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

Marco was bound by a contract not to compete with his former employer. To avoid it, he set up Kestrel Ltd, which he controls, to carry on the competing business, in order to hide his own involvement. The former employer seeks an injunction against both. On which basis is a court most likely to lift the veil?

The court is most likely to lift the veil because Kestrel Ltd is a facade used to evade Marco's existing non-compete obligation. Courts disregard separate personality where a company is a device to avoid a legal duty, whereas a single director or recent incorporation is irrelevant.

  1. AThe company is a mere facade concealing Marco's evasion of an existing legal obligationCorrect
  2. BThe company has only one director
  3. CThe company was incorporated recently

Explanation

Courts will disregard separate personality where a company is used as a device to evade an existing legal obligation (Gilford Motor v Horne; Jones v Lipman). Having one director or being newly formed is lawful and does not justify lifting the veil. The key is the evasion of the covenant.

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