Veil Piercing Case Study

Veil piercing is one of the most litigated issue in the area of company law. In the United Kingdom, the views of the courts in veil piercing cases are inconsistent towards both the desire for equitable outcome and the classification of such cases. Accordingly, a number of judges and scholars describe this doctrine as a “incomprehensible mess”.

However, taking the starting point from the functions and nature of veil piercing, this paper presents a critical view about the abovementioned opinion. To do this, a variety of methodologies are adopted, comprising analytical study, case studies approach, historical research and sociological approach.

Due to the limitation of time, this paper exclusively focuses on the case law of the United Kingdom

Overview of corporate veil piercing

It is widely accepted that corporate personality and limited liability are the fundamental principles of company law. Corporate personality recognizes company as a legal entity which is distinct from its owners, members, shareholders and other investors. Meanwhile, as a logical consequence of corporate personality, limited liability or “shareholder immunity”, shields shareholders from the debts and other obligations of the company which exceed their committed investment in the company. These concepts were strongly recognized in the landmark House of Lord’s decision in Salomon v. Salomon & Co. Ltd (“Salomon”).

However, in the span of time, the privilege of separate corporate personality and limited liability are misused. Accordingly, exceptions to the above principles have been indicated, named “piercing the corporate veil” or “lifting the corporate veil”. Therefore, veil piercing is referred to as the disregard of separate corporate personality and limited liability by legislature or judiciary.

A number of statutory provisions in relation to veil piercing can be found in various piece of legislation, such as the tax regulations, Companies Act 2006, Employment Rights Act 1996 and Insolvency Act

However, during this period, the courts did “experiment” different approaches to challenge these principles. The first challenge came during the First World War and with political significance. The corporate personality doctrine was ignored in Daimler Co. Ltd v. Continental Tyre and Rubber Co. (Great Britain) Ltd. to show that the shareholders were from an enemy country (Germany). Other circumstances under which the courts pierced the corporate veil included when there was fraudulent operation in re Darby, Brougham or when the company was formed to evade a legal obligation in Gilford Motor Co. v. Horne and Jones v. Lipman.

(ii) From 1966 to 1989 when the veil piercing doctrine reached its peak

This period witnessed the golden era of the veil piercing doctrine, whereby a considerable enthusiasm for this doctrine was made. Notable veil piercing cases included Littlewoods Mail Order Stores v. Inland Revenue Commissioners, DHN Food Distributors Ltd v. Tower Hamlets and Re a Company. Much of the vitality of the doctrine can be attributed to Lord Denning, whose views reflected a negotiation between corporate personality and justice. It seemed that, in this period, courts were willing to pierce the corporate veil in the pursuit of equity.

(iii) From 1989 to