Corporate Veil

LIFTING AND PIERCING CORPORATE VEIL
By
[The name of the author]
[The name of the dissertation supervisor]
This dissertation is submitted for the degree of LLM of Leicester University -2016. This
dissertation is entirely my own work and all material from other sources, published or
unpublished, has been duly acknowledged and cited.
-------------------------------(Signature of Student)
------------------------(Date)
Corporate Veil
Abstract
The purpose of the research study was to evaluate and investigate the lifting and piercing of
corporate veil in the contemporary business environment. The lifting the corporate veil is one of
the most controversial and controversial areas of corporate law. The possibility and expediency
in certain cases to exclude the action of the fundamental principle of existence legal person, the
principle of limited liability, declares leading foreign jurists already in the formation of the
understanding of the legal person as a separate subject of public relations. Taking this into
consideration, the researcher has focused on evaluating the factors and underlying reasons where
the court could lift or pierce the corporate veil. In the case of Salomon v Salomon, it was
revealed that the House of Lords unanimously rules to uphold the doctrine of corporate
personality, under Companies Act 1862, which restricts the creditors of an insolvent company to
sue the shareholder of the company to pay the outstanding debt. However, the researcher found
that courts have lifted the corporate veils in both developing and developed nations, under
certain circumstances and situations. In certain circumstances, the Salomon principle can be used
in ways that appear to be unjust to third parties, creditors or even the shareholders themselves.
The development of the law shows how the courts have sometimes taken the view that the veil of
incorporation should be lifted to avoid abuse of separate personality. Although, there are
numbers of statutory exceptions to the principle. Limited liability is not a direct consequence of
the corporate entity principle (it is possible to form an unlimited company), but the vast majority
of companies are limited and the concept goes hand in hand with the principle of separate
personality. If the veil is lifted this right to limited liability may be lost. The courts have been
very reluctant to lift the veil in order to impose personal liability for the company's debt on a
shareholder or director. The approach has not always been consistent and it has been difficult to
identify clear principles to determine when the courts may be prepared to lift the veil and when
Corporate Veil
they would decline to do so. The Supreme court recently sought to provide some coherent
practical and principled basis for lifting the veil in the case of PREST V PETRODEL
RESOURCES LTD [2013]
Corporate Veil
Table of Contents
CHAPTER 1: INTRODUCTION................................................................................................1
Research Background...............................................................................................................1
CHAPTER 2: LITERATURE REVIEW.....................................................................................5
The Corporate Veil: Some Basics.............................................................................................5
Line Jurisprudential About Lifting the Veil of Corporate Commercial Companies................5
The Theory of Fiction.......................................................................................................7
Theory of the Affected Assets to an End...........................................................................7
Theory of Legal Reality or Personality and the Substrate................................................8
CHAPTER 3: RESEARCH FINDINGS....................................................................................28
Common Law vs. Civil Law..................................................................................................28
Corporate Veil Piercing..........................................................................................................29
Some Cases relevant to Piercing and Lifting the Corporate Veil...........................................30
Salomon vs. Salomon Co................................................................................................30
Background of the Case...........................................................................................31
Salomon Decision....................................................................................................32
Prest v. Petrodel Resources.............................................................................................34
Prest Decision..........................................................................................................36
B Capital Plc v. Nutritek International Corp and Others [2013] UKSC 5......................39
Judgment of the Supreme Court..............................................................................40
Case of Corporate Veil.............................................................................................41
Adam v. Cape Industries Plc...........................................................................................42
Case Facts................................................................................................................42
Judgment of the Case...............................................................................................43
Judicial Grounds for Piercing and Lifting Corporate Veil......................................................44
Improper Conduct...........................................................................................................44
Benefit of Revenue..........................................................................................................46
Enemy Character.............................................................................................................46
Avoiding Legal Obligations............................................................................................47
Trust................................................................................................................................47
CHAPTER 4: CONCLUSION...................................................................................................49
Corporate Veil
LIFTING AND PIERCING CORPORATE VEIL
CHAPTER 1: INTRODUCTION
Research Background
The doctrine of "lifting the corporate veil" is one of the most controversial and
controversial areas of corporate law.1 The possibility and expediency in certain cases to exclude
the action of the fundamental principle of existence legal person, the principle of limited liability,
declares leading foreign jurists already in the formation of the understanding of the legal person
as a separate subject of public relations.
The main problem is strictly formal application of the principle of limited liability of legal
persons who belong more to the realm of philosophy than law, is the rationale and justification
for the existence of a free and just society with equal rights and opportunities of participants,
instruments, aimed at limiting or violating the rights of other parties, including used for fraud,
evasion of liability, misrepresentation suppliers and other similar dishonest purpose.2 These
problems must be taken into account, raising the question of expediency the existence of the
1 Liton Chandra Biswas, 'Approach Of The UK Court In Piercing Corporate Veil' SSRN
Electronic Journal 2.
2 Peer Zumbansen, 'Piercing The Legal Veil: Commercial Arbitration And Transnational Law'
(2002) 8 European Law Journal 414.
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doctrine of "lifting the corporate veil" in general, and its applicability in Russian legal practice in
particular.
The content of the doctrine of consideration, the conditions under which this can be used Law
Institute, the legal consequences of departing from the principle of limited liability legal entity
fully and thoroughly worked out in the jurisprudence of English- Saxon legal system.3 The basic
principle according to which the company is a separate entity, possessing their own property it
was formed in Salomon v Salomon & Co in 1897.4 At the same time, (Broderip v
Salomon, 18955) in the first instance, it was recognized that considered a legal entity created just
for appearances, in order to evade responsibility, and responsible for the claim should be the real
owner of the business. At the same time, the Chamber Lords unanimously dismissed all the
arguments about the fraud, the existence of Company as an agent, created the real owner for the
purposes of fraud and it determined that all requirements related to the company's activities shall
be produced directly by the company, and not in any way to its owners. So far, despite the
3 A. McClellan, 'Commercial Arbitration And European Community Law' (1989) 5 Arbitration
International 72.
4 Salomon v Salomon & Co [1987] UK, AC 22.
5 Broderip v Salomon [1895] 2 Ch 323 at 339
Corporate Veil
determination of the main provisions relating to the doctrine of "lifting the corporate veil", the
English courts have used this legal Institute are extremely reluctant, and in exceptional cases.6
Quite a different approach can be seen in the practice of American courts. The principle of
"removal corporate veil "is clearly defined in the United States case v. Milwaukee Refrigeration
Transit Co., in 1905, "as a general rule, the Corporation will be understood as a legal face and as
long as there is no substantiated proof to the contrary7; however, when the concept of a legal
entity used for violations of public interests, justify the offense of concealing fraud, protect the
crime, the law will treat corporation as an association of persons. Subsequently, the doctrine of
"lifting the corporate veil" is used in practice American courts quite often. For example, of the
2,908 cases reviewed the federal courts and state courts in the period from 1860 to 2006, which
were stated requirement of "lifting the corporate veil", in 48.58% of cases referred to the court's
requirements have been met.8
Paradoxically, the legal institution inherent more to collectivist a society in which social
harmony and the relationship between members of society play a priority compared with the
possibilities of implementing individual freedom, personal economic initiative, most fully
6 Ross Grantham and Charles Rickett "The Bootmakers Legacy to Company Law Doctrine" in
Ross 1-2.
Grantham and Charles Rickett (eds) Corporate Personality in the 20th Century (Hart Publishing,
Oxford, 1998) 1 at 3-4.
Jennifer Payne, 'Lifting The Corporate Veil: A Reassessment Of The Fraud Exception' (1997) 56
The Cambridge Law Journal 286.
Peter B. Oh, 'Veil-Piercing' SSRN Electronic Journal.
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developed in the community, one dedicated to individualism in all fields of human activity. For
example, Compared with the US practice of having more than a century in China legislation is
such a thing as "lifting the corporate veil" was introduced only in 2006.9 This fact is interesting
from the point of view of studying the deep-seated social laws, but as a primary hypothesis
suggests that in societies where economic relationships are paramount identity of the
participants, not artificial design, which is a legal entity, the existence of the possibility of
"removal corporate veil "is not particularly interesting, because the relationship arises between
specific people for whom "not losing face" is much more important, than to avoid the
responsibility to each other by any legal tricks.
On the other hand, it appears that in an individualistic society with the developed market
the possibility of "lifting the corporate veil" is an essential regulator economic relations, allowing
to limit the undue and unfair the use of the principle of the legal entity of limited liability. In
order to understand how the possible introduction of "lifting the corporate doctrine covers
"threatens the interests of law-abiding market participants, it is advisable to consider the
conditions, certain practices of the American courts, in which possible assigning responsibility
directly to the beneficial owner or owners company.
We can distinguish the following basic premises of courts of the doctrine of "removal corporate
veil ": the creation of the company for fraud or misrepresentation to Implementation of unfair
activity to evade responsibility offenses, the use of the company as a facade or a cover for
commit owners activities other than stated, withdrawal of assets, violating the rights and interests
of creditors or investors use company tools to when the company essentially only performs
9
Sandra K. Miller, 'piercing the corporate veil among affiliated companies in the european
community and in the us.: a comparative analysis of u.s., german, and u.k. Veil-piercing
approaches' (1998) 36 american business law journal 78.
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agency functions in the interests of its owners.10 As you can see, all of these conditions are quite
justified, "lifting the corporate veil". Otherwise, it is difficult to find a clear explanation as to
why such as business owners, pursuing dishonest purpose, deviate from the performance of its
obligations, misleading counterparties should get an advantage over other market participants,
using the formal principle of the inviolability Limited liability of legal persons.11
Also, when assessing the appropriateness of the Russian practice of consideration Doctrine
should be understood that this is only a legal instrument to protect the rights investors and
creditors, to some extent, guarantee the protection of bona fide market participants. And
categorical objections to the possibility of using a similar tool to force the corruption of the
Russian judicial system, particularly economic reality, some political nuances such appeals ban
the use of axes, because of someone, somewhere, someone hacked to death with an ax.
10
Thomas K. Cheng, 'The Corporate Veil Doctrine Revisited: A Comparative Study Of The
English And The U.S. Corporate Veil Doctrines' SSRN Electronic Journal 34 B.C. Int'l & Comp.
L. Rev. 329
11
Tobias H. Trger, 'Choice Of Jurisdiction In European Corporate Law Perspectives Of

European Corporate Governance' (2005) 6 European Business Organization Law Review 3.
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CHAPTER 2: LITERATURE REVIEW
The Corporate Veil: Some Basics

