Discussion on Piercing the Corporate Veil with the certainty of Fraud and role of Agencies
Piercing of Corporate is as technical which before or during or after the issues which must come out opening a business in Hong Kong as a foreigner as it is confusing so there is a lot of horizons to explore in this respect. In search of these horizons, this blog intends to share some with you, you surely don’t want to miss the theory behind these corporate fraud, so let’s not waste the time and have a look on it.
Let’s play Riddle
Fond of playing riddle? Keep reading if you do want to opening a business in Hong Kong as a foreigner while letting brainstorming continues. In a very unique case of corporate legal proceedings circumstances provided that:
Darby and Gyde established the company through non company registration Hong Kong office, say it to be X, X got the license for mining against the payment of few bucks, after acquiring license they intend to sell it to another company, say Y and in fact, Y was also incorporated by them and public investment for the debentures of Y was welcomed. They both got inflated benefits from this corporate scam, didn’t sound it to be scam? Hold on and keep reading. It was mentioned in the prospectus of Y that it will be promoted by X and X be thus stand eligible for Y’s profits, but presence of Darby and Gyde in X was concealed, this concealment might be due to the fact that, both Darby and Gyde were renowned criminals and corporate frauds and smelling possibility that no one would deal with their company if they know about their presence. So, they concealed their identity. Court then established that: There is serious concealment of truth and thus accused Darby and Gyde and stood them liable to payback the profits they’ve illegally got, to Y.
HKSAR v Leung Yat Ming Prosecution
Just as corporate world has much differences, they have unique terms too like the one above. During proceedings of HKSAR v Leung Yat Ming, a couple who setup a company through company registration Hong Kong professional firm give declaration to its employer pertaining to the procurement of house rent allowance, in the declaration, they certified that neither they nor any of their relative have any claim or financial interest in this property, investigation showed this property to be owned by company, which was in fact owned by husband and controlled by nominee shareholder and directors. Court established, concealment of identity and found it to be the conviction under Prevention of Bribery Ordinance and ordered piercing of corporate veil and directed authorities to find the role of controllers in the company,
Corporate world- A Drug Cartel?
Surely corporate world is not operating on the drug agenda, but as one polluted fish contaminated whole of pond, one of its kind happening in Corporate world also shocked the world. Prosecution Secretary for Justice v Lee Chau Ping, reported that, defendant was issued warrant of arrest for his involvement in drug trafficking, but the defendant ran away from the police custody and then as per Drug Trafficking Ordinance confiscation orders were issued against the properties owned by defendant and his companies. Because it was noted that one of his company’s location is being used for the purchase of drug related equipment and manufacturing of ICE is also being conducted there. Sensing sensitivity and significance of the matter, Court ordered to invoke Piercing of Corporate Veil on the grounds that company is being used for criminal activities.
Keeping Distinction between Incorporation and Fraud
As it is being said, “Not all fingers are same”; So, it must be understood that not every company is incorporated for the intention of fraud. A person can establish different companies to hold different assets so that each company may hold respective assets in its liability. Such practices take place so as to minimize the risk of fraud and to confine the role of each company to its respective asset. There is also an observation which says that if any executive do any wrong or found to be involved in criminal activity then, that respective executive be held responsible, for piercing of corporate veil to take effect.
Agencies v Piercing of Corporate Veil
Argument that, piercing be invoke against shareholder on the basis that shareholder has the managerial control over the firm, does not provides ground for piercing to take place but as like every possibility, exceptions may exist and thus demand for proper assessment of situation is advised. Just as visible in the proceeding of Salomon v Salomon Co. where court communicated that: Just because shareholder has all the liabilities and managerial control over the company, does not sound feasible and just, to invoke piercing of corporate veil.
Proceeding of Re FG-Films Ltd showed circumstances where, it was a British company and intends to regard the movie as British. Provided evidences reported that, prime company responsible for the making of movie is American and British company was just acting as its agent. So, the court held that: Movie be considered American and not British and invoked piercing of corporate veil against suppression of facts.
CSR ltd v Young reported circumstances where contract between parent and its subsidiary was signed under which it was decided to give parent, managerial and corporate control of the business involving mining of asbestos. Court held in its verdict that, as the parent had control over the operations of the company, parent company owes duty of care to the employees and liable to the victims of asbestos in case of breach of duties.
Other situation gives another view in the case Adams v Cape Industries plc presented a scenario where, Cape who setup a non company registration Hong Kong office was a UK company and has its subsidiary, NAAC, in USA to do marketing of asbestos on behalf of Cape in USA, but pertinent to the lawsuit by victims of asbestos affected workers Cape had to liquidate NAAC. After NAAC’s liquidation, Cape incorporated a new company named CPC, and CPC in return incorporated AMC and they continued sale of asbestos through AMC and there was the general perception that by doing so they were trying to conceal their identity but court negated this perception and held that: No obvious concealment of trust is evident, as AMC does not have any office in the United States of America thus instead to pierce corporate veil, recognition of AMC as an agent of Cape is needed.