Piercing the Corporate Veil: Legal Protections

In English law, the ‘corporate veil’ is an important principle and is the notion that every company is its own legal entity that takes responsibility for its own debts and liabilities, which is distinct from its shareholders or directors.

There are some exceptions to the rule, which usually involve wrongdoing by a sole shareholder or director. At that point, the Courts can put aside limited liability and hold the shareholder or director personally liable for the company’s actions and/or debts. This is known as ‘piercing the corporate veil’.

Legal Framework and Examples

There are also a number of Acts of Parliament which have provided for situations where the corporate veil can be pierced, and one example of this is the Proceeds of Crime Act (“POCA”) 2002, in which confiscation orders can be made by the court in relation to benefits from criminal conduct and can include company assets if they have been obtained by an individual.

Situations of Piercing The Veil

The Court of Appeal in the case of R v Seager [2009] EWCA Crim 1303 set out the position regarding ‘piercing the corporate veil’ in criminal law and identified three situations where, in criminal cases, the corporate veil can be pierced. They are:

1.     Where an offender attempts to shelter behind a corporate façade or veil, to hide his crime and benefit from it,

2.     Where an offender does acts in the name of a company which constitute a criminal offence which leads to the offender’s conviction, and

3.     Where the transaction or business structures constitute a ‘device’, ‘cloak’ or ‘sham’, for example, in an attempt to disguise the true nature of the transaction or structure so to deceive third parties.

Under POCA 2002, confiscation is possible when the offender has benefited directly or indirectly from their crime; a confiscation order requires them to pay back the amount they have benefited from their criminal conduct.

Legal Implications

If, as a director or shareholder of a company, the police or other regulatory bodies or relevant authorities (such as the Health and Safety Executive or Serious Fraud Office) wish to interview you under caution, it means that either the company or you as a director are suspected of committing an offence.

Handling Interviews 

Some regulatory bodies, especially post-COVID-19, seek to undertake an interview by letter or correspondence, which means they send out a letter with the caution in writing and the questions they wish to be answered. 

If a company is invited to an interview under caution, a nominated company representative is asked to attend on the company’s behalf. However, sometimes, directors are invited to attend in their personal capacity due to the nature of the allegation.

Things can often become more complex when the company is unable to nominate someone other than the sole director. In these instances, it is best practice to conduct two interviews: one for the company through its nominated representative and one of the directors in their individual capacity.

Legal Assistance

It is important to seek specialist legal advice and assistance from the outset and prior to any interview under caution, as the handling of the interview could mean the difference between no further action or enforcement being taken against either you individually or the company or a potential prosecution.

Our solicitors have considerable experience dealing with the full spectrum of investigations conducted by various agencies and bodies. This experience means that we are equipped to ensure that you, as an individual or the representative of the company, are not subjected to repetitive or oppressive questioning if questions are answered or a comprehensive statement under caution is provided.

Not only do our solicitors deal with the interview in a robust manner, but they remain proactive throughout the duration of the investigation to ensure the best possible outcome is achieved regardless of the circumstances.

If you, as a company director or as a representative of a company, have been asked to attend an interview under caution or respond in writing to allegations of misconduct or wrongdoing, the solicitors within our regulatory department are on hand to assist.