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QUESTION 1

Corporate veil is a metaphor that is used in separating a company from its members. The
corporate veil is lifted or pierced and the shareholders become the relevant persons
responsible for debts of the company rather than it itself. This argument suggests that
incorporation was just an illusion to avoid pre-existing legal obligations hence veil of
incorporation should be lifted in order to discover real identities of individuals who must take
responsibility. Many other cases have supported this view, not just Salmon v Salmon.

Woolfson v. Strathclyde Regional Council held that there were special circumstances with the
company being a mask behind which the truth is concealed. Ex Brougham Re Darby takes us
back to 1911; as career fraudsters, they had created companies to make it look like they were
not sole beneficiaries of their fraudulent scheme. Gilford Motor Company v Horne involved an
agreement whereby the defendant (who was managing director of the claimant) undertook not
to interfere with, solicit or draw away any clientèle from the claimant during and after his
tenure as a managing director. Nevertheless, he established another firm in his wife’s name so
that he would be able to attract business from customers in the same way he did when he
worked for his former employer. The court dropped down its veil in granting injunction against
Horne together with new company. Jones vs Lipman shows that defendant tried to escape land
sale agreement by transferring it into company’s hands however veil was lifted where specific
performance was ordered against both him and company. Trustor AB v Smallbone involved one
director of Trustor AB who stole money from Trustor AB and paid it into his own Introcom
Company. The veil is taken off so as to hold Smallbone jointly and severally liable for what she
has received.
Furthermore, the idea of agency is that a corporation may serve to represent shareholders.
Within a corporate group, one could posit that the subsidiary acts in an agency capacity on
behalf of the parent company. By and large, it is presumed that no such agency relationship
exists and thus a company is not an agent of its members (as was decided in Salomon v
Salomon). Agency relationships must be established by evidence in each case and are not
inferred from control by shareholders.
However, in the case of a set of companies, not every time will Salomon has to be adopted and
the Court may allow piercing the veil to look at what the group is hiding. This was seen in
D.H.N. food products Ltd. v. Tower Hamlets, where it was said that courts may reject
Salomon’s arguments when it is right and fair to do so. The Court of Appeal in this case held
that the current situation called for lifting of the corporate veil (Ushijima & Goto 2012). The
court found that these three subsidiary companies are part of a single economic entity or group
thus eligible to compensation as such.

In Adams v Cape Industries plc, the Claimants with default judgments obtained in Texas
against a company sought to enforce those judgments against its ultimate holding company in
UK, Lord Denning stated that “It might have been different if the two companies had been
under one management which treated them as one enterprise.” (Adams v Cape Industries plc
[1990] Ch 433 at p 482.). The Court of Appeal held in this case that even where a parent
company exercises supervision and control over its subsidiary in a foreign country; it did not
present there because by doing business on their own rights through its subsidiary company
didn’t submit to that jurisdiction. According to Slade LJ (1988), “This does not mean only groups
can be viewed as single units even individual firms may be regarded as separate entities.”

According to Lord Denning, ‘we know that in many respects a group of companies are treated
together for the purpose of accounts, balance sheets and profit and loss statements.’ In his
work Gower also states, “there is evidence of a general tendency to ignore the separate legal
group”. However, the court’s decision to pierce the corporate veil is based on the facts of each
case. The nature of shareholding and control would indicate whether it would be proper for the
Court to lift the corporate veil. These situations would be determined by factual control
exercised his view is strengthened by a Supreme Court decision cited in Novartis v. Adarsh
Pharma (New Horizons v. Union of India). State v UP Renusagar decided in 1988. Also, in
Renusagar case back in the year 1988, on basis of prior English law which had accepted ‘single
economic unit’ argument.

In Daimler Co. Ltd v. Continental Tyre and Rubber Co. Ltd, a case involving public interest, the
House of Lords lifted the corporate veil to ascertain its nature and found out that it is a foe
organization, which if given an opportunity to do business may be used to generate cash for
enemies, which will undermine country’s public interest. To this effect, the Supreme Court of
India applied this principle in Jyoti Limited v. Kanwaljit Kaur Bhasin case that was concerned
with transactional deals between corporations who were contending parties or stakeholders, at
last finding the firms guilty of contempt of court and subsequently holding company members
responsible for the same.
Furthermore, the principle of deceit and deceitfulness was there in the case of Prest v Petrodel
Resources Ltd. The Disguise Principle is a practice whereby companies are set up to hide the
real identities of persons involved. Nevertheless, peeping inside this structure to find out who
they really are does not imply ignoring the concept of separate legal entity. This principle does
not try to establish any impropriety when it is used. In such cases, where a company acts as an
agent or nominee on behalf of one individual and acquires property for this person, this
principle shall apply. The commonest example occurs when a director forms a limited liability
company with a view to making secret profit from it. Therefore, both the company and the
individuals can be sued for compensation-consequently whereby ever raised as far as
compensation is concerned.

