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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Lena is the sole director of Quill Ltd. A court finds that Quill Ltd was set up as a sham to hide Lena's own breach of a non-compete promise to a former employer. What is the likely effect of this finding?

The court may treat Quill Ltd's acts as Lena's own and grant an injunction against both her and the company. Using a company as a sham to evade an obligation is a ground for lifting the veil, but dissolution is not automatic.

  1. ALena's separate personality is ended and Quill Ltd is dissolved automatically
  2. BThe court may treat Quill Ltd's acts as Lena's own and grant an injunction against bothCorrect
  3. COnly the former employer's contract is void, and Lena has no liability

Explanation

Where a company is a mere façade or sham to evade an obligation, the court may look behind it and grant relief against the individual as well as the company, as in Gilford Motor v Horne. Dissolution is not automatic. Lena is not freed from liability.

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