Irish High Court Lifts Corporate Veil: Directors Personally Liable

• Published date: 07 December 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers
• Law Firm: William Fry
• Author: Alexandra Drummy, Gail Nohilly, Lisa Carty and Deirdre O'Donovan

The Irish High Court (Court) has pierced the corporate veil in Powers -v- Greymountain Management Ltd [In Liquidation] & Ors[2022] IEHC 599, to hold passive resident directors and non-resident shadow directors personally liable for funds lost to investors as a result of fraud.

The Facts

The plaintiff, Mr Powers, believed that he was investing in binary options through an Irish registered company, Greymountain Management Ltd (Greymountain). It transpired that the investment was, in fact, part of a fraudulent scheme operating through Greymountain. Greymountain went into liquidation in 2017. Mr Powers lost $124,027. He instituted proceedings seeking an order making the directors personally liable for the fraud committed by the Company. Mr Powers was one of several other investors who claimed to have lost money from the scheme.

Two of Greymountain's directors, Mr Coates, and Mr Grainger, were Irish resident, and both claimed to have had no knowledge of the alleged fraud which comprised the payment by investors for binary options, which were never actually purchased on their behalf. Instead, the monies invested were allegedly converted for the use of the third and fourth defendants, Mr David Cartu and Mr Jonathan Cartu (Cartu Brothers). The Cartu Brothers were shadow directors of Greymountain and resided in Dubai and Israel. The Court described the "engine" of the fraud as the veneer of legitimacy provided by Greymountain's Irish incorporation. This deceived the investors into believing that their funds were in the hands of a company apparently subject to Irish and EU regulation.

Mr Coates was a college student when he became director, and claimed he was director in name only and that he had no role in the company. Mr Grainger described his role as administrative only.

Decision

No Irish court has previously lifted the veil of incorporation of a company to hold directors personally liable for its acts or omissions. This is because of the well-established principle from Salomon v. Salomon [1897] A.C 22 that a company is a separate legal person from its directors, a fundamental principle of Irish company law.

The Court noted however, that previous cases indicate that the Irish courts are of the obiter view that if there is impropriety in the conduct of the affairs of the company, the corporate veil may be lifted.

Whilst acknowledging that this would not be done lightly, the Court in this case was...