The notion of "corporate veil" is fundamental, since it is the cornerstone on which our
entire company law.12 This text will outline this concept and also show some situations suitable
for the lifting of the corporate veil. The concept of "corporate veil" is defined as the distinction
between, on the one hand, the legal personality of a company and, secondly, the legal personality
of his or its shareholders.13
Line Jurisprudential About Lifting the Veil of Corporate Commercial

Companies
It is essentially important to explain the main component that is, recognition of legal personality,
which is enshrined in the Constitution in Article 14 of United States of America, in accordance
12
Albana Karapano and Ina Karapano, 'The Piercing Of The Corporate Veil Doctrine: A
Comparative Approach To The Piercing Of The Corporate Veil In European Union And Albania'
[2013] AJIS 154.
13
'Corporate Veil Not A Shield For Personal Liability' (2003) 9 Trusts & Trustees.
Corporate Veil
with this the civil order: It is called legal person to a fictitious person, able to exercise rights
and contract obligations and to be represented and out of court.14 The legal personality that is
recognized him to a society involves sufficient capacity to contract obligations and carry out
activities that generate full legal responsibility in front of themselves and in front of others.
The legal personality, then, does not necessarily coincide with the space of the individual, but it
is wider and allows performances with full legal validity to the entities formed by groups of
people or companies. Criticizes the fundamental of experienced falls on the game that the named
natural person also has said ability to work actively in the system, then we would be facing a
group of similar qualities that give place to different definitions, which would have no meaning.15
As such legal entities are entitled to in case of controversy them ahead due process, conforms to
the standards enshrined in Colombian law.
Legal entities have in their history many names and crossed through several stages and are these
theoretical or practical.16 The birth of this institution's place in Rome, and specifically in the
Roman law, where the first Experts and Praetors give you legal birth to an institution without
14
DEVANG GAUTAM, 'Corporate Personality And Lifting Of The Corporate Veil' (2012) 3
PARIPEX 93.
15
Xavier Morera Balcells, 'Spain Steps Forward To Achieve UK Conditions Incorporating A

Limited Liability Company' SSRN Electronic Journal 1.
16
Janis Sarra, 'Taking The Corporation Past The ?Plimsoll Line??Director And Officer Liability
When The Corporation Founders' (2001) 10 Int. Insolv. Rev.
Corporate Veil
knowing last for tens of centuries and even two thousand years later follow if talking this and
improving the system legally.17
On the right is nothing standard by the free will of the legislators, here everything is born to
regulate some sort of social relationship, usually set at a standard higher category that the new
that expire. In this regard, it can be inferred that the institution of moral entity is born to
articulate the constitutional right of association, by means of clear rules on which stipulates the
characteristics and procedures to give a new "moral person." To this end, the law says to create a
legal fiction attributing personality well is to affected assets for a particular purpose or
a collectively of individuals characterized by the union to the achievement of a common purpose.
The fact creates a legal entity implies the separation of rights and obligations between that and
the members who compose it, and according to the separation of one and other equity (the
natural person and the legal person).
The concept of legal person has been exposed to the following sentence: "Today it
is unthinkable that the monumental works that we carry out technological innovations in the
production process, research, etc., modern society requires as something indispensable in daily
and with need to be undertaken and carried out by one person; They are the fruit of collective
work, and this collective work is affected by various forms of association such as corporations,
limited liability, cooperatives, foundations, civil associations, among others".18
There are several kinds of theories that explain the origin of the legal personality among them:
17
Marko Stankovic, 'Tortious Liability Of Legal Entities' (2015) 32 Pravo - teorija i praksa.
18
Ernst van Bemmelen van Gent, 'Corporation As Legal Person' SSRN Electronic Journal 2.
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The Theory of Fiction

This theory gets this name as the second it is necessary to pretend the end to which this
for the legal person under the law, to thereby give it a person's status.19 This philosophy
personality is based on the will of beings as a fundamental premise to be a person. This is that
there is not a person who is unable to express their will; it is this way is obliged to have a
representative, mainly to express their will. The main criticism of this doctrine rests on the game
today carefully separates the will of personality, giving him at first only the substrate feature of
the legal entity.
Theory of the Affected Assets to an End
This is mainly because creates problems on the ability of corporate persist and their
representatives want to solve them by means of a logical explanation. Moreover, what
corporations seek is hiding the collective personality of an individual.20 So they rely on to state
that the rights of the subject itself in a legal person is none other than the assets affected by a
destination or special social work.
19
Peter S. Spiro, 'Clarifying The Rules For Piercing Of The Corporate Veil' SSRN Electronic
Journal 13.
20
'Bankruptcy. Partnership And Individual Claims And Assets. Entity Theory' (1911) 24 Harvard
Law Review 393.
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10
Theory of Legal Reality or Personality and the Substrate

This theory is based on the moral state that people are formed by the union of two basic
elements; these are the personality and the substrate. So for this personality is not innate in man,
as criticism of other theories.21 Personality is a legal system tool to frame or delimit "subject"
elements (etymologically understood) to this system and to be governed by its rules. In this way,
they give you the personality a unitary sense, independent of who falls within a
different connotation to the substrate on which it will fall to personality.
To respect this substrate this theory says that to give something the
person's declarative title is necessary that this entity meets a characteristic minimum and
essential, this is to be able to have the will and therefore be able to express the
aforementioned. Then these treatises clarify that the will of these people is carried out by means
of bodies arranged in the statutes and granted his powers to manifest it said will, is why it is also
mentioned that dictates will is an artificial character. It illustrates clearly saying that you are cool
are the hands of such persons and their maximum steering body his head.
On the other hand, it is important to note that the ability of legal persons is the fundamental
essence of its existence as an attribute to act on the right. Although with relationship to the
natural persons varies slightly, this is only grants you the ability for a particular purpose, which is
delimited in its purpose, which is why it can be spoken of a relative failure, as there certain areas
in which they do not can intervene and be by its purpose or by the collective condition of being
as such.
21
Gunther Teubner, 'Enterprise Corporatism: New Industrial Policy And The "Essence" Of The
Legal Person' (1988) 36 The American Journal of Comparative Law 136.
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11
Of course, the creation of a different commercial company to order personae is motivated

to protect the integrity of assets of each of the partners in both is seen closely related to the
development of business activities of the same. Such protection is a consequence of the lack of
communication that the corporate entity established between shareholders' equity and the equity
of the company. In particular: "This asset separation entails two well - known legal effects: first,
that the creditors of the partners or shareholders cannot go against the company's assets for the
satisfaction of their claims (maximum may pursue equity participation that they have
that); second term, that the company's creditors cannot go against the assets of the partners or
shareholders to cover with your product company.22
Search It is the main objective of limiting the liability of the partners for your personal assets
cannot be pursued in a possible case23, which must be covered a liability to acquire the
company; this way each partner contribute considerable sums of money trustingly sums to create
a different entity that can contract and acquire rights obligations autonomously.
Therefore, it is understood the lifting of the corporate veil as the situation in which it finds that
protection that gives the interval, the partners before a vulneracin the principle of contractual
good faith and using the limited risk society with the intention to defraud the interests third
parties, including workers' rights, is that the legal system can get to make responsible to
shareholders, based on a different legal cause of relationships that arise from the social contract.
It is then the malicious actions, unfair or dishonest shareholders of damage to third, where is the
22
Shalini Aggarwal, 'Private Company Restructuring' (2003) 6 The Journal of Private Equity 16.
23
Elden v. Sheldon, 758 P.2d 582, 46 Cal. 3d 267, 250 Cal. Rptr. 254 (1988).
Corporate Veil
12
power to ignore the limitation of liability and the demand from shareholders happened damage
repair.
With respect to this standard, it points out that this provision is intended to prevent that
by the formation of a society existing prohibitions and incompatibilities for individuals, to
impede the investigation of crimes against the public administration or to legalize and hide assets
from illicit activities, as was already noted above.24 And the society will not be different partners,
but to rise up the corporate veil (lifting the corporate veil), thus discovering the hidden benefit to
repair the damage.
However, in the case of a parent company and its subordinate, are affiliates or subsidiaries, not
warned that it was necessary to go to the lifting of the corporate veil, to find subordination ties,
because the law says that such information can be obtained from the existence of certificates and
legal representation of companies, issued by the Trade Cameras, which has a
mandatory c character hen, in such a situation control, or give changes, the other to control
ante society the will appear in private document, which should contain the name, address,
nationality and activity of the bound, and the budget that gives place to
the subordination situation.
For this, it gives powers to superintendents who should enforce this requirement and
provides that the Trade Cameras must certify the quality matrix or subordinated society. It was
also indicated that any modification, to the situation of control or group, must be entered in the
commercial register. The others, as members the consultation room and the civil service, says the
possibility of lifting the corporate veil of the legal entity does not mean, for corporations, which
said route may be determined that the shareholders of a contractor corporation are disqualified
24
Cohen v Beneficial Industrial Loan Corp (1949) 337 U.S.
Corporate Veil
13
for having declared the contract expiry the same, as the rule says falls on the partners of
partnerships which it has declared the forfeiture, not on members of companies of capital, as is
anonymous. In other words, the causal of incapacity do not change the rule that allows lifting the
corporate veil, but the procedure only allows you to check if the respective legal entity is given a
case incapacity or qualified incompatibility in the special rules governing such matters.25
The above given that the limited risk of capital companies, is not an absolute right that can be
used indiscriminately by the partners, as if from its use to defraud the third legitimate interest
among these rights of workers and pensioners, can be gone to their own legal tools of the
corporate veil lifting, for what happened damage repair.
But it is concrete situations in which the Colombian jurisprudence analyzes the cases it is
necessary to dispense with the formal structure of the legal entity in such a form that the decision
can reach also affect members of the same.26 The Constitutional Court considers that such
situations are those in which arises or is perceived bad faith, fraud, abuse of right or
simulation. So even when formed to mock the legal system, or after formed with an arrangement
to the law deviates from its purpose, or the person is used for acts or unlawful purposes, it sets
the abnormal exercise of a right that deserves correctives persists abuse.27
National jurisprudence also had to apply the principles of the theory of the corporate veil
survey. The Council of State, Section Three, made reference to the Anglo-Saxon mode to reveal
25
Murray A. Pickering, 'THE COMPANY AS A SEPARATE LEGAL ENTITY' (1968) 31 The

