Salomon vs Salomon and Company Ltd

Mr.Salomon was a leather merchant carrying on a sole proprietorship business of shoe manufacturing. He sold this business to a company called as Salomon and company Ltd for purchase consideration of 40000 pounds. The Company consisted of Mr.Salomon, his wife, his daughter and his four sons. The company paid this purchase consideration of 40000 pounds by allotting him 20000 fully paid shares of 1 pound each, 10000 pounds of secured debenture(having a floating charge over the assets of the company) and 10000 pounds in cash. Remaining members held one share each just to fulfill the legal requirement. Mr.Salomon is the majority shareholder of the company and also the managing director of the company. After one year, the company became insolvent and the winding up process started. The balance sheet of the company stood as follows:
Secured Debentures - 10000 pounds
Unsecured Creditors - 7000 pounds
Assets - 600

Thus the assets were short to pay liabilities by 11000 pounds. The unsecured creditors said that their claims  of 7000 pounds must be satisfied first because there is no difference between Mr.Salomon and Salomon and company Ltd, and they further said that how a person can owe to oneself.

Decision of the Court
However, the court said that Salomon and company Ltd was totally different from Mr.Salomon because company is a separate legal existence of its own. So Mr.Salomon must be paid first out of the company assets because he is secured debenture holder of the company.