Piercing The Corporate Veil In Fraud Cases

It is a well established principle that a company has a separate legal personality from its members. In very limited circumstances, the English courts can 'pierce the corporate veil', putting to one side the company's separate legal personality and holding that its members are subject to the legal consequences of the company's acts.

The English courts have only permitted the corporate veil to be pierced, or lifted, in a handful of cases in over a century, often where the company was used as a 'puppet' to disguise the fraudulent activities of the individual 'puppeteers' controlling it. This can be important because individual 'puppeteers' may have more funds to satisfy a judgment than the company, which is often insolvent by the time the fraud is uncovered. However, it was never precisely clear when the corporate veil may be pierced and what limitations there were on such an exercise. Recently, in a large fraud case, one English judge held that the corporate veil should be pierced and there was no reason why the 'puppeteer' should not be held to be a party to a contract entered into by the 'puppet' company he controlled. This was a controversial decision, as some commentators suggested that it extended the principle of piercing the corporate veil one step too far.

The Supreme Court has now considered this issue afresh and today handed down an important judgment on this issue. In the case of VTB Capital plc v Nutritek International Corporation & others [2013] UKSC 5, the Supreme Court has unanimously held that it was against authority and principle to pierce the corporate veil...