Modern Law Review 484.
26
Phanor James Eder, Company Law In Latin America (College of Law, University of Notre
Dame 1953).
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14
the separation when you want to use the company as a means to advance activities prohibited to
a natural person.28 Analysis regarding its occurrence had to place within the highest authority of
the Administrative Litigation when used to partnerships to ignore the incapacity regime and
incompatibilities provided for individuals on state procurement.
Council of State, Section Three, says that personality is a privilege that the law granted rights to
the company only for the specific purpose and determined that it was proposed at the time of its
creation, and when in its practical development conducive abuse and fraud is necessary to
dispense with the external form of the legal entity to reveal people and interests that lurk
beyond.29
In the Spanish doctrine, courts sometimes waived the abstraction of the legal entity as a social
reality in which the state recognizes or assigns own individuality,30 different from the people that
form, as when it is used as a protective screen for that carry out acts in fraud of the law or to the
27
Duncan Kennedy, 'Two Globalization Of Law & (And) Legal Thought: 1850-1968' (2002) 36
Suffolk UL Rev 634.
28
F. M Stenton, Anglo-Saxon England (Clarendon Press 1971).
29
Ibid 28
30
Charles L. Barzun, 'Causation, Legal History, And Legal Doctrine' SSRN Electronic Journal 5.
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15
detriment of third parties.31 If the formal structure of the legal entity is used in an abusive
manner, the judge may dismiss it to fail the result contrary to law is pursued, for which you must
break the hermetic that features, that is, with the radical separation between the entity and its
component members. For example, it has been indicated that several legislations accept the legal
personality under the state procurement.32 Some of the harmful behaviours that can be committed
as a result of abuse of the corporate figure:
Companies in which all power management and decision focuses on a single partner
and yet take the form of limited liability companies or joint stock;
Deviation of social purpose;
Companies Constitution by the figure of prestanombres (to do legal or illegal
transactions under somebody's name) and

Creating societies to cause damage to third parties.33
Every day took greater entity figure of personality or lifting of the corporate veil in order to
tackle effectively the manoeuvres that far from focusing on the satisfaction of social purpose, to
31
Paulo A. Aleixo and Clive R. Hollin, 'Response Bias And Lay Conceptions Of Personality And
Moral Reasoning In Offenders' (1996) 1 Legal and Criminological Psychology 231.
32
Herrick K Lidstone, 'Piercing The Corporate And LLC Veil' SSRN Electronic Journal 18.
33
Mark Herkenrath and Volker Bornschier, 'Transnational Corporations In World Development

Still The Same Harmful Effects In An Increasingly Globalized World Economy?' (2015) 9 JWSR
105.
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16
refer to comply with personal interests by undermining the figure corporate and using as a tool to
disregard the rights of others.34
It is pertinent to note that the personality or quality of subject of law of society, with which it
can penetrate to the people who are hidden by the veil of legal personality, may be the result of
an absolute simulation action society or invalidity for unlawful object, in which case it is feasible
from a legal point of view to talk about actual or "absolute" or good can be reached to the lack of
personality when the result of the attempted action is ineffectiveness about a particular lender,
event in which it would be in front of a "limited" or "partial" and can be stated that acquires a
conventional value, or when as a result of the exercise of the action, to open a tender process for
a one extending the other.
This also saves the relationship with joint and several liabilities of directors for losses
by fraud or negligence of the company,35 the partners or third parties. Also, establishes to
criminal liability for those who are in one of the hypotheses set forth therein.
It should be noted that the right is a function that should be exercised to comply with the social
order and on the basis of strict justice, i.e. not pierce the limits of morality; because - as they say
the drafters of this theory - "cannot accept the right to the exercise of the powers with
34
Max Radin and Alexander Nekam, 'The Personality Conception Of The Legal Entity' (1939) 52
Harvard Law Review 1313.
35
M. J. Trebilcock, 'THE LIABILITY OF COMPANY DIRECTORS FOR NEGLIGENCE' (1969)

32 The Modern Law Review 501.
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17
arrangement rules, requires them to be exercised not only without prejudice of others, the social
whole, but also with the intention of not dance with a legal and moral order simultaneously "36.
In order to implement the lifting of the corporate veil in the fight against money laundering
coincide three cases, which give place to lack of personality:
When individual companies are used "in breach of the law or third-party damage".37 A
provision establishing a responsibility of the company's owner and administrators when
that is used in breach of the law or to the detriment of third parties.

The matrix respond subsidiary way the obligations of the subordinated when the
situation required concordat or settlement has taken place because or because of actions
of the matrix or control ante because of subordination.
It is demonstrated that the partners used the company to defraud the creditors, and the assets of
the compulsory settlement are insufficient to cover the total of recognized credits, said members
will respond by missing external liabilities in proportion to the rights that everyone has in
society.
Expressed above, from the point of view of civil law, it is estimated that the mechanisms
through which materializes the figure of personality are:
The simulation action
36
Kwall, Roberta Rosenthal. "Copyright and the moral right: is an American marriage
possible." Vand. L. Rev. 38 (1985): 1.
37
Stefan Grundmann, 'Regulating Breach Of Contract The Right To Reject Performance By The
Party In Breach' (2007) 3 European Review of Contract Law 133.
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18
The absolute nullity of the company (object or unlawful cause).38
In the case of compulsory liquidation in the fight against money laundering, should go to the
criminal law since the Criminal Procedure Code in section 161 of United States of America,
expressed that will place the cancellation of the legal personality of companies and organizations
dedicated to the development of criminal activities or closure of their sites or establishments
open to the public.39 When at any time of the official public server process finds demonstrated
that dedicated themselves wholly or partly legal persons, companies and organizations to the
development of criminal activities, shall order the competent authority, prior compliance with
legal requirements to do so, proceed to the cancellation his legal status or close its premises or
establishments open to the public.
Therefore to be the legislature set up the mechanism established in appointed Article 61A of
United States of America consecrated a more effective tool, which is why there is no place to
consider a viable alternative to compulsory liquidation so that once cancelled the company's
legal personality only fit to proceed to immediate liquidation of the assets of the corporate entity.
To prevent, detect or repress money laundering through
the corporate figure, the Superintendence of Companies has today mainly with the powers it
38
Arthur Taylor von Mehren and John Henry Merryman, 'The Civil Law Tradition: An
Introduction To The Legal Systems Of Western Europe And Latin America' (1970) 83 Harvard
Law Review.
39
Munir Ahmad Mughal, 'Distinction Between Summary And Regular Trial Under Code Of
Criminal Procedure, 1898' SSRN Electronic Journal 8.
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19
granted,40 by which can, among others, ask any commercial company unsupervised by
the Banking, information that requires about legal status, accounting, economic and
administrative or on specific of any of these operations.
As we have seen, the legal acceptance of the possibility of lifting the corporate veil of a company
encounters difficulties of various kinds. Among them it is worth mentioning, the main way,
the long-held view that the implementation of procedures legally required to be a legal person
should have as a necessary consequence the permanent acceptance that it is a different entity of
members and that this is the reason which justifies its regulation as such.41 This statement implies
the impossibility of imputing liability to the members formally the activities developed by the
company.
Thus result arbitrary, in the true sense, state intervention to destroy the shield with which count
the actions as protection of their personal assets, but it should be noted that it is clear that this act
can be applied only for ethical reasons and constitutional to justify their low origin certain
conditions, which is activated when the legal person "is used abusively, separating the licit
purposes in the third injury that relate legally with society, are such contractual relationships or
any another class".42
Regarding this subject to the conditions to be able to legally lift the corporate veil ranks the
alleged abuse of legal personality in three categories a) circumvention of the law, b) fraud or
40
Fred R. Shapiro, 'The Most-Cited Articles From The Yale Law Journal' (1991) 100 The Yale
Law Journal 1451.
41
Robert B. Thompson, 'Piercing The Corporate Veil: An Empirical Study' (1991) 76 Cornell L.
Rev 1036.
Corporate Veil
20
breach of contract, c) fraudulent damage caused to third parties and some alleged between a
mother company and a subsidiary. With his study up to the conclusion that the formal structure
of the legal entity may be in two cases: a) When improperly used for illicit purposes and b) to
ensnare certain standards with the legal person.
In the Colombian legal system, there are events in which manifests the lifting of the
corporate veil theory and therefore restrict the risk limitation principle of the partners
individually considered.43 Thus and for example, (i) subsection four of Article 105 of the
Commercial Code of United States of America provides that members and who act as
administrators respond unlimited and severally liable for the external liabilities and the damage
caused. Similarly (ii) paragraph of Section 148 of the bill 222, 1995 Scotland states that when a
situation mandatory or settlement is produced by it or by reason of the actions which realizes the
parent company or because of subordination and interest this or any of its subordinate and
against the interests of society as concordat, the matrix respond in a subsidiary manner by the
obligations.44 Finally, (iii) the first paragraph of the same law states that when the settlement
42
Michael Carey, 'Piercing The Veil When Corporate Subsidiaries Commit Torts' SSRN Electronic
Journal 13.
43
Francisco Reyes, 'The Colombian Simplified Corporation An Empirical Analysis Of A Success

