Lifting the corporate veil the Act

Common Law
In Aspatra Sdn Bhd & 21 Ors v Bank

Bumiputra Malaysia Bhd (1988)

Aspatra and 21 Others were actually the

companies of Lorrain Osman

BBMB brought an action against Lorrain

Osman alleging that he had received over

RM27.6 million which BBMB alleged were
secret profits in breach of Lorrain Osmans
fiduciary duty as a director of BBMB.

Lifting the corporate veil the Act

Common Law
In Aspatra Sdn Bhd & 21 Ors v Bank

Bumiputra Malaysia Bhd (1988)

BBMB obtained court orders in order to seize
certain assets of Aspatra and 21 other co
which Lorrain Osman owned and was
described as his alter ego.
One of the grounds in the appeal was whether
the corporate veil of the appellant companies
(Aspatra) could be lifted so that the assets of
the appellant companies could be held or
deemed to be the assets of Lorrain Osman.

Lifting the corporate veil the Act

Common Law

It was held that the court would generally

lift the corporate veil in order to do justice

particularly when an element of fraud was
involved.
The Supreme Court put aside the

independent legal entity theory and pierced

the corporate veil on the ground of fraud.

Lifting the corporate veil the Act

Common Law

Use of company to evade legal obligations or

to commit fraud
(a) If a person uses a company as a
device to evade a contractual obligation to
use the company to do what he himself is
prevented from doing
Gilford Motor v Horne
Horne was the former MD of the GM co. He
covenanted not to solicit customers of the co
GM, after the termination of his employment.

Lifting the corporate veil the Act

Common Law

However, when he left the company GM, he

set up a new company through which he

solicited the plaintiffs customers.
Held : that the court said the new company is

a sham and an injunction was granted against

both Home and his new company preventing
him from stealing the customers of GM.

COMPANIES AND PARTNERSHIPS

COMPARED
The major difference between companies and

partnerships may be considered under the

following headings :
Formation: A company needs to go through
all the formalities required by registration
under the Companies Act 1965.
A partnership is created by agreement which
may be express or implied from the conduct of
the partners and is subject to the Partnership
Act 1961. No special form is required , though
partnership agreements are usually written.

COMPANIES AND PARTNERSHIPS

COMPARED
Status At Law :
A company is an artificial legal person with

perpetual succession. Thus a company may

own property , make contracts and sue and be
sued. It is an entity distinct from its members.
A partnership is not a legal entity though it
may sue and be sued in the firms name. Thus
the partners own the property of the firm and
the partners are liable for the contracts and
debts of the firm jointly as well as severally.

COMPANIES AND PARTNERSHIPS

COMPARED
Number Of Members : A private company

must have at least two members and

maximum 50 members.
A partnership cannot consist of more than 20
persons (unless professional partnerships)
Management : Members of a company are

not entitled to take part in the management of

the company unless they become directors.
Partners are entitled to share in the
management of the firm unless the articles
provide otherwise.

COMPANIES AND PARTNERSHIPS

COMPARED
Agency: A member of a company is not an

agent of the company or that of other members

, and he cannot bind a company by his acts.
Each partner is an agent of the firm and his
partners, and may bind the firm by his acts.
Liability Of Members: The liability of a

member of a company may be limited by

shares or by guarantee.
The liability of a partner is unlimited.

COMPANIES AND PARTNERSHIPS

COMPARED
Powers: The affairs of a company are

closely controlled by the Companies Act,

1965 and the company can only operate
within the objects laid down in the
memorandum of association.
Partners may carry on any business as
they please so long as it is not illegal and
make whatever arrangements they wish
with regard to the running of the firm from
time to time.

COMPANIES AND PARTNERSHIPS

COMPARED
Termination :
No one member of a company can wind up

the company, and the death, bankruptcy or

insanity of a member does not mean that
the company must be wound up.
A partnership may be dissolved by any
partner at any time unless the partnership is
entered into for a fixed period of time. A
partnership is also dissolved by the death or
bankruptcy of a partner.

Questions and Answers

Nature of Registered
Companies
Question
Explain the nature and effect of registration of

companies
Answer
- May sue external parties and can be sued in its
own name
Perpetual succession
Transferability of shares subject to AA
M & AA are the written constitution
Must file statutory accounts and hold meetings
May own its own property and property does not
belong to the shareholders

Nature of Registered
Companies
Question
What does the principle of separate legal

personality mean and what are the exceptions to

this principle?
Answer
Members are separate from the company and
are not responsible for the companys debts and
liabilities and vice versa Salomon v Salomon
Exceptions SS. 36, 169(5) and 304 of the CA
Aspatra v BBMB, Gilford Motor v Horne

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