The doctrine of separate legal personality and limited liability are entrenched company law concepts. However, there were times these concepts were abused. Explain the common law situation where the court is willing to disregard these concepts. Support your answer with decided case law. (20 marks)
Bill is a fashion designer who has just returned to Malaysia from Milan, Italy. He decided to set up a fashion house targets at the upper income female office executives. However, since he had left Malaysia for more than 20 years, now he is unfamiliar with the local situation. Bill decided to work together with his childhood friend Tongli. Bill told Tongli about his business plan and Tongli was interested in the plan. Tongli said to Bill, â€œDonâ€™t worry, Bill. I will take care of purchasing everything necessary for the new company. You can concentrate on the companyâ€™s registration and recruiting investors.â€ Bill agreed to the separation of workload. On 1st December, 2019, Tongli purchased a unit of 4-storey corner shop lot in a strategic location at a value of RM2 million. Tongli further purchased a sewing machine with multiple functions at RM80,000. Bill is very pleased with the shop lot and the sewing machine. By this time, Bill has successfully recruited 30 potential shareholders. Bill named the new company â€˜Princess Fashion House Sdn Bhd (PFH)â€.
PFH was incorporated on 1st March, 2020. Soon after the incorporation, Bill left for Milan to purchase some latest fashion for the company. On 10th April, 2020, ten (10) shareholders visited PFH. Tongli was at the company and he attended to the shareholders. One of the shareholders, Mr Bernard asked Tongli about the prices of the shop lot and the sewing machine. Tongli informed Mr Bernard that the property costs RM2.5 million, and the sewing machine was at RM90,000. Mr Bernard informed all the shareholders. Several shareholders thought these properties were too expensive. Mr Bernard informed the board of directors and requested the board to investigate the matter. Soon the board of directors found out the real value of the shop lot and the sewing machine, they were very unhappy. They want PFH to bring an action against Bill and Tongli. Advise PFH. (30 marks)