Part D The formation and constitution of business organisations 12: Corporations and legal personality 189
Re F G Films Ltd 1953
The facts: An English company was formed by an American company to 'make' a film which would obtain
certain marketing and other advantages from being called a British film. Staff and finance were American
and there were neither premises nor employees in England. The film was produced in India.
Decision: The British company was the American company's agent and so the film did not qualify as
British. Effectively, the corporate entity of the British company was swept away and it was exposed as a
'sham' company.
6.2.2 Evasion of liabilities
The veil of may also be lifted where directors ignore the separate legal personality of two companies and
transfer assets from one to the other in disregard of their duties in order to avoid an existing liability.
Re H and Others 1996
The facts: The court was asked to rule that various companies within a group, together with the minority
shareholders, should be treated as one entity in order to restrain assets prior to trial.
Decision: The order was granted. The court thought there was evidence that the companies had been used
for the fraudulent evasion of excise duty.
6.2.3 Evasion of taxation
Courts may lift the veil of incorporation where it is being used to conceal the nationality of the company.
Unit Construction Co Ltd v Bullock 1960
The facts: Three companies, wholly owned by a UK company, were registered in Kenya. Although the
companies' constitutions required board meetings to be held in Kenya, all three were in fact managed
entirely by the holding company.
Decision: The companies were resident in the UK and liable to UK tax. The Kenyan connection was a sham,
the question being not where they ought to have been managed, but where they were actually managed.
6.2.4 Quasi-partnership
An application to wind up a company on the 'just and equitable' ground under the Insolvency Act 1986
may involve the court lifting the veil to reveal the company as a quasi-partnership. This may happen
where the company only has a few members, all of whom are actively involved in its affairs. Typically the
individuals have operated contentedly as a company for years but then fall out, and one or more of them
seeks to remove the others.
The courts are willing in such cases to treat the central relationship between the directors as being that of
partners, and rule that it would be unfair therefore to allow the company to continue with only some of its
original members. This is illustrated by the case of Ebrahimi v Westbourne Galleries Ltd 1973.
6.3 Lifting the veil in group situations
The principle of the veil of incorporation extends to the holding (parent) company/subsidiary relationship.
Although holding companies and subsidiaries are part of a group under company law, they retain their
separate legal personalities. There is also some precedent for treating separate companies as a group
(DHN Food Distributors v Tower Hamlets LBC 1976) although doubt has since been cast on this by
subsequent cases.