Salomon Case

Salomon v A Salomon & Co LTD Mr.Salomon was a wealthy man and he was a boot and shoe manufacturer trading on his own sole account. In 1982, he decided to convert the business into a limited company. Fot this purpose, “Aron Salomon and Company Limited” was formed with liability limited by shares. The memorandum of the company was subscribed by Aron Salomon, his wife and five of his children. The intention of having his own family members in the memorandum is to retain the business in their own hands. The company purchased the business for £39,000 and the price was satisfied by a sum amounting to £20,000 was paid to Aron Salomon who then immediately returned it to the company in exchange for fully paid shares; a sum amounting to £10,000 was paid in debentures for the like amount and the balance sum with the exception of about £1,000 which Aron Salomon seemed have received and retained went in discharge of the debts and liabilities of the business at the time of purchase.Apart from the fully paid shares, Aron Salomon received for his business about £1,000 in cash and £10,000 in debentures. Both Salomon and his wife lent their money to the company to reissue the debentures to Broderip who had advanced the company some money when the business did not turn out well. Broderip’s interest was not paid when it become due. Therefore, Broderip filed a proceeding against the company which resulted in the appointment of a receiver which a year after its incorporation, the company went into liquidation. Because of the liquidation and debt that burden Salomon, they have to sell the company’s asset to pay all the debt. The amount realised from the selling of the asset was only enough to pay Broderip but unfortunately it is not enough to pay the debentures in full and the unsecured creditor of the company. Therefore, the liquidator brought an action against Salomon for the validity of the debentures issued to Salomon on the grounds of fraud. Furthermore, the liquidator also