Woody formed a private limited company in 1992 to carry on his toy manufacturing business. He held all but one share, which was purchased by his father-in-law Buzz. The company was profitable until 2012. In 2012, Buzz died and left his share to Woody. Later that year, the company began suffering losses and borrowed money from creditors. By 2013, the company could not pay its debts. The creditors argue the company was essentially a "one-man company" controlled by Woody, so he should be personally liable for the debts. Under company law, Woody would normally not be liable as the company is a separate legal entity. However, the court may pierce the corporate veil and hold Woody responsible

1. Company Law
Legal Personality
Question 4
Nu r u l At i l i a BT Md De r i s ( L E B 1 2 0 0 7 9 )
Nu r Fa r h a n a BT Ab d u l Ka r im( L E B 1 2 0 0 7 5 )

2. Question 4
Woody was a sole proprietor, carrying on the business of manufacturing
and selling toys in Ipoh. In 1992, he formed a Sendirian Berhad Company by
selling off his entire business to it. And obtained a certificate of incorporation
from the Registrar of Companies. He took all the 10 000 shares except one
share which was purchased by his father in law, Buzz. The company did a
profitable business up to 2012. On 2nd January 2012 his father-in-law died
leaving his lone share to Woody under his will. Thus, on this date, under the
law, Woody held all the shares. The company nevertheless cotinued to carry
on the business, but suffered a loss of RM 16 000 until 1st July 2012, the
capital and assets of the company being just sufficient to off-set this loss.
Thereafter the company borrowed the sum of RM 10,000 from the creditors.
It, however, suffered further losses. On 4th January 2012, the creditors found
that the company was unable to pay off his debts, the assets being insufficient
to offset this loss. The creditors allege that the company has always been a
'one-man-company' and therefore, Woody should personally bear all the
losses.
How do you decide? Discuss the questions of the liability of the “Company'
and of Woody since the time the Company was formed until the last period.

3. Time Frame
Woody was a sole proprietor
1992 Sdn Bhd company was established. Certificate of Incorporation was
obtained. One share was purchased by Buzz.
2012 The company did a profitable business.
2nd Jan 2012 Buzz died leaving his share to Woody by will. Woody continued the
business and suffered a loss of RM 16,000.
4th Jan 2012 The creditors found that the company was unable to pay off its debts,
the assets being just insufficient tp offset the loss.
1st July 2012 The capital and assets of the company being just sifficient to off-set this
loss. The company borrowed RM 10,000 from the creditors -further
losses.
The creditors allege that the company has always been 'one-man company' and the father
was a nominal shareholder. Woody should bear all the losses.

4. Issues
 Whether Woody would be liable for the
company debts?

5. 1. Sdn Bhd Company
 S 4(1) - 'company' means company incorporated pursuant to this Act
'Limited company'- company limited by shares or gurantee or both.
 'Company limited by shares'- company deemed on the principle of
having the liability of its members limited by the memorandum to
the amount, if any, unpaid on the shares respectively held by them.
 S 22(4)- A private company shall have the word 'Sendirian' inserted
before the word 'Berhad'

6. Application
 In the present case, the company fall under the category
of private company due to the word 'Sendirian Berhad'.
 It can also be inferred that the company formed is a
private limited company by shares due to the fact that
Woody owned 10,000 shares except one share purchased
by Buzz.

7. Registration and incorporation
 S16(1)- registrar shall register the company through registering the memorandum
and articles if any, after certain fees and documents be complied with.
 S16(4)- Having compliance with the Act, certificate of incorporation will be issued.
 S 16(5)- Effects of incorporation
1. It becomes a body corporate- the law recognizes the company as a
legal person; it can sue and be sued.
2. Having perpetual succession- the company cannot 'die' but
continues to exist until its name is deleted from the registry.
3. The company has a common seal
4. Power to own a property on its own name
5. liability: the company is primarily liable for its debts and this is kept
separate from the debts of its members.

8. Separate Personality
Salomon v Salomon
Facts:
Mr Soloman was a sole proprietor manufacturing boots. He then incorporated a company
and sold his business to the company in consideration for 20 000 shares and debentures of
10 000 issued in favour of Mr Soleman.He hold 20,001 of the 20,007 shares issued. Another
6 held by his wife and 5 children as nominee. His company then experienced difficulty and
was wound up. An action was brought against him for a court to postpone his priority under
debentures to rank after the company’s unsecured creditors is also to indemnity the
company for all the debts due to its unsecured creditors.
Lord Macnagthen:
The company is at law a different person from the subscribers to the memorandum....the
company is not in law the trustee for them. Nor are the subscribers as members liable, in any
shape or form, except to the extent and in the manner provide by the Act.
- A member of company not personally liable for the debts or obligation unless the veil of
incorporation was lifted.

