Piercing the corporate veil – not as easy as you might think!

Piercing the ‘corporate veil’ is a term used in company law to  describe investigations into the shareholders behind the legal entity of a limited company.

In the matter of Prest v Petrodel Resources Limited and Others [2013] UKSC 34, the wife claimed that certain properties which were owned by companies controlled by her ex-husband, should be signed over to her.

Lord Sumpton in the Supreme Court agreed that in some circumstances the corporate veil could be pierced but only when a person is already under an existing legal obligation or liability and he deliberately puts assets into limited companies to protect them.

In this matter it was not the case that the husband sought to evade a legal obligation owed to his wife, therefore the corporate veil could not be pierced.

A more recent case, Group Seven Limited v Allied Investment Corpn Limited [2014] 1 WLR 735 involved a freezing order.  A claimant obtained a freezing order against 3 of the 4 shareholders of a company that subsequently arranged a loan agreement to the tune of 100m euros.  The claimant argued that the agreement was in breach of the freezing order and that the corporate veil should be pierced to declare the agreement void.

Again the judge in this case decided that a company is its own legal entity even if  it is controlled by one person, therefore the application was not granted.

It seems that each case will be decided upon its own merits, but it is clear that applications to pierce the corporate veil will not by any means be granted lightly.  Applications therefore  could be time consuming and costly and may not have the desired result.

It is important for anybody facing financial difficulties, whether personally, directors of limited companies or partnerships, to seek advice from a licensed insolvency practitioner as soon as possible.

To take advantage of our free consultation, please telephone Stella Flemmings on 01377 257788, 01724 230060 or 01904 520116 and she will make you an appointment with one of our insolvency professionals at our Driffield, Scunthorpe or York offices.

Redman Nichols Butler has had a York office for nearly six years now.  John Butler is a licenced insolvency practitioner and advises SME businesses in York and North Yorkshire.  The Redman Nichols Butler York office addess is Westminster Business Centre, Nether Poppleton, York, YO26 6RB.  John Butler can be reached on 01904 520116.

Redman Nichols Butler has had a Driffield office for 16 years now.  Andrew Nichols is a licenced insolvency practitioner and advises SME businesses in the Hull and East Yorkshire area.  Andrew Nichols can be reached on 01377 257788.

Redman Nichols Butler has had a Scunthorpe office for nearly 4 years now.  Mark Neumegen is a licenced insolvency practitioner and advises SME businesses in Scunthorpe, Grimsby and all over North Lincolnshire.  The Redman Nichols Butler Scunthorpe address is Suite 8b, Normanby Gateway, Lysaghts Way, Scunthorpe, DN15 9YG.  Mark Neumegen can be reached on 01724 230060.

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