We are sometimes consulted by people who have had dealings with limited company which they feel has let them down, and are frustrated because they know that an individual owns and controls the company and they think that person should be held responsible for the acts of the company. For example Mr X owns all the shares in X Limited and is the only director. X Limited owes our client money but appears to have no assets. Mr X appears to have plenty of money but shows no interest in paying his company’s debts.

The problem for our disappointed creditor is the long-established doctrine that a limited company is a separate legal person entirely distinct from its shareholders. You cannot usually go behind the company’s legal personality to pursue a shareholder. Lawyers refer to this rather quaintly as “the corporate veil”.

There are examples when the corporate veil can be ‘pierced’, typically if the company is used for some dishonest purpose, but this unusual and rare. A recent case from the Family Court has reached the Supreme Court and has caused much comment in the legal press. A very wealthy businessman was found to control a number of companies which in turn owned valuable properties. On the particular facts of the case the court was prepared to draw the conclusion that the companies were doing no more than holding these assets for the benefit of the businessman, and that he was trying to hide this fact from the court. The result was an order requiring the properties to be transferred to the wife to satisfy her entitlement in the divorce proceedings.

Although the case, Prest v Petrodel Resources Limited, has attracted much attention it is not a departure from established principles, but is an example of a successful ‘piercing of the veil’ on its particular facts.

James Matthews