Question2 Plasto Pty Ltd was a small manufacturer of plasterboard. Its sharehold

Question

Question2 Plasto Pty Ltd was a small manufacturer of plasterboard. Its shareholders and directors were John and Peter. Many of Plasto Pty Ltd's customers complained about the quality of the plasterboard that Plasto BFA213 Corporate Regulation and Accountability manufactured. The plaster had been falling off the walls and in many cases had to be replaced. Some of Plasto's customers threatened to take legal action against Plasto Pty Ltd, alleging their plasterboard was unmerchantable. John and Peter were fearful that Plasto Pty Ltd would lose the threatened legal actions and that it did not have enough money to pay the damages claims. They therefore decided to form a new company, Plasto Australia Pty Ltd, transfer all of the assets of Plasto Pty Ltd to the new company and continue to trade under the new company. Plasto Pty Ltd was not in liquidation but was left an empty shell with no money, business or other assets. Advise the customers whether they can make John, Peter and Plasto Australia Pty Ltd liable for the damages caused by Plasto Pty Lto.

Explanation / Answer

As per the separate legal entity concept, the business and the owner's are separate and none can be held liable for the actions of other , it might be the firm or the management.

It is dine so in order to protect and safeguard the interests of both.

But , in some cases where this law is used with an aim to deceive the customers and others, the exception to this law comes into the situation commonly known as lifting the corporate viel, which means both the company and management are treated as one and the management nor the firm can escape from the liability held by them towards the customers.

In the given case though John and Peter have started a new company without winding up the existing one with a view to escape from their liability, which is very evident , and basing upon the lifting of corporate viel, the customers can make John,Peter and Plasto Australia Pty Ltd liable for the damages caused by Plasto Pty Ltd.

  

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.