A recent case (Trustor AB v Smallbone & ors, NLD,
16 March 2001) has considered the circumstances in which it might
be appropriate to pierce the corporate veil, that is, to disregard
the separate legal identity of a company and to look behind it to
the actions and possible liability of its directors or members.
In this case, the question was whether the court
was entitled to pierce the corporate veil in order to regard the
receipt of money by a sham company as receipt by its director.
Mr Smallbone was a director of the claimant
company. Without the consent of the board of directors, he
transferred money directly to himself and to the account of a
company controlled by him (Introcom). Money from Introcom's account
was applied for the benefit of Mr Smallbone and others.
On the basis of knowing receipt, the director was
found to be jointly and severally liable with Introcom for the
money transferred from Intercom's account to himself, and then on
appeal, the question arose as to whether he was also liable for
money paid out of that account to other persons.
The claimant company argued that because Introcom
was a sham company under the sole control of Mr Smallbone, the
court was justified in "piercing the corporate veil" and
recognising the receipt of money by Introcom as receipt by Mr
Smallbone. The claimant argued that three propositions applied to
determine where such a course was justified: first, where the
company was shown to be a facade or sham with no unconnected third
party involved; secondly, where the company was involved in some
impropriety; thirdly, where it was necessary to do so in the
interests of justice and no unconnected third party was
It was held that the court was entitled to pierce
the corporate veil but that the third proposition was incorrect: it
had previously been found (Adams v Cape Industries plc  1 Ch
433) that it was not appropriate to pierce the corporate veil
merely because legal technicalities produced injustice. In this
case the court was entitled to pierce the corporate veil and
recognise receipt by the company as a receipt by the individuals in
control of it if the company was used as a device or a facade to
conceal the true facts, thereby avoiding or concealing any
liability of those individuals.
For further information, please contact Ruth Pedley
by e-mail at firstname.lastname@example.org or by telephone on +44 (0)20