LIFTING THE VEIL OF INCORPORATION:
VEIL OF INCORPORATION:
Separate legal personality of company operates as a shield - the courts will not normally look beyond
the facade of the company to the shareholders who comprise it.
The screen separating the company from its individual shareholders and directors is
commonly referred to as "the veil of incorporation".
Sometimes the law is prepared to examine the reality which lies behind the company façade
- this is described as "lifting" or "piercing" the corporate veil.
LIFTING THE CORPORATE VEIL – By Statute:
Companies Act 1985 s.24
Where membership of a company falls below two for more than six months. Member who
knows he is the sole member but continues to trade will be jointly and severally liable with the
company for company debts contracted after the six month period has elapsed. (s.24 no longer
applies to private limited companies)
Companies Act 1985, s.117(8)
Where public company trades without obtaining a trading certificate. If the company fails
to comply with any obligations under a transaction within 21 days of being called on to do so, the
directors of the company are jointly and severally liable to indemnify the third party against any loss.
Companies Act 1985, s.349(4)
If person acting on behalf of a company signs or authorises the signing of a bill of exchange,
cheque, order for goods or similar document in which the company’s name is not correctly stated,
the person signing will be personally liable if the company fails to pay.
Durham Fancy Goods v Michael Jackson (Fancy Goods) Ltd
Insolvency Act 1986, ss.213 & 214
s.213 applies where company is being wound up and it appears that business has been
carried on with intent to defraud creditors.
s.214 applies where company is in insolvent liquidation and the director(s) should have
known this, but did not take sufficient steps to minimise losses to creditors.
In either case, the court can order that those involved make a contribution to the companies
assets for the benefit of creditors.
Insolvency Act 1986, s.216 & 217
VEIL OF INCORPORATION:
Separate legal personality of company operates as a shield - the courts will not normally look beyond
the facade of the company to the shareholders who comprise it.
The screen separating the company from its individual shareholders and directors is
commonly referred to as "the veil of incorporation".
Sometimes the law is prepared to examine the reality which lies behind the company façade
- this is described as "lifting" or "piercing" the corporate veil.
LIFTING THE CORPORATE VEIL – By Statute:
Companies Act 1985 s.24
Where membership of a company falls below two for more than six months. Member who
knows he is the sole member but continues to trade will be jointly and severally liable with the
company for company debts contracted after the six month period has elapsed. (s.24 no longer
applies to private limited companies)
Companies Act 1985, s.117(8)
Where public company trades without obtaining a trading certificate. If the company fails
to comply with any obligations under a transaction within 21 days of being called on to do so, the
directors of the company are jointly and severally liable to indemnify the third party against any loss.
Companies Act 1985, s.349(4)
If person acting on behalf of a company signs or authorises the signing of a bill of exchange,
cheque, order for goods or similar document in which the company’s name is not correctly stated,
the person signing will be personally liable if the company fails to pay.
Durham Fancy Goods v Michael Jackson (Fancy Goods) Ltd
Insolvency Act 1986, ss.213 & 214
s.213 applies where company is being wound up and it appears that business has been
carried on with intent to defraud creditors.
s.214 applies where company is in insolvent liquidation and the director(s) should have
known this, but did not take sufficient steps to minimise losses to creditors.
In either case, the court can order that those involved make a contribution to the companies
assets for the benefit of creditors.
Insolvency Act 1986, s.216 & 217
