w i ~ ~ p u199 1 ) I MSCLC 95.494 a t 95,499 and "T he An(Irc,,r R on ~/ uc ,io ; ur En.rr0 1 1TunkcrSA v Owrzers ? / ' h e Sh i j~ r. K,s.sel "Alldrc,.~ o nlfiicro " [ 19931 3 SLR 52 a t 53


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60 (1998) Canta L R

VII. THE COURTS WILL BE PREPARED TO LIFT THE CORPORATE VEIL WHEREFRAUD OR IMPROPER PURPOSE IS ALLEGED

To some extent this point has already been addressed, as generally wherethe court is prepared to lift the corporate veil to do justice, an element offraud is involved. Nonetheless, it is appropriate to analyse this issueseparately, as the courts in both M alaysia and Singapo re have recogn iseduse of a corpo rate vehicle for fraudulent purposes as justification to raisethe corporate veil.'OAn illustration of this point is the M alaysian case Aspatra Sdn Bhd vba nk Bum iputra Malaysia Berhad."The case involved applications for an An ton Piller order and a M arevainjunction to prevent removal from the jurisdiction of assets owned byLorrain E sme O sman, who was at all times a director of Bank BumiputraMalaysia Berhad and its wholly owned Hong Kong subsidiary, BumiputraMalaysia Finance L td. The bank had a claim against Lorrain for the returnof moneys wbich the bank claimed were secret profits made by Lorrainwithout their knowledge and approval, arising from transactions with HongKong companies. The trial judge Zakaria J had granted the Marevainjunction against Lorrain and 5 com panies, on the basis that the assets ofthose five companies (including Aspatra Sdn Bhd) were the assets ofLorrain.

The Supreme Court of Malaysia noted that the only purpose ofproceeding against the appe llant companies was to lift the corporate veil,so that the assets of the companies could be held or deemed to be theassets of Lorrain. Further, the court noted that only 32 out of 21,796 ,395shares in the *elevant companies did not belong to Lorrain, and he w as adirector in 15 of the 22 com panies.'*The Court held that the trial judge had been correct to lift the corporateveil between the companies and Lorrain. Their Lordships observed :The Court would generally lift the corporate veil in order to do justice particularly when anelement of fraud is involved although the consequences of lifting the veil would varyaccording to the circumstances of each case. Sometim es the consequences m ay be in favourof the companies and yet at another time they may be against them.. .. On the evidencebefore him, w e do not think that the learned Judge was wr ong in law in piercing the corporateveil of the appellants. The secret profits received by Lorrain were not denied o n affidavitevidence; only the legal capacity under which Lorrain had received them was beingcontested. There wa s admittedly an element o f fraud in the receipt of the secret profitswhatever might be the capacity in which Lorrain had received them. In our view, this issufficient for the Court to lift the corporate veil for the purpose o f determining wh ether theassets of the comp anies are really owned by them a s envisaged in Salomon v Salom on[I8971 AC 22 and sec 16(5) of the CompaniesAct, and not merely an abuse of the statutoryprinciple of the companies being separate legal entities from their shareholders anddirectors. ..Although the learned Judge did not say so expressly in his judgment, h e in factfound the existence of such an abuse from the very structure of the com panies after liftingthe corporate veil.. .. In short, the learned Judge fou nd that Lorrain was the alter ego of thecompanies, and tl e assets of the appellant companies are in fact and in law Lorrain'sa ~ s e t s . ' ~

70 This may he disting u~shedrom circumstances where the com pany itself is the victlm of fraud. aswas d~scussed arlier in th ~ saper in relation to Yap S ~ n g ock v Public Prosecutor [I9921 2 MLJ71471 ii9'88) 1 MSCL C 90,07672 Ibid at 90,08 173 Ibid at 90,082


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C'onzrnol~ uw Priliclplrs Appllcuhle To LiftingTlze Coi y~ on xteVeil In M U/U J~ .YIUrzcl S z n g u p o ~ c

