Lifting the corporate veil

Most are aware of the doctrine of corporate personality from the time old case of Salomon v A Saloman & Co Ltd 1896 (aka Salomon v Salomon)…the concept of limited liability…or put in simple terms, creditors cannot pursue the shareholders of a limited company. Regular readers will be aware however that errant officers of companies (who are often one and the same shareholders) can be pursued for matters of misfeasance like wrongful trading and more recently proceeds of crime.

There has been a recent development where the corporate veil has been lifted in respect of a bankrupt who was adjudged to be using a number of companies to hide assets that were held on trust. As a reminder, a trustee in bankruptcy has a duty to collect in the assets of a bankrupt’s estate while a bankrupt is under an ongoing obligation to notify the trustee of any assets acquired during the period of the bankruptcy as after-acquired property.

In this example, large sums of money were being transferred through companies where the bankrupt was deemed to have an interest. The trustee applied for injunctions to preserve the companies’ funds on the grounds that the assets were controlled by the bankrupt. In short, the Court was satisfied that the bankrupt was using corporate entities to conceal assets and these assets were ultimately subject to after-acquired property proceedings.

It is important for stakeholders to ensure that they separate their personal assets and activities as distinct from their companies’. If you feel any of these issues affect you or your clients please do not hesitate to contact us for a free consultation.