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

Marta transferred her only property, a warehouse, to a newly formed company, Orbit Ltd, solely to avoid an existing court order requiring her to sell it to a buyer, Daniel. Marta owns all the shares in Orbit Ltd. Daniel asks the court to ignore Orbit Ltd's separate legal personality. What is the most likely outcome?

The court may lift the corporate veil because Marta used Orbit Ltd as a device to evade an existing legal obligation to Daniel. Sole ownership or insolvency alone would not justify this, but using the company as a façade to avoid an existing duty does.

  1. AThe court will refuse, because a company is always separate from its shareholders
  2. BThe court may lift the veil, because the company was used as a device to evade an existing legal obligationCorrect
  3. CThe court will lift the veil only if Orbit Ltd is insolvent
  4. DThe court will lift the veil because Marta is the sole shareholder

Explanation

Courts may disregard separate personality where a company is used as a façade to evade an existing legal obligation. Option A ignores this exception. Sole ownership alone (option D) is never enough, since one-person companies are valid, and insolvency (C) is not the test.

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