The Courts Should Take A Stricter Approach When Asked To Lift The Corporate Veil

Question

the courts should take a stricter when asked to lift the corporate veil. explain and support with reasons.

Answer

It could be argued the judicial approach to lifting the corporate veil could not be much stricter. The corporate veil, or the doctrine “distinguishing a company as a legal person separate from its shareholders,” is rarely lifted in the UK. Developed in Salomon v Salomon, traditionally courts have been unwilling to hold shareholders personally liable for a company’s failings and only lift the corporate veil if the company is a façade or sham. Controversially, judges in the chancery division have even placed the maintenance of the corporate veil over justice. The rarity of judges lifting the veil led to the belief “existed more as a matter of legal theory than it did a feature of legal practice.”

However, it cannot be disputed in some cases the veil has been lifted. For instance, in Gencor ACP Ltd v Dalby, Mr Dalby’s dishonest divesting of assets in the British Virgin Islands was seen to lift the veil. Yet, in many other cases the veil remained, purely because of the “protean” conditions (sham/fraud/façade) required to lift it. It is in these areas where judicial certainty, as opposed to judicial strictness, would be advantageous.

This certainty has been delivered in the judgement of Lord Sumpton in Prest v Petrodel Resources Ltd. Lord Sumpton reviewed corporate veil jurisprudence, arguing that in most cases the corporate veil was not lifted. He restricted the doctrine and clarified the two principles– concealment and evasion- that were necessary to lifting the veil. This clarification coupled with judicial flexibility in ancillary relief, to ensure justice reigns, is the appropriate level of intervention.

References

Table of Cases

Gencor ACP Ltd v Dalby [2000] 2 BCLC 734

Lazarus Estates Ltd v Beasley [1956] 1 QB 702

Prest v Petrodel Resources Ltd [2013] UKSC 34

Salomon v A Salomon and Co Ltd [1897] AC 22

Bibliography

Wibberley J. and Di Gioia M. [2014], ‘lifting, piercing and sidestepping the corporate veil,’ Guildhall Chambers Available at: http://www.guildhallchambers.co.uk/uploadedFiles/PiercingtheCorporate%20Veil.JW,MDG.pdf. Accessed 24 Oct. 16

The Business Dictionary, ‘Corporate Veil,’ (N.d) Available at: http://www.businessdictionary.com/definition/corporate-veil.html. Accessed 24 Oct. 16

Richards D., [2013] ‘Piercing the corporate veil: Supreme Court clarifies the English law position,’ Ince & Co, Available at: http://www.incelaw.com/en/knowledge-bank/publications/piercing-the-corporate-veil-supreme-court-clarifies-the-english-law-position. Accessed 24 Oct. 16