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Corporations and legal personality

Illustration 2 – The veil of incorporation

Macaura v Northern Assurance Co. Ltd. (1925)

Facts:

An individual had incorporated his business but insured the premises (now
belonging to the company) in his own name. The property was destroyed by
fire.

Held:

The company should have insured its own assets; as an individual there was no
insurable interest (either as a creditor or a member).

Lifting the veil of incorporation

‘Lifting the veil of incorporation’ means that in certain circumstances the
courts can look through the company to the identity of the shareholders.
This is intended to prevent inequitable results and expose the
commercial reality of the situation.

The usual result of lifting the veil is that the members or directors
become personally liable for the company’s debts.

The veil will be lifted only where ‘special circumstances exist indicating
that it is a mere facade concealing the true facts’: Woolfson v
Strathclyde (1978). There are common law instances arising from cases
coming before the courts as well as statutory provisions for ‘lifting the
veil’. Examples of where the courts have been willing to lift the veil of
incorporation and lift the veil are as follows:

Groups of companies

This has been done in cases where the court felt where the subsidiary may be
regarded as an agent of the parent. It should be noted that in most cases,
subsidiaries retain their separate legal status from that of their parent or holding
company.

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