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    MGT 612 Assignment 1 2022

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    Nimra shaikh
    This document summarizes a study on piercing the corporate veil in Pakistan. It divides veil piercing cases into three types: (1) classic cases where outside entities seek liability from constituents, (2) voluntary piercing where members request the veil be pierced, and (3) shareholder disputes that consider the "true nature" of the firm. For each type it provides examples from Pakistan's jurisprudence and analyzes factors like the party requesting piercing, corporate nature of the firm, and courts' reluctance to impose financial liability but willingness to pierce to disqualify public office holders. Overall Pakistan's veil piercing jurisprudence generally safeguards shareholder rights while allowing for minority shareholder and creditor claims in some cases.

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    MGT 612 Assignment 1 2022

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    Nimra shaikh
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    This document summarizes a study on piercing the corporate veil in Pakistan. It divides veil piercing cases into three types: (1) classic cases where outside entities seek liability from constituents, (2) voluntary piercing where members request the veil be pierced, and (3) shareholder disputes that consider the "true nature" of the firm. For each type it provides examples from Pakistan's jurisprudence and analyzes factors like the party requesting piercing, corporate nature of the firm, and courts' reluctance to impose financial liability but willingness to pierce to disqualify public office holders. Overall Pakistan's veil piercing jurisprudence generally safeguards shareholder rights while allowing for minority shareholder and creditor claims in some cases.

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    MGT 612 ASSIGNMENT 1 2022

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    This document summarizes a study on piercing the corporate veil in Pakistan. It divides veil piercing cases into three types: (1) classic cases where outside entities seek liability from constituents, (2) voluntary piercing where members request the veil be pierced, and (3) shareholder disputes that consider the "true nature" of the firm. For each type it provides examples from Pakistan's jurisprudence and analyzes factors like the party requesting piercing, corporate nature of the firm, and courts' reluctance to impose financial liability but willingness to pierce to disqualify public office holders. Overall Pakistan's veil piercing jurisprudence generally safeguards shareholder rights while allowing for minority shareholder and creditor claims in some cases.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    57 views3 pages

    MGT 612 Assignment 1 2022

    Uploaded by

    Nimra shaikh
    This document summarizes a study on piercing the corporate veil in Pakistan. It divides veil piercing cases into three types: (1) classic cases where outside entities seek liability from constituents, (2) voluntary piercing where members request the veil be pierced, and (3) shareholder disputes that consider the "true nature" of the firm. For each type it provides examples from Pakistan's jurisprudence and analyzes factors like the party requesting piercing, corporate nature of the firm, and courts' reluctance to impose financial liability but willingness to pierce to disqualify public office holders. Overall Pakistan's veil piercing jurisprudence generally safeguards shareholder rights while allowing for minority shareholder and creditor claims in some cases.

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    © All Rights Reserved
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    MGT 612 ASSIGNMENT 1 2022

    ABSTRACT
    This study of piercing the corporate veil aims to measure the effects of incorporation in
    Pakistan in a variety of situations. The main goal is to identify scenarios in which the courts
    disregarded the separate legal identity of a firm in favour of its constituents. The distribution of
    veil piercing cases among the three categories set out by the courts is pivotal in reaching this
    goal
    I. INTRODUCTION
    Since law is essentially a discipline comprising dispute resolution, the apportionment of
    liability – in any given situation – is one of its key functions. Factors such as ‘asset partitioning’ 
    and ‘creditor protection’  represent key components of a discourse on corporate governance.
    Limited liability represents a primary function of a theory of corporate law that is based on
    property rights.  Bankruptcy proceedings reflect important policy considerations and have
    significant impacts on the pattern of entrepreneurship.