Story In Corporate Law Reform' SSRN Electronic Journal 417.
44
Ibid 44
Corporate Veil
21
assets are insufficient to cover the total of recognized credits and it is shown that the partners
used the company to defraud creditors, will be responsible for payment of the missing external
liabilities in proportion to the rights that everyone has in society.45
Although the stated assumptions do not exhaust the situations spectrum the theory that has been
commenting, it is clear that from his reading to extract some of the key underlying
application. Indeed, it is clear that it is feasible to ignore the equity and out to partners, before
legally hidden if (a) the reasons that induce celebrate the articles of association are unlawful or
benefits to which they oblige partners or society are unaware of the law or order; (b) if the
mandatory situation concordat or settlement in which is the society and prevents it to cover its
obligations was caused by the activity of society or matrix in their own interest or other
companies related thereto; (C) the incorporation of the company in liquidation, was intended to
defraud or evade the action of creditors or was used for this, and lacks resources to cover its
external liabilities.46
In this way we can see that as a general rule we have when society is used for purposes other
than those that support its regulation in the legal systems, i.e., expressed in its purpose, such as
the development of prohibited activities or the lack of rights creditors or shareholders of the
same company, the State is entitled to interfere with its action. This may have among its purposes
45
Ibid 44
46
Charles Henry Butler and Samuel B. Crandall, 'Treaties, Their Making And Enforcement.'
(1916) 10 The American Journal of International Law 192.
Corporate Veil
22
(a) the labour protection, (b) ensuring the integrity of assets of third parties, (c) the protection of
the integrity of the legal system and (d) the safeguarding of good faith.47
From a fundamental doctrinal point of view, the above analysis helped to confirm the basic ideas
related to the scope of the limitation of the principle of financial liability and the restrictions that
should preach this principle.
The theory of the corporate veil of the survey deals with the judicial development of
investigative techniques for preventing fraud and abuse by the instrumental use of legal
personality, enabling the court to dispense with the legal formality that takes an organization
to inquire inside the goods and people that underlie behind a legal personality.
This doctrine comes as a judicial effort to distinguish the legal appearance of reality,
particularly in the matters of economic and tax law, where the legal organization that adopts the
capital is again and again transformed to achieve a dominant position in the market, gets tax
benefits, so legal requirements of incorporation or operation, etc.48 This theory overcomes the
traditional principle of radical separation between the entity and the members who compose
it; relativize the presumption that a legally constituted entity has a will, differentiated from the
individuals who are part of it. Thus, the judge can detect cases of abuse of legal personality when
it is used for a different purpose that motivated its creation: can be prosecuted for a parent
company that operates through subsidiaries, blaming them all the business transacted.49 It can be
47
Party In Breach' (2007) 3 European Review of Contract Law 123
48
Ibid 48
Corporate Veil
23
identified in court the holder of an economic organization under different legal identities, using
human labour without appearing as a contractor employer.
The compared experiences that have adopted the doctrine of the corporate veil of the survey have
in common their legal origin; it is a legal technique or practice that is developed as a way
to investigate the material truth beyond the attachment to legal formality. Only after that said
judicial experience decant or appear more defined its content, arises the legal recognition that
precisely approves the technical and conclusions of the judicial proceedings.
Including the legal recognition of lifting doctrine of corporate veil generalized beyond the
judicial experience that gave rise to it, becoming usual standards in several countries to face the
judicial investigation in some sensitive materials, commonly referred to the behaviour of
economic organizations; for example the regulation of joint performance of companies listed in
the stock market; fraudulent simulation cool reception in tax matters; classification of different
forms of money laundering offense; etc.
As for the lifting of the corporate veil in Colombia the State Council ruled in the sense
that the formal structure of the legal entity uses an abusive manner, the judge can the rule to fail
the result contrary to law is pursued by which has to break with the hermeticism that features,
that is, the radical separation between entity and its component members. This abuse has a place
when the legal person is used to mock the law, for breaking obligations to achieve unlawful
purposes and generally to defraud.
In the Colombian legislation accepts the legal personality under the state contract in the
aforementioned Article 8 ordinal 1or lit i) of the Act 80 of 1993.50 From the perspective of the
law 1990 of 1995, it has clearly been dictated labour standards, administrative, criminal and
financial to eradicate administrative issues. It was said in Art. 44 in Colombia: "The judicial
49
John Wisdom, 'Appearance And Reality' (1977) 52 Philosophy.
Corporate Veil
24
authorities will lift the corporate veil of legal persons when necessary to determine the true
beneficiary of the early activities for this".51
This provision is to prevent object by the formation of a society existing prohibitions and
incompatibilities for individuals, to impede the investigation of crimes against the public
administration or legalize and hide assets from illicit activities. To this end, the company will no
longer be different partners, but to rise up the corporate veil (lifting the corporate veil) and
discover the hidden benefit.
On the other hand, the Constitutional Court in Latin America in the 2004 C-865 sentence
assessed whether the legislator incurred in a legislative omission unconstitutional character to not
look in the Commercial Code, and in particular Article 373 of said statute, the shareholders of the
corporation they should respond patrimonial for labour liabilities.52
The Constitutional Court ruled that the charge of unconstitutionality formulated against Article
373 of the Commercial Code of Latin America successful vocation lacked.53 To reach this
50
Eduardo Zuleta, 'COLOMBIA' (2012).
51
Jose Maria Lezcano Navarro, Piercing The Corporate Veil In Latin American Jurisprudence 79.
52
Herrick K Lidstone, 'Piercing The Corporate And LLC Veil' SSRN Electronic Journal 1.
53
'Bankruptcy And Article Two Of The Uniform Commercial Code: The Right To Recover The
Goods Upon Insolvency' (1966) 79 Harvard Law Review.
Corporate Veil
25
conclusion, the Court has developed a composite argument fundamentally by six levels as
follows:
At the initial level, the Court identifies ascribed positions to constitutional rule
enshrining the right of association stating that this law guarantees not only the decision
to associate with the object of giving place to the birth of a legal person, but also the
decision not to do.54
Similarly determines the sentence, in the abstract, the reasons on which can be sustained
restrictions imposed on the right of association. Thus, the Court notes that such restrictions may
be established (i) the constitutional prohibition to exercise abusively rights, (ii) the requirement
to respect the rights of others and (iii) the need to safeguard public morality, national security,
legal certainty and public order.
After making reference to the nature of corporations and societies, stopping on

highlighting the attributes that fit attribute to such type of entities, the Court puts of relief
the importance of structuring the assets of such organizations. After recognizing the
transcendence of asset separation generated by the company, the sentence warns that it is
the responsibility of the legislature to determine the way in which they must operate each
of the personality attributes in the development of society. Thus the sentence warns, the
legal basis 17 that "In accordance with the provisions of Article 150 (nums. 2 and 8) in
accordance with Article 189 (num. 24) of the Constitution, corresponds to him to the
legislature regulate not only the name of the corporate types (such as collective
54
Ibid 54
Corporate Veil
26
societies, limited liability, joint stock, mixed, etc.) but also set the preservation of its
attributes as legal entities".55
The expanded field which recognizes him the legislator in this matter allows, as noted,
this determines the way in which they articulate the various attributes of society and, in words of
the Court, to what extent the attributes that define your personality they operate with greater or
lesser intensity.
Later the sentence stands as equity in both the personality attribute, accentuates its
strength with a different power depending on whether capital companies or
partnerships. Indeed, in the first, the relevance of heritage reveals itself with a power such
that it is accepted, prima facie, and an extreme asset separation.56 That is, the
shareholders' equity, in principle, can never be seen affected as a result of the activities of
the society. On the contrary, in the second type of companies, equity mitigates their
strength such that the equity in communication wanes and therefore the equity partners
can result compromised by reason of the company's activity.
55
Goods Upon Insolvency' (1966) 79 Harvard Law Review 602.
56
Ibid 56
Corporate Veil
27
The preference for legislative considerable asset separation in case of corporations pursuing in
view of the Court, constitutionally permissible purposes, such as allowing circulation of wealth
as a medium suitable to achieve the development and economic growth.57
The Constitutional Court ascribes to risk limitation principle of shareholders of

corporations a right to the same content that would first like holders or holders of the
right to shareholders and second, as the recipient of the right to the state.58 The right of
the object consists of a negative action that would prohibit the state, prima facie, to affect
the situation of equity incommunicado between shareholders and society. The
construction of this right leads the Court to accept their relative or limited nature and,
consequently, to admit that it is feasible to impose some restrictions exercise. Such
restrictions, considering that the establishment of a corporation is the manifestation of the
right of association, are based on the same reasons provided for the restriction of the
general right of association. In this sense, the right of shareholders to equity
incommunicado can be seen restricted, according to the sentence, by the need to
safeguard the rights of others and to prevent its development abusive as means of fraud
57
Ibid 56
58
Mathias M Siems and David A Cabrelli, Comparative Company Law.
Corporate Veil
28
or deceit and in the interest of preserving public morality, national security, legal
certainty and public order.59

The next level of argumentation that develops the sentence is directed to determine
whether the Constitution defines a certain corporate regime that requires, for example, a
particular level of intensity equity incommunicado and, consequently, a specific system
of liability of shareholders anonymous society.

The Court, as it was pointed in the literal B of his argument says that the Congress is
rooted wide competition to define the issues related to such matters. Nevertheless,
although the sentence admits that the legislature can set different types of societies with
different levels of risk, also establishes that the Congress corresponds to him - that is that
Congress must - preserve the attributes of society.60 The said duty, prima facie, to
preserve the attributes of society has the correlative right - not final - the shareholders
that do not affect its financial incommunicado situation. The articulation of such
fundamental positions seems to lead the Court to the structuring of a rule with the
following content:
o Shareholders of corporations have the constitutional right to the conservation of
its assets situation. This right shall be restricted by the legislature through the
59
European Parliament's Committee on Legal Affairs, 'Rights And Obligations Of Shareholders'

(European Parliament 2012).
60
Amina Akbar, 'An Analysis Of The Corporate Insolvency Laws: With Focus On India - Current
Legislative Framework, Comparative Study Of The Insolvency Regulations In US And UK
Regimes Vis-A-Vis India' SSRN Electronic Journal.
Corporate Veil
29
establishment of a liability regime which must (a) be formulated from special and
specific circumstances that require such kind of restrictions, (b) respect the
principles, values and rights of the Constitution and (c) subject to the
requirements derived from the principles of proportionality and reasonableness.61

The next argument, the Court sets out additional reasons that strengthen the constitutional
linkage of the right of shareholders to respect the equity incommunicado. In fact, (a)
developing an approach to economic constitution, (b) exposing the historical importance
of corporations - specifically the corporation - and (c) highlighting the importance of
asset separation in determining the value of shares, the measure indicates that the absence
of such separation would jeopardize the proper functioning of public market values to
which are articulated very important wealth of circulation processes.62
In this way, the right of shareholders mentioned boasts. On the one hand, as said, is derived from
its fundamental rule which enshrines the right of association, and on the other, ascribes the
requirements that are derived from some of the rules that do not focus on the economic
constitution. Supported by such arguments the Court collects in one point the clincher: "So
things are legal entities of limited risk are structural pillars for the development of the country,
61
Neil Cooper, 'A Perspective From A UK Insolvency Practitioner' (1995) 4 Int. Insolv. Rev.
62
Gabriel Moss QC, 'The Impact Of The EU Regulation On UK Insolvency Proceedings' (2002)
11 Int. Insolv. Rev.
Corporate Veil
30
does not admit any discussion the fact attend its attributes, would at risk the stability and
economic order as essential purposes of the State.
As the liability of legal persons in the commission of an offense the Court in Judgment C843 of 1999 considers that "provides the judge to impose the legal representatives, directors or
employees" involved ", by act or omission, in criminal conduct, custodial sanctions of freedom,
but without setting the maximum or minimum or neither correspondence between each of the
possible penalties and the various behaviours contemplated in articles 189, 190, 191 and 197 of
the Penal Code of United States of America.
"As can be seen, escaping all the principles of criminal law and contrary to
constitutional guarantees of liberty and due process, the judge results authorized by the standard
to impose, if you like," private sanctions of freedom".63 It is true that one could say that these
penalties are the same, but it is not clear that they are, as the letter of the rule does not appear that
relationship.64 And in criminal law cannot be admitted to the analogy or the extent of some other
standards for the consecration of feathers. "
In the same vein, the jurisdictional branch and the Public Ministry have the necessary legal
instruments to counter terrorism and organized crime, allowing the law governing mechanisms
such as the burden of proof of investment to determine the lawful origin of goods the lifting of
63
Fritz Redlich, 'Sanctions And Freedom Of Enterprise' (1951) 11 J. Eco. History 271.
64
Jose Maria Lezcano Navarro, Piercing The Corporate Veil In Latin American Jurisprudence 79.
Corporate Veil
31
the corporate veil for responsible individuals of wrongdoing not behind the legal personality of
companies.65
As for parent companies and subsidiaries; subordination that is defined in the Trade Code, "a
company will be subordinated or controlled when its decision-making power lies submitted to
the will of another or others to be their mother and directly or indirectly, in which case one be
called subsidiary, or the competition or through subordinate matrix, in which case will be called
subsidiary "and exemplified there, as the responsibility of those has its regulation paragraph of
art. 148 of Law 222 of 1995,66 concerning which the Court ruled in the following sense "this is
not a primary responsibility but subsidiary, i.e. the parent company is not liable for payment of
but low acreencias the assumption that it cannot It is taken by the subject, which united the legal
assumption that the actions from that have local because of the subordination and interest to the
headquarters or another subordinate, evil seeks to restore the balance between debtor and
creditors, preventing these result defrauded.67
Also considers the Court that the object of presumption is not the responsibility itself but the
tender situation that gives place to it, that is, the link between the decisions of the matrix and the
65
Phillip I. Blumberg, 'The Corporate Entity In An Era Of Multi-National Corporations' [1990]

