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

Mr Osei was bound by a covenant not to solicit his former employer's customers. He set up Clearview Ltd, controlled by him and his wife, to contact those customers, hoping the company would not be bound by the covenant. The court is likely to hold that:

The veil may be lifted and Clearview Ltd restrained. The company was formed as a device to evade Mr Osei's existing covenant, and courts disregard separate personality where it is used as a façade to avoid an existing legal obligation.

  1. AClearview Ltd is a separate person and so is free to solicit the customers
  2. BClearview Ltd is a device to evade an existing obligation, so the veil may be lifted and it can be restrainedCorrect
  3. COnly Mrs Osei can be restrained because she is a shareholder who is not party to the covenant

Explanation

Where a company is used to evade or frustrate an existing legal obligation of its controller, the courts may disregard its separate personality (as in Gilford Motor v Horne). Clearview Ltd was created as a façade for that purpose, so the first option is wrong. The covenant binds Mr Osei, not his wife.

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