Dozy and Sleepy

1. Introduction

Dozey, who is a sole trader, has a well operated business named 'Sleepy Head'. Later he decided to incorporate a company - 'Sleepy Head Pty Ltd'. Then he made a decision to sell his original business and the asking price of a large block of shares and debts.

Unfortunately there were some accidents happening followed by: stock valuing $250,000 was stolen by the burglers, and Dozey’s back got injured during working, and unfortunately, the business was insolvent in Global Financial Crisis.

Being a sole trader, Dozey has insured the bus1iness with Risk Ltd against fire, thef1t and the like for a total sum of $1,000,000. After incorporation1, Dozey took out workers1 compensation insurance policy1 with Compo Ltd. The liquidator1, Compo Ltd and Risk Ltd1 has rejected all claims1 against Sleepy Head Pty Ltd.

2. Legal issues

Is a company a separate legal entity from its shareholders or directors?

Is there a distinction between private and company assets?

Can a company contract with its members?

Can a company be liable in tort to a member?

3. Relevant cases

Salomon v Salomon & Co. Ltd (1897)

Macaura v Northern Assurance Co. Ltd (1925)

Lee v Lee's Air Farming Ltd (1961)

Nicol v Allyacht Spars Pty Ltd (1987)

Andar Transport Pty. Ltd v Brambles Ltd (2004)

4. Applications

Dozey’s case is that: all the claims he made, relating to a charge over his debentures, insurance, as well as workers compensation, were rejected by Sleepy Head Pty Ltd.

(A) Enforce his charge against Sleepy Head Pty Ltd

Dozey’ case is very similar with Salomon’s case, which describes Corporate separate personality. Salomon’s business was operated as a sole trader at the beginning. In order to incorporate, this business was sold to Salomon & Co. Ltd. The members1 were Mr Salomon, his wife1, and their five children of who owns one £1 share each. The business was sold for £39,000. In addition, Mr. Salomon purchased for 20,000 further...