FACULTY OF COMMERCE

DEPARTMENT OF BUSINESS ADMINISTRATION

COURSE NAME: COMPANY LAW 1

COURSE CODE: BBA 3104

SUBMITTED TO: SIR GOMO

SUBMITTED BY: PETER KATONTHA

DUE DATE: 07TH NOVEMBER 2023

To begin with it is very important to understand the meaning of a contract in which it means a legal
binding agreement between two or more parties that outlines the terms and condition for a specific
arrangement hence at this juncture we have to understand that Mayeso was in contract with
Zachilendo Ltd as a Director. On the other hand Patrick is also in contract with Nzeru za Anganga
which happed formed by Mayeso and his wife. Hence with the matter here in we may see that there
was a breach of contract beyond reasonable doubt between Zachilendo Ltd and Mayeso regardless
of being an ex-Director of the company.

Reaching at this juncture it is important that Zachilendo Ltd should sue for Mayeso for the breach
and be held accountable for the act of infringement of contract terms in which was stipulated in
the contract of employment between Him and the company which strongly says in the event of
leaving the employment He will not solicitate with the customers of the company for a period of
two years but in the course of action we see Him opening his own company which really shows
that despite his action of violating the companies contract terms and conditions there is also an
infringement in the interest of the company and Him as he opens a company which is offering the
exact same service. According to section 180 of the Act, a director of a company must avoid a
situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may
conflict, with the interests of the company. In Industrial Development Consultants Ltd v Cooley
[1972] 2 All ER 162, a director resigned in order to clinch a contract for himself for the supply of
gas to the company from which he had resigned. He got the contract. When members sued it was
held that he should account for the benefit made under the contract to the company. Certain conflict
of interests have to be authorized by the company. The authorization is effective only if any
interested director does not form the quorum and does not vote on that decision.

Therefore due to the fact that he breached the term of solicitating with zachilendo’s customers, he
has also to be sued for the use of private information mainly because of the position he was holding
in the company gave him all the information and this information may be used to counter attack
Zachilendo company as it is a competitor in the marketing environment and Mayeso happens to
know all the strength and weaknesses of the company which could in the end lead to a down fall
of the company. As the law on burden and standard of proof states that in any civil matter,
ordinarily the burden of proof lies on a party who substantially asserts the affirmative of the issue,
or put in other words, on a party who asserts the truth of the issue in dispute. And the party has to
adduce sufficient evidence to raise a presumption that what is claimed is true as it was in the case
of Kumalakwaanthu T/A accurate Tiles and Building Centre -V- Manica Malawi Limited.

Standard of proof for the matters in the IRC is the same as that which applies in all civil cases, a
proof on balance of probabilities. The legal burden of proof for civil case is that the facts must
carry reasonable degree of probability, but not so high as required in a criminal case. If the evidence
is such that the tribunal can say: "We think is more probable than not" the burden is discharged,
but, if the probabilities are equal, it is not. A well settled principle of ancient application is "ei
incumbit probation qui dicot not qui negat." This essentially means that the burden of proof lies
on the party alleging a fact of which correlative rule is that he who asserts a matter of fact must
prove but he who denies it need not prove it. In contested actions, a party succeeds whose evidence
establishes a preponderance of probability or a balance of probability in his favor·" The balance
of probability standard means that a court is satisfied an event occurred if the court considered that
on the evidence, the occurrence of the event was more likely than not.

To that circumstances Mayeso may indeed be held reliable of the action he made of opening a
company regardless of being aware of the contact he made, which was clearly shown in the case
of Hadly v Baxendale (1854) The claimant, Hadley, owned a mill featuring a broken crankshaft.
The claimant engaged Baxendale, the defendant, to transport the crankshaft to the location at which
it would be repaired and then subsequently transport it back. The defendant then made an error
causing the crankshaft to be returned to the claimant a week later than agreed, during which time
the claimant’s mill was out of operation. The claimant contended that the defendant had displayed
professional negligence and attempted to claim for the loss of profit resultant from the unexpected
week-long closure. The defendant retorted that such an action was unreasonable as he had not
known that the delayed return of the crankshaft would necessitate the mill’s closure and thus that
the loss of profit failed to satisfy the test of remoteness

And it was held that, the defendant, viewing that a party could only successfully claim for losses
stemming from breach of contract where the loss is reasonably viewed to have resulted naturally
from the breach, or where the fact such losses would result from breach bound reasonably have
been contemplated of by the parties when the contract was formed. As Baxendale had not
reasonably foreseen the consequences of delay and Hadley had not informed him of them, he was
not liable for the mill’s lost profits. And for the case here in Mayeso was act was contemplated
through his contract of employment where the period not to solicit ate with the customers was
stipulated there-off.

