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inconsistent when lifting the veil, some see that the underlying principle in doing so
is in the interests of justice, particularly when it involves fraud. 49
However, Berle and Means theory of dispersion of ownership and control resulted in
the weaker control exercised by shareholders on the management. 50 Without any
effective control by the shareholders, coupled with the courts‟ reluctance to lift the
corporate veil to hold them liable, directors have to certain extent a free rein to run
the company as they see fit. 51 This situation may lead to the abuse of their position at
the expense of creditors, especially when the company‟s financial position is
unhealthy. 52 Creditors whose interests have been affected have no direct action
against the company or the errant directors. Such action lies with the liquidator only
if the company is wound up, and even then the liquidator‟s duty is to act in the best
interests of the company rather than that of the creditors.
5.2.3.1 Court’s Approach to Lifting of Corporate Veil in Relation
to Directors’ Duties
In discharging the directors‟ duty as part of the company‟s management, the focus
has always been on the shareholders as residual claimants of the company. Directors
have a duty at common law to act in the best interests of the company. Courts have
interpreted „company‟ to mean the interests of shareholders, and directors who fail to
take these interests into consideration breach their duty. 53 The courts‟ decisions are
consistent with the shareholders‟ supremacy theory and directors must act in the best
49 Ibid.
50 Adolf A Berle and Gardiner C Means, The Modern Corporation and Private Property (The
Macmillan Company, New York, 1932); Adolf A Berle and Gardiner C. Means, The Modern
Corporation and Private Property (Revised ed, Harcourt, Brace & World, New York, 1968).
51 Ramsay above n29 at 523-525; Farrar „Frankenstein above 11 at 159.
52 Ramsay above n29 at 522
53 Re Smith and Fawcett Ltd [1942] 1 All ER 542; Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286.
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