    A majority of the cases have been obtained via Pakistan Law Site by searching for the terms
    ‘piercing the corporate veil’ and ‘lifting the veil of incorporation’. However, this method was not
    sufficiently exhaustive, in terms of obtaining the relevant material on the topic. Hence, further
    cases were found through the perusal of various law digests from 1947 onwards. This process
    has revealed that a significant number of cases on the topic do not actually mention the phrases
    ‘corporate veil’ or ‘veil of incorporation’, despite fitting the description of veil piercing cases. 
    Many of these cases have been included for their mention of the company as a ‘separate juristic
    personality’. A further qualifier has been the courts’ reliance on important veil piercing
    precedents.
    Type 1 cases present classic veil piercing scenarios, where an entity outside the subject
    corporation is asking for liability to be enforced upon its constituents, on the basis of a certain
    pattern of ownership. A template for such cases can be found in Salomon v A Salomon & Co.
    Ltd.,  which involved a creditor claiming recovery from the shareholding of a single member
    company. With regards to Type 1 cases, it is important to note that all of the claims that form the
    basis of these cases were brought forth by unsecured creditors. As is mentioned before, a large
    portion of such disputes are settled without the involvement of the courts, as it is common
    practice for creditors to secure themselves by taking a personal guarantee from a director.
    Type 2 cases are instances of voluntary piercing, where members of the firm are requesting
    the veil to be pierced. These cases mostly revolve around corporations owned by the (federal)
    government, who claim exemptions from provincial taxation based on their ownership. Other
    cases that fall under this category include a successor firm, claiming a certain right, based on its
    predecessor’s entitlement. A part of law that is peculiar to Type 2 cases is Article 165 and 165A
    of the Constitution,  which provides for the federal government to have exclusive jurisdiction
    over the taxation of corporations owned by it.
    Type 3 cases are essentially shareholder disputes that deliberate on the ‘true nature’ of the
    firm, and often pit minority shareholders against the majority shareholders with the latter accused
    of misappropriating company funds. While such scenarios may not necessarily follow the pattern
    of a classic veil piercing case, it seems appropriate to include such cases in the definition, given
    the increasingly blurred line between creditors and minority shareholders.  Type 3 cases are
    mostly winding up petitions claiming that the incorporated entity is in fact a partnership given its
    concentrated ownership (often among members of one’s extended family). 
    Each case has been separately analyzed according to the cause of action alleged, the year in
    which the case was reported, the year in which proceedings were initiated, the court or tribunal
    which dealt with the matter, the party asking for the veil to be pierced, corporate nature of the
    subject firm, and the conduct of the parties prior to and during proceedings.
    TYPE 1 CASES: CLASSIC VEIL PIERCING CASES
    The first (Type 1) veil piercing case in Pakistan was that of President of Pakistan v Mr.
    Justice Shaukat Ali,  argued before the Supreme Judicial Council. Shaukat Ali was disqualified
    in this case by the Council, on the basis of holding an office of profit via his shareholding of a
    company. Several years later, a rather interesting case was reported, in which the court was asked
    to establish criminal liability upon the managing director of a company which had manufactured
    sub-standard drugs.
    TYPE 2 CASES: VOLUNTARY PIERCING
    Voluntary piercing refers to corporate veil piercing that is actually endorsed by the party
    controlling the firm. While this initiative is sometimes taken by the shareholders, in most cases it
    is the management of the firm that invites the courts to ascertain the ‘true’ owners in a given
    scenario. There is limited scholarship on this category of veil piercing; however, it has been
    discussed with reference to several jurisdictions.
    To conclude succinctly, Pakistan’s veil piercing jurisprudence is generally moving towards
    safeguarding the rights of the majority shareholders, albeit keeping the door open to ruling in
    favour of the minority shareholders and creditors in certain cases. The reluctance has been
    profound with regards to imposing financial liability, with the courts keener on piercing the veil
    to disqualify holders of public office. Apart from this, it is apparent that veil piercing in Pakistan
    is unique, with cases such as Abasyn University,  Justice Shaukat Ali  and Karnal Distillery 
    truly testing the definition of this concept. In terms of instances of veil piercing, courts have been
    highly reluctant to disregard the effects of incorporation and have largely followed English and
    Indian precedent  to reflect a policy of a legal personality that is not different from that of major
    common law jurisdictions.

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