Similarly, in industrial Development Consultants Ltd v Gooley (1972) the plaintiff company
provided consultancy services to gas boards. When one gas board declined to award a contract to
the company and the company's managing director realized that he might personally be able to
clinch the contract, he resigned from the company. Thereafter, he got the contract for himself. It
was held that he should account for the benefit made under the contract to the company'. And as
to the scenario at hand a prediction can also be made that Mayeso resigned with the purpose to
have his own company formed for his own benefits and with the president above Zachilendo
company should get an injunction in order to further investigate Mayeso’s action and also to lender
any contracts which is there between Nzeru Za Anganga and solicited customers.

A Corporation is an organization mostly a group of people or a company authorized by the state to

act as a single entity or a legal entity recognized by private and public law "born out of statute"; a
legal in legal context and recognized as such in law for certain purposes (Scott, 2018). This essay
will explain what a legal corporate identity is; and its occasions when it is set aside.

Corporate identity is the manner in which a corporation, firm or business enterprise presents itself
to the public, it is how the company looks, behaves and communicates (during the course of study)
.Corporate identity helps the company to get recognized and differentiated in the market and
internal and external stakeholders.

In the early years incorporation were done by the charters but now many jurisdictions create
incorporation by registration. Depending on the number of owners, a corporation can be classified
as aggregate meaning to say a group of people can unite to form one body under denomination or
sole (a legal entity consisting of a single incorporated office occupied by a single person).A
company is said to be incorporated when it has a certificate ,and once it has been registered it
becomes a separate legal entity which means it is recognized by the law and the entity has its own
legal rights and obligations, separate to those running and owning the entity meaning to say that
the company can sue and be sued in its name ,it can buy or sell property of any kind it its name .
As a consequence of these features, separate legal entities can incur debt which is created by a
contractual relationship, become creditors, by lending to others own assets these asserts can either
be tangible or intangible property example of tangible asserts can be desks, chairs, pens and paper
and intangible asserts can be; intellectual property rights, copyright, designs, trademarks and
confidential information. A separate legal entity can also own real property like land and be liable
to pay taxes. (Teacherlaw)

The company which is a separate legal entity detaches the individuals participating in the business
from personal liability which may arise as a result of doing business the company generates
revenue, which is owned by the company incurs expenses which are payable by the company
attracts legal liability to pay taxes to taxation authorities, and typically pays tax at lower rates than
individuals. The business owners and directors are protected from liability other than in limited
circumstances. For example the facts in Salomon v Salomon, Aron Salomon ran leather and boot-
making business in his own name. He incorporated a business for his leather and boot-making
business. He named it

“A. Salomon and Co Ltd”. So, he incorporated a previous business and contracted through
the defendant company rather than in his own name.

When he incorporated the company, Mr. Salomon took a series of security interests over the assets
of the company. Business in the boot trade declined, and the company went into liquidation.
Salomon and Co Ltd defaulted on payment of the securities. Mr.

Salomon was sued by the liquidator but in the name of the company, claiming that Mr. Salomon
was liable for the debt. The company was a separate person from Mr. Salomon.

Mr. Salomon could not be made personally liable for the debts of the company (Ellis, 2020). As a
result, the company was liable on the contract sued on.

However this principle may be referred to as the „Veil of incorporation‟. The courts in general
consider themselves bound by this principle. The effect of this Principle is that there is a fictional
veil between the company and its members. That is, the company has a corporate personality which
is distinct from its members. But, in a number of circumstances, the Court will pierce the corporate
veil or will ignore the corporate veil to reach the person behind the veil or to reveal the true form
and character of the concerned company. The rationale behind this is probably that the law will
not allow the corporate form to be misused or abused. In those circumstances in which the Court
feels that the corporate form is being misused it will rip through the corporate veil and expose its
true character and nature disregarding the Salomon principal as laid by the House of Lords.
(Lawteacher)

Broadly there are two types of provisions for the lifting of the Corporate Veil common law and
statutory piercing. Common law is when the veil of incorporation is used as an instrument of Fraud,
Character of Company, Protection of revenue, Single Economic Entity a good example would be
the case of Gilford motor company ltd v Horne (1933) In this case, Mr. Horne was an ex-employee
of The Gilford motor company and his employment contract provided that he could not solicit the
customers of the company. In order to defeat this, he incorporated a limited company in his wife‟s
name and solicited the customers of the company. The company brought an action against him.
The Court of appeal was of the view that “the company was formed as a device, a stratagem, in
order to mask the effective carrying on of business of Mr. Horne” in this case it was clear that the
main purpose of incorporating the new company was to perpetrate fraud. Thus the Court of appeal
regarded it as a mere sham to cloak his wrongdoings. The other case is of Jones v Lipman, a man
contracted to sell his land and thereafter changed his mind in order to avoid an order of specific
performance he transferred his property to a company. Russel judge specifically referred to the
judgments in Gilford v. Horne and held that the company here was “a mask which (Mr. Lipman)
holds before his face in an attempt to avoid recognition by the eye of equity” .Therefore he awarded
specific performance both against Mr. Lipman and the company. The Court has the power to
disregard corporate entity if it is used for tax evasion or to circumvent tax obligations.

