Corporation laws

Questions: Indri runs a soil-testing business. He decides to form a company to take over the business. He is the sole shareholder and sole director. Indri sells his business to the company at an inflated price and lends the company $90,000 to help meet the cost of purchase. As security for the loan, Indri arranges a mortgage over a vacant block of land, which he transferred to the company as part of the business sale. In the first year of operation, the business makes a small profit (after paying both Indri and his 20 daughter's wages), but by the end of 2012 it is clear that the building industry is going through a major slump. Indri becomes desperate and works even harder. While working late into the night, Indri badly lacerates his hand and needs micro-surgery. His efforts to keep the business afloat are in vain and the company is forced into liquidation. On realisation of the assets, it is found that the company has approximately $95,000 to go towards meeting creditors' claims of $210,000: (a) If Indri is the only secured creditor, will he get back his $90,000? (b) Can Indri claim workers' compensation, assuming that he is otherwise entitled to it? Answers: The problems associated in the given case study are if Indri is believed to get an amount of $90000 back that was supposed to be his. It was found that the sum of money was initially lent to the company and whether the compensation for the workers can be claimed by Indri for the laceration or not. The company that is being dealt with is a single owner company of which Indri is the director and the shareholder of the company. The company is normally considered to be a significant entity that is different from the shareholders. The company was established in the case of Saloman v Saloman (Saloman v Saloman, [1896]) which a company is a separate body that is totally different from the shareholders and there is a curtain between the shareholders and the company which gives a kind of immunity to the company. Yet, it is also a fact that there are a few exceptions to the distinct identity status of the company. The cases when this covering is removed, it has been outlined judiciously by the courts over a long period of time. The covering is removed at the time when the company takes the shape of a sham company or when the people in control of the company act in a fraudulant manner or when the company is used to avoid certain legal bindings (Ferber, 2002). A specific case with respect to that of Macaura v Northern Assurance co. Ltd (Macaura v Northern Assurance Co Ltd, [1925]). In the given case M was the owner of a farm and and the standing timber over the farm. He created a company of which he was the shareholder and the director as well. The timber was insured in case of aoutbreak of fire under the name of M. in case of desturuction due to the outbreak of fire, M under his own name is able to claim for the compensation from the insurer. But in the specified case he was denied of the compensation because the required insurable interest wqas absent in the matter. It was taken into consideration that M was a shareholder of the company and that a shareholder does not have the legal name to draw the benefits (Harris, Hargovan and Adams, 2009). In case of Chen v Butterfield (Chen v Butterfield, [1996]), a single person company was not extended the protection of isolated legal body due to the fact that the court found that the main purpose of the company was to avoid personal accountability and therefore it was nothing more than a sham. In case of Permanenet Mortgages Pty Ltd v Sibylle Ulrike Macfayden (Permanent Mortgages Pty Limited v Sibylle Ulrike MacFadyen, [2012]) of Australia, the Supreme Court of new south wales found that where the company was formed with the inflated credit picture, such a company can be inferred as sham company and is not liable to be given validity under any circumstances. In case of Pilmer v Duke Group Ltd ) (Pilmer v Duke Group Ltd (In Liq), [2001]), it was considered by the high court of australia that after liquidation a company is wound up at the time of insolvency, the first person to get get the dues out of the assets are the employees, followed by the secured creditors, unsecured creditors, and at last the others. In case of any alterations, no payments is supposed to be made. In the mentioned situation Indri committed the mistake of inflating the assets of his business and forming the company. Despite of being aware of the fact that there were losses, he carried on with the bank loans and therefore it can be said that the veil of the corporate entity will be removed in the given case to have a glimpse of the real colors (Harvey, 2009). Therefore no protection can be extended to Indri and he does not have the liability to get the $90000 back. Simultaneously his injury cannot be compensated due to the fact that there is no employee protection that is extended to him. References Bank of NSW v Permanent Trustee Company of NSW Ltd[1943]HCA p.27. Barker, D. (2005).Essential Australian law. Sydney, N.S.W.: Cavendish. Chen v Butterfield[1996]NZCLC 7, p.261. Commercial Banking Company of Sydney Ltd v Love[1975]HCA p.48. Ferber, K. (2002).Corporation law. Upper Saddle River, N.J.: Prentice Hall. Fletcher, K. and Fletcher, K. (2007).The law of partnership in Australia.Pyrmont, NSW: Lawbook Co.