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ACCA Applied Skills · Corporate and Business Law (Global) · Corporations and legal personality

Kessa Ltd was incorporated by Ivo to hold a property. Ivo, the sole shareholder, sold the property to a buyer, then transferred it to Kessa Ltd to defeat the buyer's right to have it conveyed. The buyer seeks an order for specific performance against Ivo and Kessa Ltd. Which statement is most accurate?

A court may disregard Kessa Ltd's separate personality and order it to convey the property. The company was interposed as a vehicle to avoid Ivo's existing obligation to the buyer, and lawful incorporation does not protect that improper use.

  1. AThe veil cannot be lifted because Kessa Ltd was lawfully incorporated before the transfer
  2. BThe veil cannot be lifted because the buyer is not a member of Kessa Ltd
  3. CThe veil may be lifted only if Kessa Ltd has been dissolved
  4. DA court may disregard the company's separate personality, because it was used as a vehicle to avoid an existing obligation, and order Kessa Ltd to convey the propertyCorrect

Explanation

Where a company is interposed to frustrate an existing obligation, the courts may disregard its separate personality, as in Jones v Lipman. Lawful incorporation does not protect the improper use, so option A is wrong. The buyer need not be a member, and dissolution is not required.

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