9. Abdul Aziz bin Atan& Ors v Ladang Rengo Malay Estates Sdn Bhd
Facts:
Ladang Rengo Malay Estate deals with the palm oil industry. Abdul Aziz b Atan was one of the employees of the
company at that time. After a few years, there had been a change of structure in the means of shareholders in
the company. All the shareholders transferred shares to other people and thus this create a confusion among the
employees. Abdul Aziz b Atan considered the employers had been changed and hence, there were changed in
Employment Agreement ; where he thought their (the employees) agreement has ended (the end of
employment). They claimed they have the pension benefit.
Held:
An incorporated company is a legal person separate and distinct from its shareholders. The company, from the
date of incorporation, has perpetual succession and did not change its identity or personality even though the
entire share holding of the company changed hands.

10. Perpetual succession: the members of a company may come and
go but a company never dies. It is an entity with perpetual
succession. The members and other peoples including the
directors in the company may change from time to time but that
does not affect the company’s continuity.

11. Lee v Lee's Air Farming Ltd
Facts:
Lee formed the company, Lee’s Air Farming Ltd. He owned all the shares except one. He
was the company’s sole governing director. He was also employed by the company as its
chief and only pilot. Lee was killed while flying for the company. His wife made a claim for
workmen’s compensation under the New Zealand workmen’s compensation legislation.
Held:
The New Zealand Court of Appeal refused to hold that Lee was a worker, holding that a
man could not in effect, employ himself. However, the Privy Council allowed Mrs Lee’s
claim. Lee may have been the controller of the company in fact but in law, they were
distinct persons. He could therefore enter into a contract with the company, and could be
considered to be an employee. The widow was therefore entitled to an award in respect
of workmen’s compensation.
Principle shareholder can be a worker of company and that did not stop him making a
contract of employment on behalf the company and himself.

12. Macaura's case
Facts:
The owner of a timber estate sold all the timber to a company which
was owned almost solely by him. He was the company's largest
creditor. He insured the timber against fire, but in his own name. After
the timber was destroyed by fire the insurance company refused the
claim.
Held
A shareholder has no insurable interest in an insurance contract even
if the members owns all or substantially all, of the company shares.
This principle applied in Malaysia.

13. Application
 Applying the principles from the case of Salomon and Abdul
Aziz Woody and Buzz are separate legal entity from the
company, thus will not be liable in the event of the company
wound up.
 It is also clear from the principle extracted in Lee's Air Farming
Ltd that Woody can be the worker of the company as well as
holding the primary shares in the company, thus enable him to
enter any contract on behalf of the company.
 However, Woody has no insurable interest on the company's
assets even though he primarily owned most of the company
shares.

14. 14
Lifting the veil of incorporation
 Incorporation of a company casts a veil over the
true controllers of the company, a veil through
which the law will not usually penetrate.
 a company is a legal person distinct from its
members = veil of incorporation
 However, in certain circumstances a court will
ignore the separate legal personality of a company
and look to the members or the controllers of the
company  known as ‘lifting the veil’

15. 15
Lifting the veil of incorporation
 1. Done in exceptional circumstances
 2. Common law
 -fraud
 -agency
 -group enterprise
 -control by enemy of state
 3. Statutory exceptions

16. Lifting the veil of incorporation
 Statutory exception
 S.36 – prohibition of carrying on business with fewer
than statutory minimum of members.
 If any time, the number of members of a company is reduced
below 2 and carries on business for more than 6 months while
the no was so reduced, a person who is member of company
during the time that it so carries on business after those six
months and is cognizant of the fact that he is carrying on
business fewer than two members shall be liable of all debts of
the company contracted during the time that is so carries on
business after those six months and may be sued therefore,
and the company..

17. 17
S 303(3)
 If in the course of the winding up of a company or
in any proceedings against a company it appears
that an officer of a company who was knowingly a
party to the contracting of a debt, had, at the time
the debt was contracted, no reasonable or probable
ground of expectation, after taking into
consideration the other liabilities, if any, of the
company at the time, of the company being able to
pay the debt, the officer shall be guilty of an offence
against this Act.
 Shall be read together with S304(2)