Statutory piercing the corporate veil is used as a tool of statutory interpretation in the sense that
piercing the corporate veil is done in order to bring corporate actors‟ behavior into conformity
with a particular statutory scheme, such as social security or state unemployment compensations
schemes. For example, sometimes the corporate form will be ignored in order to accomplish the
specific legislative goal of a government benefit program that distinguishes between owners and
employees. And of course, sometimes the corporate form will be respected where doing so is
necessary to reach a result that is consistent with a particular state or federal statutory scheme.

Second, piercing also is done by courts in order to remedy what appears to be fraudulent conduct
that does not the strict elements of common law fraud. Specifically, it is used as a remedy for
“constructive fraud” in the contractual context. Simply put, if a court becomes convinced that a
shareholder or other equity investor has, by words or actions, led a counter party to a contract to
believe that an obligation is a personal liability rather than a corporate debt, then courts sometimes
will use a piercing theory to impose liability on the individual shareholder rather than a fraud
theory.

The third ground on which courts pierce the corporate veil that we identify is the promotion of
what we term accepted “bankruptcy values.” In particular, bankruptcy law strives to achieve an
orderly disposition of the debtors‟ assets, either through corporate reorganization or liquidation.
One way that bankruptcy law achieves these goals is by preventing shareholders from transferring
corporate assets to themselves or to particular favored creditors ahead of creditors in times of acute
economic stress. This result is accomplished in the context of a formal bankruptcy proceeding by
invoking the doctrine of equitable subordination as well as by the bankruptcy trustee‟s power to
avoid and set aside preferential transfers and fraudulent conveyances. Outside of bankruptcy and
sometimes in the context of bankruptcy proceedings as well, the goal of eliminating opportunism
by companies in financial distress is accomplished by disregarding the corporate form.

Often, courts lift the corporate veil to fix liability and punish the members or the directors of the
company. Section 51(1) of the Act of Malawi provides one such provision. Where the
incorporation of a company is effectuated by way of furnishing false information, the court may
fix liability and for this purpose, the veil may be lifted.

Section 51(2b) also is a penal provision. The Act asks for the submission of an application for the
removal of name of the company from the registrar of the companies. Any who make fraudulent
application is fixed with liability under thus section.The Companies act Section 34 and 35 of the
act also enable the courts to lift the veil of incorporation to fix liability. When prospectus includes
misrepresentations, the court may impose compensatory liability upon the one who
misrepresented.

The Companies Act provides that in cases of issue of shares to public, in the event of the company
not receiving the minimum subscription in 30 days of issuance of prospectus, the company is
bound to return the application money. Section 39 imposes penalty on failure to do this within 15
days‟ time period.
In conclusion a Corporation is an organization mostly a group of people or a company authorized
by the state to act as a single entity or a legal entity recognized by private and public law. Wherever
the members of a company violates any statutory provisions and the common law or carry out any
non-desirable activities under the guise of the corporate veil above the company, thereby misuse
the privilege conferred to them, the courts are entitled to look beyond the veil, and this is known
as lifting of corporate veil.

REFEREES

Macey, Jonathan R. and Mitts, Joshua, Finding Order in the Morass: The Three Real Justifications for
Piercing the Corporate Veil (February 18, 2014).

Cornell Law Review, Forthcoming, Yale Law & Economics Research Paper No. 488, Available at SSRN:
https://ssrn.com/abstract=2398033 or http://dx.doi.org/10.2139/ssrn.2398033

Hirst, Scott (2018-07-01). "The Case for Investor Ordering". The Harvard Law School Program on
Corporate Governance Discussion Paper. No. 2017-13

LawTeacher. November 2013. Lifting of the Corporate Veil Essay. [Online]. Available from:
https://www.lawteacher.net/free-law-essays/business-law/article-on-lifting-of-the-
lawessays.php?vref=1 [Accessed 15 August 2022].

Dr. G. K. Kapoor & Sanjay Dhamija, Taxmann’s Company Law: A

Comprehensive Text Book on Companies Act, 2013 (21st edn., Taxmann, 2016).

Allan Hanz Muhome ,Company law in malawi ,based on the companies act ,2013

Companies act 2013.