Company Law Case Study

For the case, there are three directors and one general manager in the company when the company was going to winding up, one director of managing who is Fred and the manager and the general manager who is Mr. Chin Chai bought raw material from Besi Sdn Bhd, it worth 2 million, after a period time, the Froddo company was bankrupt, so who was undertake the liability for the 2 million?

Who is going to be sued?

When the company was bankrupted with 2 million debt to creditors, creditor wanted to get their money backed, but the company didn't have enough money to return to creditors, so the creditor would sue the company, at that time, there were three directors control the company and one general manager, if the creditors sue the company, then the three directors would undertake that 2 million liability, but two of directors would not agree this situation, because the 2 million debt was not their done, it didn't any relation to them, the debt were belong to the managing director Fred and the general manager, they did this deal without their agree and didn't any discuss with another two directors , so the two directors would require the court took this order back, they required the court sued the managing director and the general manager director that undertake the 2 million debt, they took this action in order to protect themselves rights and benefit, they would use the separate action against the managing director Fred and the general manager of the company that was lift the company veil, the law could directly sue them separated the company. So the Fred who was managing director and the general manager Chin Chai would be sued by the creditor. Firstly, the liquidator the company, the company has three directors that have to undertake the liability, the other two director didn't agree, the two directors put another aside, can lift the corporation veil, then the managing director Fred has to be sued.

Who made the problem whether the company or directors and why?

On the one hand, the managing director Fred and the managerial manager made a deal with the Besi Sdn Bhd, when the company would be closed down that didn't have enough money to made a big deal with the other company, they did this deal without the other two directors consent and didn't any discuss with them, what's more, if the Fred talked about with the other two directors, the two directors would tell this to members of the company and sent a notice to all of the members of the company with didn't less than 14 days, after the members discuss this in Ordinary Resolution of Extraordinary General meeting with the great members of numbers vote were more than and equal half of the whole votes plus one, only through this process, then the director could did this deal with Besi Sdn Bhd, in this condition, the company would undertake the 2 million liability, without passed this process, then the director would personal liability of the 2 million, so the managing director Fred and the general manager Chin Chai were ultra vires that used the power that didn't belong to them, they did a ultra vires contract with the Besi company.

On the other hand, the managing director had the power to purchase something from outside regulating in the A and A, but the numbers of money was too huge, he could use appropriate money in his power in the company, if the money over the appropriate the money, he had no right to make a decision, so he needed to discuss with the other two directors in the company, but he didn't with the other two directors consent it. To the general manager also just used only a little money that he could make own decision, the 2 million money to him was very huge, so he didn't have the right to make the decision by himself.

Lastly, as a director in a company, he had some of duties to the company, first of all, he had the statutory duties for the company, section.131 refer to the director have the duties to open up himself interests in contracts, offices, and property, section. 135 required the director have the general duty to make the other information public; secondly, the director had the fiduciary duty to the company, section.132 (1) refer to the director must undertake the good faith to the company with make the best interest all the times, also control and make a decision in proper purpose for the company, furthermore, the director must avoid conflict of interest to the company; finally, the director have duties such as skill, care and diligence to the company, section. 132 (1) refer to the A and A regulate the director must enforce his power use reasonable diligence that consented of the company, section 132(2) show to that the director can't use the information that he get it from his position, then get a benefit to himself or the other person. All of these are the director have the duties to a company, but he couldn't breach these duties, if he breach these duties, he was beyond his power. To the general manager, he just undertakes the fiduciary duties to the liability that 2 million.

Whether the corporate veil could be lifted or not?

The corporate veil could be lifted when the members or directors did something wrong for the company without the consent of the whole members or directors, and that time, the director or member would personal liability to the another party separate the company, there are two ways can lift the corporate veil, one is the by court, another is by statute.

For example

Saloman v Saloman and Co. Ltd (1897)

A man named Aron Salomon was a successful business man that he was doing leather boots business, he run his business as a sole Proprietor for a long time, his son want to join his business, therefore, Saloman changed the his sole proprietor into the limited company, Salomon and Co. Ltd.

After a long time the incorporate the limited the company, he had seven shareholders in his company that are himself, his wife, daughter, and four sons, he was become the managing director of the company, and another directors are his two sons, Mr. Saloman has 20007 shares with owned 20001 of the company, and the other shareholder just has one hold one share, what's more, Mr Saloman get £39000 and have £10000 loan to the company, so he provided the company's assets as the debentures secured.

At last, the Saloman & Co. Ltd was bankrupt, but the company needed to return all the loan to the creditors, no matter that the secured creditors or unsecred creditors, but accoding to company whether have adequate money to pay the loan, in the Saloman company bankrupt, the company have sufficient money to afford the loan, but the unsecured creditors didn't get any money back.

Held:

This