The legal issues are associated with the corporate veil in corporate groups and when it is possible to pierce that veil, to determine why the company was formed, or to see who is in charge or actually controlling the company. Due to an absence of statutory law on this matter, it is uncertain as to when the courts would be prepared to lift the veil from the strict separate entity doctrine established in Salomon since there is no “all embracing principle”.
In this case, APA can take various avenues in establishing a case for piercing the corporate veil. The first of which looks at, is there an agency relationship between Flywell and Jetover over, effectively classifying the two airlines as one single entity?
The second issue involves; was Jetover set up as a sham or façade, to mask attempts by Flywell to avoid its contractual obligations to its employees, in order to reduce employment costs, as it endeavoured to ride out the turbulent economic conditions?
Establishing separate legal entities:
The fundamental case, in establishing a company as a separate legal entity, is based on the precedent principle established in the Salomon case. This case established that upon the incorporation of a company, it becomes a separate legal entity from its founders, directors, members and controllers. In the instance of an incorporated group case, each company is a separate legal entity itself and outsiders can only enforce their rights against each entity and not the whole group. This principle was enforced in Walker v Wimborne, whereby the court refused to recognise the group as one single entity.
Piercing the veil:
Previously, in issues relating to corporate groups, there has been judicial reluctance to pierce the corporate veil as seen in Industrial Equity Ltd v Blackburn where Mason J states, “it can scarcely be contended that the provisions of the Act operate to deny the separate legal personality of each...