Question 2

a. Andy is the promoter of a private limited company named Heavenly Taste Ltd (‘the Company’). The Company was set up to operate an Italian restaurant. All registration documents had been submitted to the Companies Registry and the issue of the Certificate of Incorporation (‘the CI’) was awaited. For the restaurant to operate immediately upon the issue of the CI, Andy entered into a contract for renting a three-storey house in Tung Chung as the site of the restaurant (referred to as ‘the Contract’). The name of the Company was put in the Contract as the tenant, and Andy signed it on behalf of the Company.

After the issue of the CI, Bonanza and Catherine became shareholders of the Company. Bonanza and Catherine found that the monthly rental of the restaurant premises was almost double the market rate. They were not happy about Andy entering into the Contract at such a high rental and were not sure whether the Company must incur the liability of the Contract. Advise Bonanza and Catherine whether the Company had liability to the Contract.

b. The principle of ‘corporate veil’ means that once a company is incorporated, the courts will not look at why the company was formed, or see who is actually in control of the company or the relationships between its members. It is trite law that the courts will not casually lift the corporate veil whereby the rights or liabilities of a company are treated as the rights or liabilities of the persons behind the company (members or directors). Describe in detail three situations in which the protection of members by the corporate veil principle is abused resulting in the corporate veil being lifted by the courts.