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

Mira was previously the director of a company that went into insolvent liquidation. She is disqualified from acting as a director. She forms Mira Style Ltd solely to continue the same business under a new name so that she can avoid existing creditors and the disqualification. A court is asked to lift the veil. On which basis is the court most likely to do so?

The court is most likely to lift the veil because the company is a facade used to evade an existing legal obligation or restriction. One-person ownership or small size alone does not justify ignoring separate personality.

  1. AThe company is a mere facade concealing the true facts, used to evade an existing legal obligationCorrect
  2. BThe company has only one director and shareholder
  3. CThe company is a small private company with limited assets

Explanation

Courts lift the veil only in limited cases, notably where the company is a sham or facade used to evade existing obligations or restrictions (as in Gilford Motor v Horne). Being a one-person company or having few assets is not enough on its own, as Salomon shows.

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