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He sold the land and timber to a company he formed and received as consideration all the fully paid shares.The company carried the business of felling and milling timber. Macaura had earlier insured the timber against loss of by fire in his own name. He subsequently sold the plantation to a company of which he was the only shareholder, through the purchase money remained owing to him.The liquidator and the other creditors objected to this, claiming that it was unfair for the person who formed and ran the company to get paid first.

When he was killed in a flying accident, his widow sought social welfare compensation from the State, arguing that Mr. The defendant company was involved in legal proceedings but did not have enough money for legal representation.

In this case, a separate corporate entity was brought into existence outside the taxable territory with the ulterior motive of evading the tax obligation by the assessee mills.

The Supreme Court observed: "It is true that from the juristic point of view, the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members.

The result was that Mr Salomon was entitled to be repaid the debt as the first secured creditor.

In this case, Mr Salomon was the major shareholder, a director, an employee and a creditor of the company he created.

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