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I.
INTRODUCTION
This article will outline the circumstances in which Australian courts will pierce the corporate veil. It will also discuss "shadow directors" and analyse three cases highlighting the importance of a parent ensuring that subsidiaries make independent decisions.
II.
SEPARATE CORPORATE PERSONALITY
The "separate entity" doctrine, that the company is an entity separate to its shareholders, as established in Salomon s case1 applies in Australia.
The Corporations Act 2001 (Cth) states that a company comes into existence as a body corporate on the day it is registered by the Australian securities and Investments Commission (ASIC).2 In doing so, a "company" becomes a legal entity with the legal capacity and powers of an individual.3
III.
LIMITED LIABILITY
Salomon's case also held that a company's property is not the property of the members, and its debts are not the debts of its members.4 As such, in combination with the principle of separate corporate identity, the principles have lent themselves to the concept of limited liability.5 Of course, it is for the company, at the time of incorporation, to determine the liability of its shareholders and this is a matter removed from its separate corporate personality status. For a variety of reasons, including shareholder security and economic efficiency,6 Australian companies will normally be limited by shares.
The shareholders of a limited liability corporation are not personally liable for debts incurred or torts committed by the company. In the event that a company falters, a shareholder's losses are limited to the amount that the shareholder has invested in the company.7
IV.
LIFTING THE CORPORATE VEIL
A. Definition
The expression "lifting or piercing the corporate veil" refers to a court looking behind the separate legal personality of a company. In effect, the court will look behind the corporate entity to assign a corporate right, privilege, duty or liability to a member of the company where a strict application of the separate legal personality doctrine would vest the liabilities or rights solely in the company.8
B. When to Lift
The case law in Australia has demonstrated that courts are generally reluctant to lift the corporate veil.9 It is, however, difficult to predict the situations in which the courts will pierce the corporate veil, and there seems to be a...