Directors Beware ' Lifting The Corporate Veil

• Law Firm: Flynn O'Driscoll
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers
• Author: Claire McDermott, Stephanie Guidi, Noella McCloat and Joanne Murphy
• Published date: 16 February 2023

Separate Legal Personality and the Corporate Veil

A central principle of Irish company law is the doctrine of separate legal personality, allowing incorporated entities to enter into contracts, trade, file claims and take on debts in their own name. The separate legal personality creates a shield which protects shareholders and individual directors from being held personally liable for the company's defaults, debts or bankruptcy. This shield is often referred to as the "corporate veil".

It is a long-established principle in Irish law that directors would only be held liable for the actions of a company in exceptional circumstances. The Irish Courts have recently been asked to consider, in the case of Powers v Greymountain Management Limited [2022] IEHC 599, whether directors and shadow directors of a company should be able to evade responsibility for the company's actions by hiding behind the veil of incorporation. The case marks the first time that the Irish Courts have decided to pierce the corporate veil to find its directors personally liable for the actions of the company.

Case Summary

Greymountain Management Limited was incorporated in, and trading from Ireland, under the directorship of Mr. Liam Grainger and Mr. Ryan Coates with two brothers, Mr. Jonathan Cartu and Mr. David Cartu, residing in Dubai and Israel, acting as shadow directors. It was discovered that the company was being used as an instrument of fraud, defrauding members of the public, primarily based in the US, out of millions of euros. The plaintiffs in this case believed that they were trading in binary options, however, it transpired that the trades were never carried out. Instead the Company's software system was rigged to ensure the money was misappropriated for the personal use of the shadow directors and others. Both Mr. Grainger and Mr. Coates claimed to have no knowledge of the fraud and submitted to the Court that they were directors by name only. Mr. Powers, who was the lead plaintiff among 35 others, sought orders against the Irish directors and the foreign shadow directors to make them personally liable for the actions of the company.

Mr Justice Twomey, presiding in the case, concluded that

"the sole purpose of Greymountain was to defraud unsuspecting individuals of their money".

He further concluded that considering the circumstances of the case, the moral responsibility rested with the shadow directors.

As previously noted, the Irish Courts had never ruled to find...