Delaware Journal of Corporate Law 292.
66
Goods Upon Insolvency' (1966) 79 Harvard Law Review 602.
67
Ibid 67
Corporate Veil
32
balance effect caused to society subject (...) it is then a rebuttable presumption which can be
distorted by the parent, or its related, demonstrating that their decisions did not cause the
economic destabilization of the branch or subsidiary, but that it comes from different reasons.
As the previous complement, the Colombian law found that in terms of tax payments
"partners, partners, members are jointly liable for taxes of the corresponding company to
years 1987 and following the division of their contribution in the same and time during which
have possessed the appropriate period. Let expressly established that this joint and liability does
not involve sanctions and interests, or updates for inflation. Solidarity of this article shall not
apply to corporations or treated as anonymous".68
On the other hand, the legal personality in the labour field "are jointly and severally liable for all
the obligations emanating from the employment contract the partnerships and their members
and among themselves in relationship to the social object and only up to the limit the
responsibility of each partner of the same company together while remaining in In division ",
(i.e., in so-called partnerships the partners are responsible for labour liabilities left pa gar by
society). The judicial interpretation of this precept has it considered applicable not only to the
collective societies, but also the only societies with limited liability. Apart from this standard
were demanded before the Court, but this was declared inhibited to fail on the aside underlined
of this article by the ineptitude of the demand.69
68
Kim Joo-suk, 'Review Of 2011 Corporate Tax Law And Income Tax Law Cases' (2012) 18 Seoul
Tax Law Review.
69
Ibid 69
Corporate Veil
33
CHAPTER 3: RESEARCH FINDINGS
Common Law vs. Civil Law

Mainly for the purpose of understanding the comparative law of disregard of legal personality,
we must first understand the context the legal system in the country under study is inserted
dealing briefly with Penetrating doctrines of other countries.70 The treatment is not limited, either
in the number of jurisdictions treats or the laws of jurisdictions explored. The doctrine of
piercing the corporate veil is employed by the courts, both in the common system as Law in Civil
Law countries. In countries of Common Law, as the United States and England,71 fluidity and
uncertainty of indoctrinating drilling may be decreasing as precedents continue to develop and as
judges and scholars are able to compare and contrast the law in different jurisdictions through the
use works like this treated. However, in the United States jurisdictions, both state and federal,
continue to develop their own ideas when the doctrine is applied by traditional common law by
case methodology. In countries of the Civil Law, on the other hand, the common law system of
70
Harshit Saxena, 'Lifting Of Corporate Veil' SSRN Electronic Journal 2.
71
Matthew Dyson, 'Civil Law Responses To Criminal Judgments In England And Spain' (2012) 3
Journal of European Tort Law.
Corporate Veil
34
dependency may well have done the law of piercing the corporate veil is even more uncertain
than that of US jurisdictions American.72
Theoretically, at least, under the traditional model of Civil Law is accordance with the traditional
model of Civil Law, which is the only guide, and the previous court is not binding. However,
many of the Civil Law countries adopted the doctrine piercing, and they have tried to rationalize
it by reference to the code provisions particular its jurisdiction. Scholars in these countries of
Civil Law have been trying to establish clearer rules for when the legal person should be
disregarded. For example, the German scholar Rolf Serik, noting that the German
courts have tended to "penetrate the form legal personality "without base its decisions on a solid
foundation, tried to remedy the situation. Serik, making the observation that the traditional
American doctrine drilling (disregard) is founded on equitable notions; he argued that a judge
should be able to impose liability or restructure a legal entity in order to avoid an outcome unfair
where the corporate form was abused.73 But despite the efforts of scholars to establish a set of
principles for the doctrine of disregard, perhaps as a result of the inherently uncertain nature of
concepts equity, the courts of Civil Law countries, seem to invoke the doctrine in the same way
unpredictable as do the courts of countries Common Law.74
72
Sally S Simpson, Corporate Crime, Law, And Social Control (Cambridge University Press
2002).
73
Hans A. de Savornin Lohman, Duties And Liability Of Directors And Shareholders Under
Netherlands Law (Kluwer Law International 1996).
Corporate Veil
35
Corporate Veil Piercing

This study is concerned with the disregard of corporate personality. THE corporate veil piercing
refers to the situation where a partner is responsible for its corporate debt, despite the rules of
limited liability and / or personality separated. Many other terms are used to describe the same
reality. Such other terms in English are "lifting the veil", "Disregarding the corporate entity or
personality", "looking for the company.In French, the disregard is generally referred to as" la
levee du social voile " L'erasing it personnalit juridique "," la mise l'cart des la Effects
personnalit moral "," La relativit de la personne morale ". In Dutch, it is usually referred to
as "Doorbraak van (Edit) aansprakelijkheid "and" vereenzelviging.In German, the legal lexicon
talks about "Haftungsdurchgriff" or "Durchgriffshaftung". The corporate veil piercing is a
generic term that covers several realities much different.75 And the term is not understood in the
same way as the different legal systems which are the object of this study. But even within a
single legal order, the concept can cover various realities.76
74
Antonio Gidi, 'The Class Action Code. A Model For Civil Law Countries' (2013) 15
Comparative Law Review.
75
Stephen B Presser, Piercing The Corporate Veil (Thomson/West 2005).
76
Stephen Judge, Company Law (Oxford University Press 2010).
Corporate Veil
36
The problem that arises is how to delineate the scope of "piercing the veil" phenomenon. The
drilling of corporate veil has legal basis independent responsibility. Situations that are covered by
the "piercing the veil" law in some legal systems are covered by statutory laws in another
group. Consequently, in many cases, it would be Artificial to distinguish between the two types
of holder responsibility. We, therefore, included in this study a number of "independent" bases
for shareholder liability who they are able to achieve the same goal as the veil piercing law.
These bases are, among others, civil liability, the rules of the corporation Law on maintenance of
capital, conflicts of interests and responsibilities of administrators, fraudulent transfer law, and
the law on voidable preferences. Many veil-piercing decisions cover situations that could have
been treated to make Reference to these rules and theories; where these provisions fall short in
providing a satisfactory solution, typical corporate veil doctrine of drilling have an important role
to play.
Some Cases relevant to Piercing and Lifting the Corporate Veil

Salomon vs. Salomon Co
In British Common Law we can observe important variables that influenced the theories
studied in the Company Law.77 Not by chance the case law Salomon v. Salomon became the most
important precedent, whose foundation oriented decisions throughout the twentieth century in the
UK,78 and still reverberates in quotes and judicial and doctrinal discussions.
77
Matthew Hale and Charles M Gray, The History Of The Common Law Of England (University
of Chicago Press 1971).
Corporate Veil
37
Background of the Case

