ExpertHard2 marksMultiple Choice
ACCA · Question 16 · Corporate and Business Law
In which of the following situations will the courts 'pierce the corporate veil'?
In which of the following situations will the courts 'pierce the corporate veil'?
Answer options:
A.
Whenever a company becomes insolvent.
B.
Where the company is used as a sham to evade an existing legal obligation.
C.
When a parent company owns 100% of a subsidiary.
D.
Whenever it is in the interests of justice to do so.
How to approach this question
Recall the strict limitations placed on piercing the veil by the Supreme Court.
Full Answer
B.Where the company is used as a sham to evade an existing legal obligation.✓ Correct
The courts will only pierce the corporate veil in very limited circumstances, specifically under the 'evasion principle'—where a person is under an existing legal obligation or restriction and deliberately evades it by interposing a company under their control.
Common mistakes
Believing the veil can be pierced simply because it is 'fair' to do so.
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