On the other hand, evasive principle applies when the separate legal entity of corporation
relinquishes its claim against another person or refrains it from exercising some right. In such
instances, where there exists a legal claim against the person directing at him regardless of its
personality, court may lift off corporate veil. This is the only way that limited liability can be
lifted under any circumstances. It constitutes an improper use of corporate personality so as to
avoid liability. The classic example is found in Jones v Lipmam.
In conclusion, it is worth mentioning that courts are careful and only lift the corporate veil
under extraordinary situations whereby there is clear evidence of abuse, fraud or misconduct.
The end justifies the means. This doctrine seeks to prevent the use of companies as a front for
fraudulent or other unfair activities while still maintaining their separate legal personalities in
legitimate business operations.

WORDS: 1200
Question 3

Although they are not designated by legislation, non-executive directors (NEDs) must uphold
the generally accepted and case law-established roles of directors, including the need to act
with diligence, expertise, and care. In addition, the establishment of a series of norms of
excellent corporate governance procedures and suggestions serve as the foundation for its
existence. A number of unanticipated company failures and worries about directors who
followed their personal interests, such as pay hikes and pricey mergers to the disadvantage of
the stockholders, led to the creation of the framework for corporate governance. Since 1992,
numerous ideas of this kind are being raised. Nevertheless, the concept of an integrated code
might be insufficient because it is not enforced. Since such suggestions are not legally
enforceable, a firm is free to reject them. It requires legislation in order to be enforceable.
Because of their autonomy and external viewpoint, NEDs are in an excellent position to offer
the leadership team unbiased monitoring and helpful criticism. This impartial examination aids
in guaranteeing all the organization's strategic decisions are impacted by a variety of
perspectives and that important stakeholders' interests including those of the neighbourhood,
vendors, and employees are appropriately taken into account.

Importantly, since the early 1990s, when Sir Adrian Cadbury led the Cadbury Report that
established the position of NEDs, the UK has upheld a conventional "abide or justify" policy on
corporate governance. From this perspective, corporations should comply with the code's
obligations by disclosing why they have complied or, if not, provide a justification to
stakeholders for why they haven't. This approach has rearranged the supervisory activities of a
greater number of organizations as they are currently under increased scrutiny, even though
there are no legal ramifications. Since then, the council of financial reporting has heard from
many people who support our action. The goal of this article is to evaluate these rules in light of
the objections leveled against the NED's function on the board and in the committees as an
efficient corporate governance tool. Along with identifying areas where they could be more
effective, it will also evaluate the possible accountability of the obligation of care and expertise
associated with this job. NEDs are board members who do not hold executive positions inside
the organization. A NED is not burdened with the administrative responsibilities of running the
company which senior directors are, even if he is supposed to contribute his own expertise and
knowledge for the board. Instead of a top management making these kinds of decisions, the
BOD should be in charge. The CEO and board of directors ought to be independent entities, and
the BOD should include a NED. The compensation and employment panel must be led by the
NED. The NED's job is to keep an eye on the business's development. The issue is that a
majority of NEDs are personal buddies with CEOs.

In response to public and shareholder concerns regarding business director compensation in

