Piercing the Corporate Veil

Question 1

What does piercing the corporate veil mean?

Answer 1

Situations in which the courts may go behind the corporate framework and the company’s separate legal personality to make the shareholders of a company liable

Question 2

Which case made certain that the doctrine of PCV existed?

Answer 2

Prest v Petrodel Resources Ltd

Question 3

When did Petrodel state the doctrine of PCV can be used?

Answer 3

Public policy grounds in extremely narrow circumstances where there is no alternative.

Question 4

What is the law said to be now, after Petrodel clarified it?

Answer 4

The court may pierce the corporate veil only where a person under an existing legal obligation or restriction deliberately evades or frustrates that obligation or restriction by setting up a company.

Question 5

What are the 33 broad categories of cases for PCV pre-2013?

Answer 5

1) Application of statute
2) Common Law
3) Application of a contractual term/intention (rare)

Question 6

3 main instances of statute allowing SHs to be liabile?

Answer 6

Taxation -
s399 CA 2006

Employment -
Employment Rights Act 1996

Corporate insolvency-
s213 Insolvency Act 1986

Question 7

If made liable by statute is it an example of PCV?

Answer 7

No - simply exceptions by statute

Question 8

Although confusing and often disputed, what are the 4 categories of case law that PCV pre-2013?

Answer 8

1. Façade or sham
2. Single economic entity
3. Agency
4. Tort

Question 9

Cases for façade or sham succeeding to PCV?

Answer 9

Gilford Motor Co Ltd v Horne (1933)

Jones v Lipman [1962]

Trustor AB v Smallbone [2001]

Question 10

Gilford Motor Co ltd v Horne [1933]

Answer 10

a former employee was bound by a restrictive covenant not to solicit customers from his former employers but set up a company to do so

Question 11

Jones v Lipman [1962]?

Answer 11

L had entered into a contract with J for
the sale of land, but later changed his mind and did not want to complete the sale.
L formed a company in order to avoid the transaction and transferred the land
to the company, claiming that he could not comply with the contract as he was no
longer the owner of the land. The court found that the company was merely a façade and granted an order for specific performance

Question 12

Trustor AB v Smallbone [2001]

Answer 12

The court found here that the company was indeed a sham
and the device through which the impropriety was conducted
and therefore, because of this improper motive, the court could
lift the veil and find S liable

Question 13

Are parent companies (single economic entities) liable for their subsidiaries?

Answer 13

Only in specific statutory circumstances, not a basis for PCV

Question 14

Cases showing development of law on single economic entities?

Answer 14

DHN Food Distributors Ltd v Tower Hamlets [1976] : Denning LJ held that group of companies is a single economic unit and should be treated as such.

Woolfson v Strathclyde Regional Council [1978] : The House of Lords doubted Denning’s decision in DHN and held that veil of incorporation will be upheld
unless it is a sham or façade created specifically for the purposes of avoiding liability, confirming that each company in a group is its own distinct entity.

Adams v Cape Industries PLC [1990] :The Court of Appeal here refused to allow the corporate veil to be lifted to allow the judgment to be enforced against the parent company. A consequence of the separate legal entity principle is that enterprises
may purposely use company group structures to place more risky ventures / liability
in (foreign) subsidiary companies removed from the parent company.

Question 15

Is liability based on the law of agency a ground for PCV?

Answer 15

No, a case would turn on the facts and the common law of agency would apply
Expressly disregarded in Salomon

Question 16

Is liability in tort an example of PCV?

Answer 16

No

Question 17

Case for tortious liability?

Answer 17

VTB Capital plc v Nutritek International Corp and others [2013]

Question 18

VTB Capital plc v Nutritek International Corp and others [2013]

Answer 18

The veil was not pierced in this
case because of the existence of the alternative remedy in misrepresentation (damages). The issue of whether there is a principled basis for piercing the veil was tackled shortly after by the Supreme Court in the case of Prest v Petrodel

Question 19

Who was the judge in Prest v Petrodel [2013]

Answer 19

Lord Sumption

Question 20

What did Lord Sumption conclude on PCV?

Answer 20

The corporate veil can only be pierced to prevent the
abuse of corporate legal personality where someone deliberately frustrates the
enforcement of an alternative remedy by putting a company into place

Question 21

Was Prest v Petrodel an example of PCV?

Answer 21

No. There was no impropriety in the company holding the properties for tax purposes so piercing the corporate veil was not necessary. However, he held that the properties were held by the company on trust for husband as beneficiary, so an
order was made for the sale of the property and for the money to be given to the wife

Question 22

So does PCV actually exist?

Answer 22

In law yes, but in reality the circumstances to prove it - there being no alternative remedy, will be very difficult