In the late nineteenth century, the businessman named Aron Salomon, who owns a small
company that produced leather boots, decided to limit the liability of your company on its assets,
and in accordance with the Companies Act, 1844 incorporated the same, recording the properly
under the given regiment.79
The company was registered as Aron Salomon Ltda., Having as its other six partners, his five
children, and his wife, as the law required for the incorporation of a company would be required
to at least seven members, leaving a gap of any necessary requirements for such participants in
the company.
Mr. Salomon, individual, company lent 20,000, equivalent to 1 per share, so that it
could begin its activities with capital. Thus, the company gave a promise of preferential
payment Mr. Salomon, leaving it as the primary creditor if the company became insolvent.
The company was evil in the following years as the major buyer was the British
Government, and it decided to diversify purchases from all producers. Faced with such a
situation a trustee was appointed to liquidate the assets of the company and pay your creditors. It
was then found that no lender would receive their corresponding values, as the first lender was
Mr. Salomon, and the assets of the company would not be sufficient to discharge all debts.
In 1895, the British Court received the case and then decide on the disregard of legal
personality in the company Aron Salomon Ltda. This is where you open the field of discussion
78
Salomon v Salomon & Co [1987] UK, AC 22
79
Marc T. Moore, 'A Temple Built On Faulty Foundations: Piercing The Corporate Veil And The
Legacy Of Salomon V Salomon' [2006] Journal of Business Law.
Corporate Veil
38
and analysis of what was decided by both the Court of Appeal as the House of Lord s, today
British Supreme Justice Court.
Salomon Decision
The Court of Appeal, to examine the case, kept his attention on the intentions of the
legislator and businessman, who incorporated his company with its six partners who did not
have bona fide and independence. The respected judge Lindley LJ made it clear that
the Companies Act, 1862 was used with different purpose the intention of the legislators, as his
words: "Mr. scheme Aron Salomon is an instrument to defraud creditors".80 Thus, the votes of the
Court of Appeal decided to authorize the disregard of legal entity and pursue the personal assets
of Mr. Salomon to pay off the debts with creditors, stating that the Court struggled to find a legal
remedy to base their view of the law abuse.
But in 1897, the case went to the House of Lords. Given the importance of the case to the
Corporate Law, remember that we are talking about a judgment of the nineteenth century, which
still governs the structuring principles of piercing the corporate veil in Common Law.
It is noteworthy that, while the Court of Appeal turned his attention to the legislature's
intention to create a rule that Mr. Salomon has infringed, the House of Lords deconstructed this
idea, ensuring the strict application of the legal standard. The Supreme Court confirmed that the
merger would create a new objective reality, and that made possible this by the standard, doing
business in this format would not result in infringement, much less in some injustice to third
parties, as stated by Lord Halsbury, one of the judges of the Court on third in good faith: "they
only have to blame Themselves for Their misfortune".
80
Party In Breach' (2007) 3 European Review of Contract Law
Corporate Veil
39
It moving away a little of the case and analyze with some care what we are discussing in
late 1800. First, there is the figure of Corporate affirmed by the law, in which small businesses
start understanding and the law of intelligence to perform their business. In the background, we
have the Justice respecting the new figure created, and more, affirming their role in society and
their relationships.
Respect for Legal Entities at the time, and in this region of the world, starts formatting
the same way will be governed by the United Kingdom in the next 100 years, where bases are
constructed of legal certainty, which will provide for region economic growth already well
known. For instance, according to a survey conducted in 1999 by the British Parliament,
the House of Commons: "Since 1900 GDP per capita at constant market prices rose by an
estimated 298%.".
In the words of The Times editorial : "The merger was perfect, it could not be
prevented. All the Statute of the requirements has been met and they found no evidence of fraud
part. That is, the article states that the decision given by the Court notes that the apathy of
creditors cannot justify the conviction for fraud against someone who gave all the information
requested by the standard, and this is what should face the consequences.
In fact, the business community in the region was grateful for the new regulatory
standard. The case Salomon v. Salomon became the rule in litigation against companies and their
partners, creating a very complex environment to be penetrated, called Piercing the Corporate
Veil.81
The importance of legal separation between the corporate and individual, linked to the legal
certainty of the restricted application of the legal norm, has impactful business results. There are
81
Peter S. Spiro, 'Clarifying The Rules For Piercing Of The Corporate Veil' SSRN Electronic
Journal.
Corporate Veil
40
few if quotes now studied in local jurisprudence and natural understanding of society that respect
of activities undertaken by the company are not equivalent to its shareholders. Not so the British
Court will no longer disregard the legal personality where the company is incorporated in order
to avoid responsibility for pre-existing obligations.
Therefore, it is not by chance that the UK remains with its common law system
commendable, where judges of all instances respect the understanding of the Court Maximum of
Justice, leading to civil and commercial society with a security that is considered fair and
suitable for relations, and legal certainty as a priority of the judiciary. Not an innovative idea for
our inspiring Englishmen who brought it in the nineteenth century.
Prest v. Petrodel Resources
The Supreme Court of United Kingdom recently released an important judgement
indicating the ability of the judges in the region related to the piercing of corporate veil: Prest v
Petrodel Resources Ltd, 2013 UKSC 34. In the case, the Court addressed an important question
that remained unaddressed in VTB Capital regarding the jurisdiction of the courts to pierce
corporate at all.82 Moreover, it was indicated that the possibility of piercing the corporate veil
may exist under exceptional circumstances. In this regards, the Court outlined new tests related
to the piercing of corporate veil, which is likely to have a significant influence worldwide.83
82
Nicholas Grier, 'Piercing The Corporate Veil: Prest V Petrodel Resources Ltd' (2014) 18
Edinburgh Law Review.
83
McArdle Wayne and Jones Gareth, 'Prest V. Petrodel Resources And VTB Capital V. Nutritek: A
Robust Corporate Veil' [2013] Bus. L. Int'l 14.
Corporate Veil
41

The litigation came into existences based on the ancillary relief following the divorce. Prest, was
the ex-wife of the owner of several companies and had the power to control them, including the
companies under the respondent. It was found that the ex-husband failed to fully disclose
essential information related to finances, which the Supreme Court characterised by persistent
obstruction, obfuscation and deceit, and a contumelious refusal to comply with rules of court
and specific orders (para. 4).
At the trial, the court made a decision where 17.5 million was awarded in terms of
payment, followed by another 4 million matrimonial home. Moylan J. also ordered in the case
that 3 companies controlled by the ex-husband should be conveyed to her to satisfy the
judgement.84 In order to do so, it was found that the judge recognized that the policies and laws
would not permit piercing the corporate veils of the respondents, which can only be done in the
case of abuse of the company. However, the judge found that the corporate law can be pierced in
common law under Matrimonial Causes Act 1973 (U.K.).
On the contrary, it was found that the ruling of Moylan was considered void under English Court
of Appeal. In particular, it was indicated that the ability to pierce the corporate veil in family
cases was different in terms of context. Since there was no evident of the abuse for an improper
purpose of the legal personalities; therefore the respondent cannot be ordered by the court to
convey the properties (i.e. three of the companies by the respondent) to the appellant.
84
D. Lightman and E. Hargreaves, 'Petrodel Resources Ltd V Prest: Where Are We Now?' (2013)
19 Trusts & Trustees.
Corporate Veil
42
Prest Decision
The United Kingdoms Court of 7-member panel unanimously overturned the judgment
of the Court of Appeal. In addition, it was found that the Supreme Court agreed that corporate
veils cannot be pierced under common law, which makes the jurisdiction void under the
Matrimonial Causes Act 1973. However, it was found that the respondent could be ordered to
convey the assets to the appellant. Taking this into consideration, a considerable amount of
attention was given by the court concerning the possibility of piercing the corporate law in the
United Kingdom.85
Lord Sumption gave the leading judgement in this case. Lord Sumption observed that [t]he
separate personality and property of a company is sometimes described as a fictionthe fiction
is the whole foundation of English company and insolvency law. (para. 8) Further, he noted
that the expression piercing the corporate veil was often applied in different situations and
circumstances, where the separate legal personality was not disregarded. In this regards, Lord
Sumption suggested that when we speak of piercing the corporate veil, we are not (or should
not be) speaking of any of these situations, but only of those cases which are true exceptions to
the rule in Salomon i.e. where a person who owns and controls a company is said in certain
circumstances to be identified with it in law by virtue of that ownership and control (para. 16).86
85
D. Lightman and E. Hargreaves, 'Petrodel Resources Ltd V Prest: Where Are We Now?' (2013)
19 Trusts & Trustees.
86
Simon Duncan, 'Freezing Orders; The Difficulties Introduced By The Decision In Prest V
Petrodel Resources Limited' [2014] Amicus Curiae.
Corporate Veil
43
In terms of doctrinal development, the jurisdiction of piercing the corporate veil, by Lord
Sumption, was the aversion to fraudulent conduct. Several examples were given by Lord
Sumption of this basic tendency, which included the vitiation of judgements and contracts
founded on frauds, along with the courts refusal of permitting fraud upon the statute. Lord
Sumption, then, reviewed the corporate veil jurisdiction under English laws, which resulted in
the conclusion that the ability to pierce the corporate veil is well established under English laws.
Furthermore, Lord Sumption concluded that majority of the cases had recognised the power of
the court, to pierce the corporate veil, did so in obiter; whereas courts that have applied it could
have solved the case on other grounds. The estimation of Lord Sumption suggested that the
recognition of a limited power to pierce the corporate veil in carefully defined circumstances is
necessary if the law is not to be disarmed in the face of abuse, and it is consistent with the
general approach of English law to the problems raised by the use of legal concepts to defeat
mandatory rules of law. (para. 27)87
The most interesting aspect of the judgement of Lord Sumption was the distinction between the
evasion principle and the concealment principle, which he defined as The concealment
principle is legally banal and does not involve piercing the corporate veil at all. It is that the
interposition of a company or perhaps several companies so as to conceal the identity of the real
actors will not deter the courts from identifying them, assuming that their identity is legally
relevant. In these cases, the court is not disregarding the facade, but only looking at it to
discover the facts which the corporate structure is concealing. The evasion principle is different.
It is that the court may disregard the corporate veil if there is a legal right against the person in
87
Corporate Veil
44
control of it which exists independently of the companys involvement, and a company is

interposed so that the separate legal personality of the company will defeat the right or frustrate
its enforcement. Many cases will fall into both categories, but in some circumstances, the
difference between them may be critical (para. 28).
More importantly, Lord Sumption concluded that corporate veils can only be pierced to
avoid the abuse of corporate legal personality, which was defined as the attempts to evade the
law or to frustrate its enforcement through the use of the corporate personality. It does not
include cases where one cause[s] a legal liability to be incurred by the company in the first
place or relies upon the fact (if it is a fact) that a liability is not the controllers because it is
the companys, since that is what incorporation is all about (Ibid). In the end, it was
proposed by Lord Sumption that the following test can be conducted related to piercing the
corporate veil;
I conclude that there is a limited principle of English law which applies when a person
is under an existing legal obligation or liability or subject to an existing legal restriction which
he deliberately evades or whose enforcement he deliberately frustrates by interposing a company
under his control. The court may then pierce the corporate veil for the purpose, and only for the
purpose, of depriving the company or its controller of the advantage that they would otherwise
have obtained by the companys separate legal personality. I consider that if it is not necessary
to pierce the corporate veil, it is not appropriate to do so because on that footing there is no
public policy imperative which justifies that course (para. 35).88
Relating the findings and conclusion of Lord Sumption, it can be argued that the
aforementioned test was not met by the appellant. Even though, the behaviour of the ex-husband
88
Ibid 88
Corporate Veil
45
was inappropriate i.e. abuse of his power to apply the assets of the respondents for personal gains
he was neither concealing nor evading any legal obligation owed to his wife nor concealing
or evading the law relating to the distribution of assets of a marriage upon its dissolution
(para. 36).89 Furthermore, it was indicated that the ex-husband used the corporate structure of the
respondent to deny being the owner of the properties, which reflects the concealment principle.
In the result, Lord Sumption concluded that the piercing of the corporate veil cannot be
justified in this case by reference to any general principle of law (Ibid).
6 out of 7 members agreed with Lord Sumption in the treatment of corporate veil;
however, four of the members questioned the limitation of jurisdiction to pierce the corporate
veil to instances of evasion. Therefore, Lord Wilson and Lady Hale questioned: whether it is
possible to classify all of the cases in which the courts have been or should be prepared to
disregard the separate legal personality of a company neatly into cases of either concealment or
evasion (para. 92). Likewise, Lord Mance indicated that dangerous to seek to foreclose all
possible future situations which may arise and I would not wish to do so (para. 100). In this
regards, following remarks were made by Lord Clarke;
Lord Sumption may be right to say that it will only be done in a case of evasion, as
opposed to concealment, where it is not necessary. However, this was not a distinction that was
discussed in the course of the argument and, to my mind, should not be definitively adopted
unless and until the court has heard detailed submissions upon it. I agree with Lord Mance that
it is often dangerous to seek to foreclose all possible future situations which may arise and, like
him, I would not wish to do so(para. 103).
89
M. J. Whincop, 'Overcoming Corporate Law: Instrumentalism, Pragmatism And The Separate