Clearly in this casc the possibility that Lorrain had hidden fundsfraudulently acquired in corporate entities was suff'cicnt to persuade thecourt to raise the corporate vcil, particularly in view of the almost absolutecontrol he maintained over thc companics in question.Similarly the Singaporean cases vicw fraud as a significant justificationfor lifting the corporate veil- n Uni-France Off'ihore Engineering PteLtd v The Owners of t he Ship or Vessel " I n t e r - i p p ~ " ~ ~or example, one ofthe reasons given by thc court for declining to lift the corporate vcil wasthe fact that there was no evidence that the formation of the companies inquestion had been fraudulent7"

CONCLUSIONThe common law of lifting thc corporate veil in Malaysia and Singaporeappears to be developing in similar patterns to elsewhere in the commoiilaw world. The primary principle in relation to the status of corporateentities is that they are separate from their corporators and other controllers,and as a general rule the corporate veil will be maintained. More frequently,however, the courts recognise that this rule can lead to injustice whcre theprinciple of separation is abused, and accordingly whcre justice dcmandsthe courts will permit the veil to bc raised. The issues discussed in thispaper are an indication of circumstanccs when the court will be prcparcdto lift the veil. On the other hand, the courts have also rccognised that it isnot every case involving a claim against a company that the lifting of thecorporate veil is warranted, and accordingly it is appropriate to considerthe facts of each casc on its mcrits.

APPENDIXSTATUTORY LIFTINGF THE CORPORATI. VblL 1N MALAYSIA AND SINGAPORFThe following legislative provisions are examples of where the corporatcvcil has been raised by statute.

MALAYSIA

Companies Act 1965Section36Prohibition of carrying on business with fewer than statutory minimum of m embersIf at any t ime the number of nicmbers of a company (other than a compan y the wholc ofthe issucd shares of which are hcld by a holding company) is rcduced below two and i tcarrics on business for more than six month s while the number is so reduced, a person w hois a mcmbcr of the company dur ing the t i ~ n chat is so carrics on business after those sixmonths and is cognizant of the Fact that it is carrying on business with fewer than twomcm bers shall be l iable for the payment o f all the dcbts of the com pan y contracted duringthe t ime that i t so carrics on business after those six nionths and may be su ed thcrcfor, andthe com pany an d that member shall be guil ty of an offence against this Act if the com panyso carries on business aftcr those six m onths.Section 121 Publication o f name12 1 (2) If an officer of a company or any pcrbon on ~ t sehalf -(a ) uses or au th or~ zeshe use of any seal purp ort~ ng o be a seal of the com pany w hereon

~ t same d ocs not so appear,


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(b) issues or authorizes the issue of any business letter statement of account invoice orofficial notice of publication of the company wherein its name and former name (ifapplicable) is not so mentioned; or(c) signs issues or authorizes to be signed or issued on behalf of the company any bill ofexchange promissory note cheque or other negotiable instrument or any indorsementorder receipt or letter wherein its name and former name (if applicable) is not somentioned;he shall be guilty of an offence against this Act, and where he has signed issued or authorizedto be signed or issued on behalf of the com pany any bill of exchange prom issory no te orother negotiable instrument or any indorsement thereon or order wherein that name andformer name (if applicable) is not so mentioned , he shall in addition be liable to the holderof the instrument o r order for the am ount due thereon unless it is paid by the com pany.Section 169 Profit and loss accoun t, balance sheet and directors' report. .. . .(5 ) The directors of a company shall cause to be attached to every balance sheet made outunder subsection (3) a report made in accordance with a resolution of the directors andsigned by not less than two of the directors with respect to the profit or loss of thecompany for the financial year and the state of the company's affairs as at the end ofthe financial ye ar and if the com pany is a holding c om pan y also a report with respectto the state of affairs of the holding company and all its subsidiariesSection 303 Liability where proper accounts not kept. .(3 ) If in the course of the winding up of a com pany or in any proceedings against a com panyit appears that an officer of the com pany who was knowingly a party to the contractingof a debt had, at the time the debt was c ontracted, no reasonable o r probable ground ofexpectation. after taking into consideration the other liabilities, if any, of the com panyat the time, of the colnpany b eing able to pay the debt, the officer shall be guilty of anoffence against this Act.Section 30 4 (1) Responsibility for fraud ulent trading( 1) If in the course of the winding up of a com pany or in any proceedings against a co mpanyit appears that any business of the com pany has been carried on with intent to defraudcreditors of the com pany or creditors of any other person o r for any fraudulent purpose,the Court on the application of the liquidator or any creditor or contributory of the

