‘Grouping Liability’ and the Salomon Principle: ‘Judicial’ or ‘Systemic’ Abuse?
26 Pages Posted: 1 Dec 2015 Last revised: 7 Nov 2016
Date Written: May 8, 2015
Nowadays, the group-structured organisation symbolises the efficient modern business actor, which features the fragmenting of an enterprise into smaller incorporated units to perform particular functions. Given the systemic importance of modern corporations, 'LL' and 'SCP' are said to be the desirable foundation for an enabling company law and the cornerstone of entrepreneurial liability, enhancing investment, trade and wealth creation. Nevertheless, the vexing issue of group liability has long troubled debates of the Salomon v. Salomon principle. It could be fairly said that in the group context, both 'LL' and 'SCP', have been much more exposed to the judicial discretion on piercing the veil and have raised fierce debates on the appropriateness of the 'SCP' per se in 'grouping companies' or the appropriateness, if ever, of piercing the veil. Indeed, the application of LL and SCP in the group context is undoubtedly valuable and should be impervious to close.
Nevertheless, as this work will illustrate, through a close examination to the 'group' case law, 'SCP' and the circumstances of 'veil piercing' should be imminently embraced by another framework, that be a parental liability presumption as an exception under statute. Support for that will be sought on the current state of law governing the 'veil piercing' in the group context, which has led to a vicious circle where any judicial decision to expand or limit the ‘veil piercing’, only jeopardises and downgrade Salomon's importance. On the one hand, a strict adherence to the SCP- and, thus, LL- virtually limits the 'veil piercing' but, at the same time, exposes the 'SCP' to severer violation from the commercial practice which will render Salomon, not merely an ordinary case, but the primary authority, the Trojan horse, for facilitating fraud or hazardous practices. This implication will be further referred as 'systemic abuse'. On the other hand, a loose observation to the Salomon principles in order to ensure that the group structure is not abused, clearly weakens the SCP principle's importance and renders commercial convenience merely infeasible. This implication will be further referred as 'judicial abuse'.
Keywords: Group liability, Salomon principle, Separate Legal Personality, Separate Legal Entity, lifting the veil, piercing the veil
JEL Classification: K2, K22
Suggested Citation: Suggested Citation