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Message: <blockquote data-quote="saja" data-source="post: 26809444" data-attributes="member: 14999">danna widihata<a href="https://www.casrilanka.com/casl/images/stories/EDBA/1%20company%20law%20part%201%203-11-2019%20notes.pdf" target="_blank">https://www.casrilanka.com/casl/images/stories/EDBA/1 company law part 1 3-11-2019 notes.pdf</a>Salomon vs. Salomon & Co. Ltd. (1897) AC 22:Salomon was a boot and shoe manufacturer who traded as a sole proprietor for nearly 30 years. Consequently, he incorporated a company and gave his wife and children 1 share each in the company and kept the balance shares in his own name. As security for the shares in the company, Salomon obtained debentures from the company. Subsequently, the company went bankrupt. On the company’s winding up it was found that its remaining assets were insufficient to satisfy both its debenture holders and its trade creditors. The question arose as to whether the debentures secured on assets issued to Salomon will get preference as against the other unsecured debts of the company.The unsecured trade creditors argued that Salomon and the company (i.e. Salomon & Co. Ltd.) were truly the same person since he and his wife and children owned the company; therefore, he could not owe money to himself; and accordingly, his rights as a debenture holder should not get priority and he should be paid after making payment to third party unsecured trade creditors.Court held: Salomon’s company was a separate legal entity from Salomon, although he owned almost 99% of the shares, and therefore, the debentures issued to Salomon was a secured debt which should gain priority over the unsecured debts owed to the trade creditors. Thus Salomon’s claim should prevail over that of the third party trade creditors and proceeds of the assets should be first allocated to settle the debentures of Salomon.</blockquote>

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