Legal Entity Concept.' (1997) 15 Company and Securities Law Journal.
Corporate Veil
46
B Capital Plc v. Nutritek International Corp and Others [2013] UKSC 5

The case of VTB Capital Plcs (VTB) was unanimously rejected by the Supreme Court on the
basis that the corporate veil of their contractual counterparty could be pierced so as to render
those controlling the counterparty jointly and severally liable under their contract.90 However,
the approach adopted by Mr. Justice Burton that the corporate veil can be pierced, with an
intention of imposing the contractual liability on individual(s) in control of the organisation, was
rejected by the Supreme Court.91

The Russian Company (i.e. Russagroprom LLC - RAP) was loaned US$225,050,000 by VTB
under the Facility Agreement. This was primary to help the RAP to purchase 6 dairy companies
operating in Russia, followed by three companies from Nutritek.92 However, it was found that the
loan was defaulted by the RAP. The VTB case in this regards was that the company was
persuaded to enter the Facility Agreement for the loan, followed by swap agreement for the
90
VTB Capital plc v Nutritek International Corp [2013] UKSC 5 at [118] [VTB Capital]
91
Charlotte Kouo, 'Post-Prest Corporate Group Veil Piercing: Alternative Avenues To Justice."'
(2016) 4 Legal Issues J.
92
Court Supreme, 'VTB Capital Plc (Appellant) V Nutritek International Corp And Others
(Respondents)' (Supreme Court 2013).
Corporate Veil
47
interest rates. It was also indicated by VTB that Nutritek misrepresented the information making
both RAP and Nutritek severally liable for the loss. However, it was revealed that Nutritek and
RAP were not under the common control and the diary companies that were being purchased had
a higher value than presented in the case. This made the case of VTB fraudulent.93
The Court was not only responsible for dealing with the piercing of corporate veil, but it had to
first deal with the logical jurisdiction of the court. In this regards, ex parte permission was
obtained by VTB, which served as a platform to move the respondents out of jurisdiction.
Judgment of the Supreme Court
The first concern was related to the jurisdiction of the court. It was revealed that the court
concluded that it was governed by the English law instead of Russian law, which made the
lowers court decision applicable related to jurisdiction by 3:2. Moreover, it was also indicated
that Lord Reed and Clarke dissented from the judgment of Lord Neuberger, Mance, and Wilson.
Case of Corporate Veil
The attempt of VTB with respect to piercing the corporate veil, the appeal of the
company was unanimously rejected by the Supreme Court, which was done on the basis of the
decision of Mr. Justice Burton in the case of Antonio Gramsci and Others v. Stepanovs.
The leading judgment was given by Lord Neuberger with respect to the issue of corporate
veil. The argument of the respondent was considered irrelevant to pierce the corporate veil. In
essence, the case of the respondent was based on the previous cases (i.e. the cases were not what
they seemed and were judged on different basis). In short, it was stated that the lifting of
93
David Davies, 'The Decision Of The Supreme Court In VTB V Nutritek' (2013) ttt073 Trusts &
Trustees.
Corporate Veil
48
corporate veil was inconsistent with the principles, contrary to higher authority, and unnecessary
for the achievement of justice.
According to Lord Neuberger, In my view, it is unnecessary and inappropriate to
resolve the issue of whether we should decide that, unless any statute relied on in the particular
case expressly or impliedly provided otherwise, the Court cannot pierce the veil of
incorporation. It is unnecessary, because the second argument raised on behalf of Mr Malofeev,
to which I shall shortly turn, persuades me that VTB cannot succeed on this issue. It is
inappropriate because this is an interlocutory appeal, and it would therefore be wrong (absent
special circumstances) to decide an issue of such general importance if it is unnecessary to do
so.
Moreover, it was also revealed by Lord Neuberger that VTB was working day and night
to have the corporate veil pierced in the case. Considering this, Lord Neuberger argued that the
case of VTB could not be supported from the decision from Mr. Justice Burton in the case of
Antonio Gramsci and concluded that However, given the principle is subject to the criticisms
discussed above, it seems to me that strong justification would be required before the court
would be prepared to extend it. Once one subjects the proposed extension to analysis, I consider
that it is plain that it cannot be sustained: far from there being a strong case for the proposed
extension, there is an overwhelming case against it.
Adam v. Cape Industries Plc
This case is amongst the leading cases on separate legal personality and shareholders
limited liability. The case has also addressed the issues related to English conflict of laws (i.e. a
Corporate Veil
49
company that is operating in foreign jurisdiction, the English court would recognise the
jurisdiction of foreign courts over the company.94
Case Facts
A UK based company; Cape Industries Plc, had a subsidiary operating in South Africa. The
company mined asbestos in SA, which were then shipped to the Texas. In Texas, the company
had a marketing subsidiary; NAAC, that supplied the shipped material to another company
operating in Texas. It was found that the employee of NAAC was ill because of the asbestosis.
Considering the position of the employee, Cape Industries Plc was sued by NAAC in the Court
of Texas. However, it was argued that the company had operations in UK and there were no
jurisdiction of hearing the case in Texas. Yet, judgment was entered against the head of the group
on the basis of breach of the duty of care (negligence) to the employees.
The judgment was enforced by the company in the courts in the United Kingdom. Since
the company did not consented to the Texas jurisdictions not it was present within the boundaries
of the United States of America, the question remained whether Cape was present through its
subsidiary; NAAC.
Judgment of the Case
The wholly owned subsidiaries have several benefits of incorporation as single person
company. In this case, it was confirmed by the court that a parent company and its subsidiaries
94
P. R. H. Webb, 'THE CONFLICT OF LAWS AND THE ENGLISH FATAL ACCIDENTS

ACTS' (1961) 24 The Modern Law Review.
Corporate Veil
50
are separate legal entities, irrespective of the fact that they are creatures of their parent
companies.95
The law recognised the creation of subsidiaries, irrespective of the fact that the subsidiaries were
under direct control of Cape Industries, they should be treated as separate legal entities. This
implies that the subsidiaries had all the rights and liabilities, which are enjoyed by any other
legal entity. Therefore, it implies that a subsidiary company with available assets can be
restructured by the parent company to avoid any action against the subsidiary from the plaintiff.96
The courts reached a similar conclusion in the case of Atlas Maritime Co SA v Avalom Maratime
Ltd (No 1), where Staughton clearly stated that parent companies have the right to directly
control the operations of subsidiary companies, but it is not the most honest way of conducting
the business. Furthermore, Staughton LJ suggested that agency relationship... would be
revolutionary.97
In light of the aforementioned case, it has clearly been indicated that parent company and its
subsidiaries are allowed to conduct high-risk business, were the liability is very limited and
95
Adams v Cape Industries plc [1991] 1 ALL ER 929 per Slade LJ
96
Ord v Belhavent Pubs Ltd [1998] BCC 607
97
Atlas Maritime Co SA v Avalon Maritime Ltd (No 1) [1991] 4 All ER 769 at 571
Corporate Veil
51
restricted. In this regards, Bokhary JA stated that it is perfectly acceptable to set up a company
to evade future liability.98
Moreover, it has been found that wholly owned subsidiaries have frequently been abused though
undercapitalisation, when these subsidiaries are established for the purpose of conducting risking
operations or ventures. Considering this, the parent company takes advantage from this situation
as their reputation remains intact even if the subsidiary trades into solvency.99
Judicial Grounds for Piercing and Lifting Corporate Veil

In a situation, where a company goes insolvent, the court has to make
certain decisions of either lifting the corporate veil of a limited liability
company, which would make the directors or shareholders of the company to
pay the outstanding debt to the creditors. However, lifting or piercing the
corporate veil has heavily limited under UK Laws. This is based on the
principle derived from Salomon v A Salomon & Co Ltd.100
98
China Ocean Shipping Co v Mitrans Shipping Co Ltd [1995] 3 HKC 123
99
Ian Ramsay, 'Holding Company Liability For The Debts Of An Insolvent Subsidiary: A Law
And Economics Perspective' (1994) 17 University of New South Wales Law Journal.
100
Salomon v A Salomon & Co Ltd [1897] AC 22
Corporate Veil
52
Considering the aforementioned cases, it has become evidently clear that

the corporate veil can be lifted or pierced on the basis of following judicial
provisions;
Improper Conduct
Corporate veil can be pierced by courts on the basis of fraud or improper conduct of the
company.101 In other words, courts have become reluctant to provide companies with an
opportunity to use the Salomon principle as an engine to fraud. However, the researcher found
two of the exceptional cases of fraud i.e. Jones v. Lipman and Gilford Motor Company v.
Horne.102 In the first case, it was indicated that the man was willing to sell his land, but some
circumstances made him change his mind to avoid any further responsibilities, and the property
was transferred to a company. Taking this into consideration, Judge Russel implied that the
company was a mask which (Mr. Lipman) holds before his face in an attempt to avoid
recognition by the eye of equity".103 Thus, the judgement was against Mr. Lipman and the
101
Jonathan R. Macey and Joshua Mitts, 'The Three Justifications For Piercing The Corporate Veil'
SSRN Electronic Journal.
102
Stephen M Bainbridge, Abolishing LLC Veil Piercing (TMC Asser Press 2010).
103
Jones v Lipman [1962] 1 WLR 832
Corporate Veil
53
company, and Jones was awarded specific performance.104 Considering this, it has been asserted
by Easterbrook and Fischel that it encourages the parent companies to frequently engage it in
projects that have excessive amount of risky activities.105
On the contrary, the case of Gilford Motor Company Ltd v. Horne was quite similar to the
aforementioned case.106 In particular, it was found that Mr. Horne was the employee of Gilford
Motor Company, which had clearly mentioned in the contract that the customers of the company
cannot be solicited by the employees, in the case of termination or resignation. Considering this
contract, Mr. Horne established a limited company in the name of his wife, which eventually
resulted in soliciting the customers of Gilford Motor Company Ltd. The company took action
against the breach of contract and took action against him. The Court of Appeal in the case was
that "the company was formed as a device, a stratagem, in order to mask the effective carrying
on of the business of Mr. Horne".107 Furthermore, the court indicated that the primary purpose of
104
Jennifer Payne, 'Lifting The Corporate Veil: A Reassessment Of The Fraud Exception' (1997) 56
Cam. Law. J.
105
Frank H Easterbrook and Daniel R Fischel "Limited Liability and the Corporation" (1985) 52 U
Chi
L Rev 89 at 111
106
Gilford Motor Co Ltd v Horne [1933] Ch 935

