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The "corporate veil" survives - again

View profile for David Wisbey
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We have written before about the importance of the “corporate veil” the idea that a limited company is a legal entity in its own right and that it is not possible, in most circumstances, to look behind the company and impose liability on its shareholders.

The doctrine has survived another attack, this time by local authorities trying to recover non-domestic rates from companies in liquidation. A recent Court of Appeal decision concerned two schemes designed to avoid the payment of rates on properties which, in most instances, were unoccupied. Both schemes involved the grant of leases to special purpose vehicle companies (SPVs) which, as part of the scheme, were then placed in voluntary liquidation or were allowed to be struck off the register. Rates are not payable where the owner of the property is a company which is being wound up voluntarily.

The claimant local authorities sought to recover rates from the defendants in respect of the properties of which they had granted leases to the SPVs. One of the grounds for the claims was that the SPVs could be disregarded using the doctrine of piercing the corporate veil.

Piercing the corporate veil is possible if there was a legal right against the person in control of a company which existed independently of the company's involvement, and the company was interposed so that the separate legal personality of the company would defeat the right or frustrate its enforcement.

The Court of Appeal decided it was not possible to apply this principle. Once the owners of the properties had granted leases, they had ceased to be the owners. The SPVs became the owners. Liability for rates arising on each day of the term of each lease had been the SPV’s alone. It was not, and never had been, a liability of the defendant lessor. The SPVs did not defeat a liability of the lessors. Even though the schemes could be considered socially reprehensible conduct, they could not be used to apply the radical doctrine of disregarding the separate legal personality of a registered company.

If you come across a situation where you think a company is being interposed to defeat your rights, or if you are an owner of a company being pursued for the liabilities of your company, please contact us for advice. I am based in our Chelmsford office and can be contacted on 01245 453817 or david.wisbey@birkettlong.co.uk.

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