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3.5 Piercing of the Corporate Veil and Remedies
The concept of legal personality is seen as a fiction, a metaphorical use of language by
analogy with a natural person and the application of the principle has, on occasion, led to
some extreme results. 52 Nevertheless, courts have been adamant in upholding the
principle and even extended it to groups of companies. The application of the principle to
groups of companies is seen as limited liability within limited liability, an idea which was
never intended by the legislature and has led to abuse. 53 There are concerns that the strict
application of the principle and the clash between commercial realities may lead to
injustice and may not reflect common sense. 54 However, the departure from commercial
practice may be still being justified provided it can sensibly be applied to real commercial
life. 55
In the area of directors‟ duties, the courts have found it necessary to go beyond the fiction
and this has led them to consider the interests of the shareholders as a general body. 56
Nevertheless, there has been recognition that when the company is insolvent or near
insolvent, directors have a duty to consider their interest. The courts‟ reluctance to depart
from the separate legal personality principle has given rise to statutory provisions in
favour of the legitimate interests of creditors. Consequently, provisions relating to
wrongful/insolvent/reckless trading have been enacted. In addition, New Zealand and
statute confer discretionary powers on the Court to make contribution and pooling orders
in case of related companies.
52 Farrar above n3 at 74.
53 Ibid, at 75.
54 Robert Baxt “The Need to Review Rule in Salomon‟s case as it Applies to Groups of Companies” (1991)
9 C&SLJ 185.
55 R.P Austin “Problems for Directors Within Corporate Groups” in Michael Gillooly (Ed.), Law Relating
to Corporate Groups (The Federated Press, NSW, 1993) at 133.
56 Farrar “Frankenstein” above n4 at 150.
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