the UK, the Confederation of British Industry (CBI) initiated a "study group," as reported in the
Greenbury report. According to Greenbury, the group's mandate was to "identify standards of
excellence in determining directors' compensation and develop an ordinance of such conduct
for use by UK PLCs." The report included multiple suggestions, but it emphasized major
shareholders' critical role of employing their weight and sway to assure the application of best
practices as outlined in the code. Rather of addressing the larger problem of excessive pay
within organizations, the Greenbury study concentrated on the profitable component of
directors' packages. Although mindful of the broader difficulties surrounding executive salary,
the suggestions primarily addressed the compensation of executive directors rather than the
more general problem of high pay. The inclusion of compensation committees in a company's
governance structure was one of the main suggestions made by the Greenbury report. Three
non-executive directors of the corporation ought to sit on the boards at minimum. Concerns
over disproportionate payments resulting from long-term service contracts were also
addressed by the panel.
The principal objective of Turnbull's study was to furnish listed businesses with
recommendations on sound business practices concerning risk management and control
procedures. Turnbull has an effect on the unified code since he believes the board should
include internal control and risk management into the day-to-day operations of the company
and provide a controls declaration in the yearly report. Turnbull and ranking rule disclosure
standards are related in that businesses that do not manage risk in line with Turnbull's advice
are required to either "comply or explain" their reasons for not doing so. facilitated voting on
conditions of repayment and compensation by financial institutions. Suggested that NEDs have
a leader. The entire code's substantial permission of NEDs is a divergence from previous
analyses and continues to be the primary distinction. In order to introduce impartial neutrality
to the organization's process of decision-making, it accomplished this by taking power away
from executives whose choices were readily swayed by personal interests and by emphasizing
the independence of NEDs. When the ability to affect results and create worth without
jeopardizing managerial action or decision-making is the performance criterion. This means that
in order to represent separately held opinions in accordance with corporate goals and the law,
and thus in the business's and its stakeholders' best interests overall, NEDs must maintain an
extremely impartial and competent attitude. The code stipulates that the chairman must "be a
separate non-executive when first appointed, after that he fails to be impartial for the duration
of the committees," despite the fact that it is excellent corporate practice for the chairman and
CEO to be distinct. This is because of the implications of their different roles: the executive
"runs the business," while the chairman "runs the board." Oversee marketing, business plan,
and contracts for finances. To prevent any dominance by one party, the CEO and the chairman
of the board should not be the same person. Special Committees led by NEDs should handle
particular issues. like compensation, inspection, etc. NED and Directors ought to work together
on more significant matters.
In addition to offering other suggestions for changes to the UK code, the Higgs report focused
mostly on the function of non-executive directors. Derek Higgs believed that the report's
several components undermined directorial discretion, even if he firmly supported the "comply
or explain" approach of the studies that preceded it. Higgs tried to specify what director
independence meant in Article A.3.4. The need for this explanation arose from knowing that
numerous directors at the time, despite calling themselves "independent," actually had other
relationships to the firms whose boards they had been appointed to. Given that the majority of
NEDs are hired from this exclusive set of prestigious colleges and, in certain situations, the
same public schools, the situation's implication is that it remains possible to define
independence. In order to prevent power from being concentrated in the fingers of just a few
individuals, Higgs suggested that the board's membership should include an adequate number
of directors. It is assumed that Higgs' suggestion to expand the "gene pool" in addition to taking
action to prevent similar situations from occurring is a coded way of responding to the
complaint since numerous directors have comparable origins, schooling, and predispositions.
Concurrently, Higgs proposed that no executive should serve on the compensation, review and
risk groups at the same time. This can only be feasible, in part, with bigger batches of non-
executives serving on the advisory council.

Kiarie Sarah NED (2007) has its advantages and disadvantages. As it was picked by intimate
friends, it is unlikely to cause a stir. It is a "a ruling class that perpetuates itself”. Since they have
similar schooling, they will probably agree on a lot of things, and their salary will probably be
influenced by what they say. NEDs mostly rely upon data provided by directors, although they
are free to exclude any details, they deem appropriate. CEOs of different non-competing
enterprises are the norm. They don't spend much time because most issues in a corporation are
unknown to NEDs. Directors and NEDs are equally liable, which is unjust because NEDs are not
commonly found. NED labour for varying wages. Compared to the people they supervise; they
are paid less. This places them in an uncomfortable situation. If a director disobeys orders, the
only recourse available for carrying out the rules is departure. This could be detrimental since it
could be employed as a means of eliminating a person. According to a poll, 49 percent of
executives believe that holding a NED post is too dangerous.

The significance of NEDs' function and efficacy as a business management tool have been
elucidated in this assignment. Additionally, it has demonstrated best practices for NEDs and
directors with the guidelines of the combined code, which include maintaining the greatest
levels of probity and integrity; asking insightful questions; providing thorough challenges and
making distinct decisions; assisting executives in performing their business functions while
reining in their tendency to build empires through similar oversight; earning the respect and
trust of board participants; and fostering the growth of the business. Additionally, it did not
ignore the possible spheres of responsibility brought about by the governance frameworks now
in place for companies, in particular the legislature. granting legal power to NEDs in the absence
of regulatory authority. must have the authority to look into things, make requests to people,
papers, etc. to give them a greater as they have to keep an eye on people who make more Cash
talks! Esteem and power entail wealth. Business culture

WORDS: 1588