Goodman Derrick

The corporate veil and its piercing as clear as...?

By Simon McLeod

The issue of piercing the corporate veil has recently come under the spotlight. However, the recent cases have sometimes been decided in a way that is not entirely consistent and this has caused uncertainty. They can have important application both for individuals in the way that they structure their affairs and companies, particularly international companies, in the way that they are structured and operated.

The principle of separate corporate personality, namely that a company is separate from its shareholders and which is illustrated by the 19th century case of Salomon v Salomon, is one of the cornerstones of English company law. It is a principle that has been adopted by many common law jurisdictions and has a solid legal and economic justification.

The courts have been reluctant to breach this established principle, although since Salomon v Salomon there have been a number of exceptions allowed. The difficulty for legal practitioners is in trying to predict in what circumstances the corporate veil might get pierced and whether, if it appears that the grounds for piercing the corporate veil do not exist, other grounds might be found that have a similar result. This has always been an issue, but the recent cases have put the issue in stark relief. Given that one of the principal tenets of a fair legal system is that there should be some degree of certainty in the application of rules this is not entirely satisfactory…

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