Categories: Law

Under what circumstances should the court lift the corporate veil?

Question

Under what circumstances should the court lift the corporate veil or should not lift the corporate veil?

Answer

The courts take the stance that they are bound by the principle laid down within Salomon whereby a company is considered an entity separate to its members. Lord Sumption stated that there was a range of circumstances in which the law recognised property or acts of a company, to those who controlled it without ignoring its distinct legal entity.

One of the most common reasons for lifting the veil is in the case of fraud. This is made clear in the case of Jones were the vendor of land sought to evade a decree of permanence of a contract for the sale of land by transferring land to a company he had set up for that purpose and in order to avoid fulfilling that obligation.

In addition, when the company and a subsidiary company are treated as if they were one entity if they partake and conduct the same business. This is however an inconsistent principle, but the application of such a circumstance is highlighted in the case of Firestone Tyre & Rubber Co Ltd .

As noted in the case of Prest , the veil should not be lifted in the first instance, it should only be used as a last resort. The lifting of the veil only applied where the company in question is being used to cover the real acts and identities of those undertaking illegal actions. Whilst of course principles can be extended, the case of Antonio Gramsci Shipping has established that this is an unlikely outcome.