compan y may if it thinks proper so to do declare that any person who was know inglya party to the carrying on of the business in that manner shall be personally responsible,without any limitation o f liability, for all or any of the d ebts or other liabilities of thecolnpany as the Court directs.(2) W here a person has been convicted of an offence under sec tion 303 (3) in relation tothe contracting of such a debt as is referred to in that section the Court, on the applicationof the liquidator or any creditor or co ntributory of the compa ny, may, if it thinks properso to do, declare that the person shall be personally responsible w ithout any lim itationof liability for the payment of the wh ole or any part of that debt.Section 365 Dividends pay able from profits only. .(2) Ekery director or manager of a company who wilfully pays or permits to be paid anydividend out of what he knows is no profits except pursuant to section 60 -(a) shall without prejudice to any other liability be guilty of an offence against this Ac t;and(b) shall also be l~ ab leo the c red ~t or s f the comp any for the amo unt of the debts due bythe company to them resp ect~v ely o the extent by w h ~ c hhe d ~ v ~ d e n d so patd haveexceeded the protits an(;l hat amount may be recovered by the cr ed ~t or s r the l ~qu ldat orsulng on behalf of the cred ~t or sPenalty Imprisonment for ten years or two hundred and fifty thousand rlngglt or both


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Common Law Principles App licable To LiftingThe Corpora te Veil In M alaysia And SingaporeIncom e Tax Act 1967Section 140 (1) Power to disregard certain transactions(1) The Director General, where he has reason to believe that any transaction has thedirect or indirect effect of -(a) altering the incidence of tax which is payable or suffered by or which w ould otherw isehave been pay able or suffered by any person ;(b) relieving any person from any liability which has arisen or which would otherwisehave arisen to pay tax or to make a return;(c) evading or avoiding any duty or liability which is imposed or wou ld otherwise havebeen imp osed o n any person by this Act; or(d) hindering or preventing the op eration of this Act in any respect,may, without prejudice to su ch validity as it may have in any other respect or fo r any otherpurpose, disregard or vary the transaction an d make su ch adjustments as he thinks fit witha view to counter-acting the whole or any part of any such direct or indirect effect o f thetransaction.

