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One of the cornerstones of company law, is that a company has a separate legal personality from its directors and shareholders. Therefore, directors and shareholders cannot be liable, all things being equal, for a company's liabilities and vice versa. However things aren't always equal and there are isolated cases where the courts will “pierce the corporate veil” and look behind the company and hold those that control it liable.
The Sham Company – Concealment or Evasion
One of the grounds often cited as justifying the piercing of the corporate veil is that the company is being used as a vehicle for fraud or is a sham i.e. the owners / directors have incorporated a company in an attempt to avoid legal liability.
There are a number of examples of such cases where the claimant has been successful:
However, these are the exception not the norm, and the courts do not like upsetting centuries of established company law.
A leading Law Lord [Sumption] recently concluded that piercing the corporate veil was in practical terms a remedy of last resort and not one the court would entertain lightly. He concluded as follows:
"there is a limited principle of English law which applies when a person is under an existing legal obligation or liability … which he deliberately evades … by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality."
To all intents and purposes, the courts will not pierce the corporate veil absent concealment or evasion. It is not therefore a claim to be commenced lightly.