Lifting the Veil: Disregarding Corporate Personality

Lifting the Veil is the act of disregarding the veil of incorporation that separates the personality of a corporation from the personalities of its members and directors. This exceptional course is occasionally sanctioned by statute, for example in relation to wrongful trading or fraudulent trading when it may result in members or directors of a limited company incurring liability. It is also employed by the courts, for example if incorporation has been used to perpetrate fraud or gives rise to unreal distinctions between a company and its subsidiary companies.

Types

• Statutory Exceptions: Legislative provisions that explicitly allow for the piercing of the corporate veil. Examples include the Insolvency Act 1986 in the UK, which addresses wrongful and fraudulent trading.
• Judicial Exceptions: Court rulings that lift the veil in specific cases, particularly in instances of fraud, sham companies, or misuse of the corporate structure.

Importance

Lifting the veil is crucial in preventing the misuse of the corporate form for wrongful or fraudulent purposes. It ensures that individuals behind the corporate veil are held accountable, thereby promoting ethical business practices and protecting stakeholders’ interests.

Related Terms

• Corporate Personality: The recognition of a company as a separate legal entity distinct from its shareholders and directors.
• Limited Liability: The principle that shareholders’ losses in a company are limited to the amount of their investment.
• Wrongful Trading: A situation where directors continue to trade when they know the company cannot avoid insolvency.
• Fraudulent Trading: Trading with intent to defraud creditors.

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