107
Corporate Veil
54
establishing the company was to perpetrate the fraud. Therefore, it was regarded as a mere sham,
which was to hide the wrongdoings of Mr. Horne.
Benefit of Revenue
According to Dinshaw Maneckje, The Court has the power to disregard corporate entity if it is
used for tax evasion or to circumvent tax obligations. It has been indicated that the assessee was
benefiting from both the interest income and huge dividends.108 Furthermore, it was also revealed
that he was the owner of 4 private companies, which were holding a limited amount of
investment. In particular, the income received from the business was credited, but it was awarded
to him in the form of a loan. As a result, the owner of the company was presented with an
opportunity to reduce his liability for the tax.
However, it was found that the court took drastic measure against it and stated that the
company was formed by the assessee purely and simply as a means of avoiding super tax and the
company was nothing more than the assessee himself. It did no business, but was created simply
as a legal entity to ostensibly receive the dividends and interests and to hand them over to the
assessee as pretended loans".
Enemy Character
A business operating within the United Kingdom may be assumed as an enemy character
if the person(s) in control of the organisation are residing in an enemy state. Considering the
Basic Corporate Law 2006 (Florida Bar 2006).
108
Marcello Bianchi and Paola Casavola, Piercing The Corporate Veil (Fondazione ENI Enrico
Mattei 1996).
Corporate Veil
55
aforementioned statement, the Court has the right to examine and investigate the individual(s) in
control of the business, which might result in declaring the company as an enemy company.109
The case of Daimler Co. Ltd v. Continental Tyre and Rubber Co. Ltd is the perfect example
enemy character.110 In particular, a company was established in England with an intention to sell
the products in England, but the tyres were made outside the country (i.e. Germany).111 In
addition, it was also revealed that the German company had a bulk of shares in the English
Company, where it was further revealed that only one of directors was English. The English
Company, during the 1st world war, came into action to recover the debts;112 however, the court
judgement was against the action as it would result in the trade with an enemy. Considering this,
the company was not allowed to move forward with the recovery of debts.
109
Jonathan R. Macey and Joshua Mitts, 'The Three Justifications For Piercing The Corporate Veil'
SSRN Electronic Journal.
110
Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 AC 307

111
Ernst J Cohn and C Simitis, "Lifting The Veil" In The Company Laws Of The European
Continent ([British Institute of International and Comparative Law?] 1963).
112
'Corporate Veil Not A Shield For Personal Liability' (2003) 9 Trusts & Trustees.
Corporate Veil
56
Avoiding Legal Obligations

An organisation incorporating a company to avoid its legal obligation provides the Court with an
ability to lift the veil. In particular, the Court has the authority to disregard the companys legal
personality and may proceed with an assumption that the incorporated company does not exist.113
Trust
In the case, where the company acts as shareholders agent, the shareholders become liable for
the actions of the company. However, it has remained a question whether the shareholder has
given the rights to the company to act as its agent or not.114 This can be further clarified by the
following case. F. G. Films Ltd; an American company, was financing the production of a movie
in India, but the American companys name was not used. Instead, American company used the
name of the British company to avoid legal obligations. However, the Board of Great Britains
trade refused to acknowledge the firm as British. In light of the court, it was decided that the
decision taken by the British company was valid as it merely acted as the nominee of F. G. Films
Ltd.
113
Muhammad Waqas and Zahoor Rehman, 'Separate Legal Entity Of Corporation: The Corporate
Veil' (2016) 3 Int J Soc Sci Mgt.
114
Vincent M Roche, '"Bashing The Corporate Shield: The Untenable Evisceration Of Freedom Of
Contract In The Corporate Context' (2003) 28 The Journal of Corporation Law.
Corporate Veil
57
Company Groups
In the case of protecting the tort victims, the position of the company group remains open
to criticism, since it has not been evidently cleared that the actual people and companies should
be protected in similar manner. An influential decision was passed in the case by Lord Denning
MR in DHN Ltd v Tower Hamlets BC,115 which was strongly doubted by the House of Lords.
Lord Denning in the case stated that the 2 wholly-owned subsidiary companies constituted a
single economic unit. This was based on the fact that the controlling minds and the shareholders
were identical, which resulted in the judgment that their rights should be treated same as well. As
a result, the parent company was provided with an opportunity to claim compensation from the
council on the basis of compulsory purchase of the company, which was not possible without
showing the physical address of the subsidiary companies.116 Likewise, there are several similar
approaches that treat corporate group as single economic unit under the European Jurisdiction. In
the English Law, this is primarily done to tax purposes; however the law for civil liability has
often always been observed and followed from Adams v Cape Industries Plc, which indicated
that English Court rarely lift the corporate veil.117
115
DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852; see
also Littlewoods Mail Order Stores v Inland Revenue Commissioners [1969] 1 WLR 1214;
Wallersteiner v Moir [1974] 1 WLR 991
116
Robert Charles Clark, 'The Duties Of The Corporate Debtor To Its Creditors' (1977) 90 Harvard
Law Review.
Corporate Veil
58
CHAPTER 4: CONCLUSION
In legal systems based on common law, this is often referred to as "Disregard of corporate
personality." This concept also entered the lexicon legal in many civil law systems. As a general
rule in several groups consisting of corporate entities with limited liability, shareholders do not
risk more than its capital contribution. They cannot be held responsible for their corporations' or
subsidiaries' debts. The latter is recognized as separate legal entities from their shareholders and
directors. However, in exceptional cases, the limited liability veil is "Pierced" or "high" to a
corporation and the debts are attributed to the shareholders.
When the courts pierce the corporate veil, they ignore asset separation of corporation and
maintain a partner responsible for the corporate action as if it were the responsibility of the
partner. Although in general, the courts are reluctant to allow disregard of legal personality or
own piercing the corporate veil is not a marginal phenomenon. Creditors of an insolvent
company often try to keep shareholders responsible when you cannot get satisfaction from your
debtor. As a result, the least in the United Kingdom, penetrating claims are the most contested
area in corporate law. The analysis of the countries where they were born these theories is
effective to understand the Her appearance in our parental rights order, and furthermore
understand more property as proceeds theory in other countries in their particularities of each
system legal.
117
Stephen M. Bainbridge, 'Abolishing Veil Piercing' SSRN Electronic Journal.
Corporate Veil
59
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LIFTING AND PIERCING CORPORATE VEIL

LIFTING AND PIERCING CORPORATE VEIL

(2002) 8 European Law Journal 414.

3 A. McClellan, 'Commercial Arbitration And European Community Law' (1989) 5 Arbitration

4 Salomon v Salomon & Co [1987] UK, AC 22.

5 Broderip v Salomon [1895] 2 Ch 323 at 339

Peter B. Oh, 'Veil-Piercing' SSRN Electronic Journal.

Tobias H. Trger, 'Choice Of Jurisdiction In European Corporate Law Perspectives Of

CHAPTER 2: LITERATURE REVIEW

The Corporate Veil: Some Basics

Line Jurisprudential About Lifting the Veil of Corporate Commercial

Xavier Morera Balcells, 'Spain Steps Forward To Achieve UK Conditions Incorporating A

The Theory of Fiction

Theory of Legal Reality or Personality and the Substrate

Of course, the creation of a different commercial company to order personae is motivated

Cohen v Beneficial Industrial Loan Corp (1949) 337 U.S.

Murray A. Pickering, 'THE COMPANY AS A SEPARATE LEGAL ENTITY' (1968) 31 The

F. M Stenton, Anglo-Saxon England (Clarendon Press 1971).

transactions under somebody's name) and

Mark Herkenrath and Volker Bornschier, 'Transnational Corporations In World Development

M. J. Trebilcock, 'THE LIABILITY OF COMPANY DIRECTORS FOR NEGLIGENCE' (1969)

that is used in breach of the law or to the detriment of third parties.

The simulation action

The absolute nullity of the company (object or unlawful cause).38

Francisco Reyes, 'The Colombian Simplified Corporation An Empirical Analysis Of A Success

John Wisdom, 'Appearance And Reality' (1977) 52 Philosophy.

Eduardo Zuleta, 'COLOMBIA' (2012).

After making reference to the nature of corporations and societies, stopping on

The Constitutional Court ascribes to risk limitation principle of shareholders of

Mathias M Siems and David A Cabrelli, Comparative Company Law.

certainty and public order.59

of liability of shareholders anonymous society.

European Parliament's Committee on Legal Affairs, 'Rights And Obligations Of Shareholders'

requirements derived from the principles of proportionality and reasonableness.61

Phillip I. Blumberg, 'The Corporate Entity In An Era Of Multi-National Corporations' [1990]

CHAPTER 3: RESEARCH FINDINGS

Common Law vs. Civil Law

Harshit Saxena, 'Lifting Of Corporate Veil' SSRN Electronic Journal 2.

Corporate Veil Piercing

Stephen B Presser, Piercing The Corporate Veil (Thomson/West 2005).

Stephen Judge, Company Law (Oxford University Press 2010).

Some Cases relevant to Piercing and Lifting the Corporate Veil

Background of the Case

Salomon v Salomon & Co [1987] UK, AC 22

Background of the Case

control of it which exists independently of the companys involvement, and a company is

M. J. Whincop, 'Overcoming Corporate Law: Instrumentalism, Pragmatism And The Separate

B Capital Plc v. Nutritek International Corp and Others [2013] UKSC 5

Background of the Case

P. R. H. Webb, 'THE CONFLICT OF LAWS AND THE ENGLISH FATAL ACCIDENTS

Adams v Cape Industries plc [1991] 1 ALL ER 929 per Slade LJ

Ord v Belhavent Pubs Ltd [1998] BCC 607

Judicial Grounds for Piercing and Lifting Corporate Veil

China Ocean Shipping Co v Mitrans Shipping Co Ltd [1995] 3 HKC 123

Salomon v A Salomon & Co Ltd [1897] AC 22

Considering the aforementioned cases, it has become evidently clear that

Jones v Lipman [1962] 1 WLR 832

Gilford Motor Co Ltd v Horne [1933] Ch 935

Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 AC 307

Avoiding Legal Obligations

Stephen M. Bainbridge, 'Abolishing Veil Piercing' SSRN Electronic Journal.

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