SINGAPORECom panies Act (Chapter 50)Section 42 Prohibition of carrying on business with fewer than statutory minimum ofmembersIf at any time the number o f members of a company (other than a company the whole ofthe issued shares of which are held by a holding co mpan y) is reduced below two an d itcarries on business for more than 6 months while the number is so reduced, a person w hois a member of the company during that time that it so carries on business after those 6months and is cognizant of the fact that it is carrying on business with fewer than twomem bers shall be liable for the payment of all the debts of the company contracted duringthe time that it so carries on business after those 6 mon ths an d may be sued therefor, and ifthe company so carries on business after those 6 months, the company and such membershall be guilty of an offence and sh all each be liable on con viction to a fine not exce edin g$2,000 and also to a default penalty.Section 144 Publication of name(2 ) If an officer of a company o r any person on its behalf -(b) uses or authorises the use of any seal purporting to be a seal of the com pan y whereonits name does not so appear;(c) issues or authorises the issue of any business letter, statement of accoun t, invoice orofficial notice or publication o f the com pan y wherein its name is not so mentioned; o r(d) signs, issues or authorises to be signed or issued on behalf of the com pan y any bill ofexchange, prom issory note, chequ e or other negotiable instrum ent or any indorsement,order, receipt or letter of credit wherein its name is not s o mentioned,he shall be guilty of an offence, and wher e he has signed, issued or autho rised to be signedor issued o n behalf of the company any bill of exchan ge, promissory n ote or other negotiableinstrument or any indorsem ent thereon or order wherein that name is not so mentioned, heshall in addition be liable to the holder of the instrument or order for the amount duethereon unless it is paid by the co mpan y.Section 201 Accou nts, consolidated accou nts and directors' reports. . .(3A) Wh ere, at the end of its financial year, a comp any is a holding com pany, the directorsof the com pan y shall also cause to be made out and laid before the co mp any at its annualgeneral meeting, consolidated accou nts dealing with -(a) the profit or loss of the com pan y and its subsidiaries for their respective last financialyears; and(b) the state of affairs of the com pany and its subsidiaries as at the end of their respectivelast financial years,and giving a true and fair view of the profit or loss and state of affairs so far as they con cernmembers of the holding company.


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Section 339 Liability where proper accounts not kept(3) If, in the course of the w inding up of a company or in any proceedings against a company,it appears that a n officer of the company who w as knowingly a party to the contractingof a debt had, at the time the debt wa s contracted, no reasonable o r probable ground o fexpectation, a fter taking into consideration the other liabilities, if any, of the companyat the time of the com pany being able to pay the debt, the officer shall be guilty of anoffence and shall be liable on conviction to a fine not exceeding $2,000 or toimprisonment fo r a term not exceeding 3 months.

Section 340 Responsibility for fraudulent trading(1) If, in the course of the winding up of a company or in any proceedings against acompany, it appears that any business of the company ha s been carried on w ith intentto dcfraud creditors of the com pany or creditors of any other person or for any fraudulentpurpose, the Court, on the application of the liquidator or any creditor or contributoryof the company, may, if it thinks proper to do so, declare that any person who wasknowingly a party to the c arrying on of the business in that manner shall be personallyresponsible without any limitation of liability, for all or any o f the debts or other liabilitiesof the company as the Court directs.(2) Where a person has been convicted of an offence under section 339 (3) in relation tothe contracting of such a debt as is referred to in that subsection, the Court, on theapplication of the liquidator or any creditor or contributory of the company, may, if itthinks proper to do so, declare that the person shall be personally responsible withoutany limitation of liability for the payment o f the w hole or any part of that debt

Section 403 Dividends payable from profits only(2) Every director or manager of a company who wilfully pays or permits to be paid any

dividend out of what he knows is not profits except pursuant to section 69(b ) . . . .(c) shall also be liable to the creditors of the com pany for the am ount of the debts due bythe company to them respectively to the extent by which the dividends so paid haveexceeded the profits and such amount m ay be recovered by the creditors or the liquidatorsuing on behalf of the creditors.Income Tax Act (Chapter 134)Section 33 Comptroller may disregard certain transactions and dispositions(1) Where the Comptroller is satisfied that the purpose or effect of any arrangement isdirectly or indirectly(a) to alter the incidence of any tax which is payable by or which would otherwise havebeen payable by any person;(b) to relieve any person from any liability to pay tax or to mak e a return under this Act; or(c) to reduce or avoid any liability imposed or which would otherwise have been imposedon any person by this Act,he may, withou t prejudice t o such validity as it may have in any other respect or for anyother purpose, disregard or vary the arrangement and m ake such adjustments as he considersappropriate, including the com putation or recompu tation of gains or profits, or the impos itionof liability to tax, so as to counteract any tax advantage obtained or obtainable by thatperson from or under that arrangement.

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Common Law Principles on Lifting the Corporate Veil