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Shareholders who have to incur high agency costs will most probably respond by
selling off their shares. 42 The price at which shareholders can sell will reflect the
value of the firm and there is a possibility for other investors to obtain shares in an
inefficient company at a discount. 43 The accessibility of one market price in the share
market facilitates free share transfer and management is compelled to act efficiently
or face the possibility of being replaced. 44 It permits large block transfer and if the
shareholder is dissatisfied with the management‟s performance, he could vote for
replacement. 45 This also reduces the prospect of shirking on the part of directors and
managers. 46
5.2.3 Lifting of Corporate Veil in Relation to Creditors’ Protection
Economists have argued that limited liability and separate legal entity boost
efficiency in company management, but courts do concede that the principles
sometimes have adverse consequences on creditors, especially on small creditors. 47
To balance the interests of both shareholders and creditors, courts are prepared to
ignore the principles in certain circumstances. In doing so, the courts have
inadvertently made new law, a function reserved for the parliament. 48 Cases on the
lifting of the corporate veil highlight the courts‟ willingness to abrogate the principle
in order to prevent injustice to parties involved. Although writers regard courts as
42 Halpern, Trebilcock and Turnbull above n 39 at 139-142; Easterbrook and Fischel “Limited
Liability” above n39 at 103-109; Ramsay above n29 at 535-53; Edwin M Dodd: "For Whom are
Corporate Managers Trustees?” above n 40 at 1153.
43 Ibid.
44 Ibid.
45 Ibid.
46 Ibid.
47 Ramsay above n29 at 523.
48 Parker above n17 at 144-149.
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