03/07/16

Peeping Behind the Curtains | Companies and the Corporate Veil

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Colin Parker of Kangs Solicitors looks at how limited liability companies have been used for both legitimate and illegitimate purposes over the years.

Limited Companies | Kangs Solicitors

On 20th June, in 1963 the Beatles formed ‘Beatles Ltd’, the first one of many companies formed by them, both as a Group and individuals.

Why would such a step be taken so early in their professional musical careers?

Without question, their advisors at that time would have been only too aware of numerous potential hurdles that may have to be negotiated, with the risk of their clients being exposed personally to many hazardous risks including potential financial claims, spurious or otherwise.

Hence, the decision to envelop their clients in corporate security, which, basically, ‘ring fences’ individuals from personal liability.

Genuine Protection or Fraud ? | Fraud Solicitors

No doubt their concerns were for genuine protection in respect of legitimate fiscal matters.

However, this ‘ring fencing’ is equally operative in both the legitimate civil world and the not so legitimate criminal world.

The criminal implications are the ones with which we at Kangs are accustomed to dealing.

The Starting Point | History

The doctrine of limited liability of a company dates back to about 1855.

It is a fundamental principle of corporate law that a company has a totally separate legal personality to its directors, shareholders and other associated individuals, the latter being protected by ‘the corporate veil’ from responsibility for the company’s actions and liabilities.

This legal distinction has been around since the case of Salomon v Salomon [1897].

Piercing the Corporate Veil | The Law

However, whilst courts have very frequently resisted the instinct to break through the corporate veil it is capable of being eroded.

For a number of reasons a court can disregard the corporate veil in order to reach the person(s) behind it in order to prevent misuse or abuse.

Lord Denning stated:

 ‘ … the courts can and often do draw aside the veil. They can and often do, pull off the mask. They look to see what really lies behind’.

Examples of Piercing the Corporate Veil | Fraudulent Companies

In the matter of Gilford Motor Company Limited v Horne, Mr Horne, an ex- employee of Gilford Motor Company endeavoured to evade employment restraint restrictions to which he was subjected.

He formed a company in his wife’s name and traded through the company in a manner which breached his contractual responsibilities with Gilford Motor Company.

The Court of Appeal formed the view that the main purpose of forming the company was to defraud Gilford Motor Company and disguise his fraudulent actions.

Our Experience | Tax Fraud Solicitors | Kangs Solicitors

Revenue fraud is an area of law in which we at Kangs Solicitors are involved on a daily basis

Corporate entity will almost certainly be disregarded by a court if it is used in any way with a view to avoiding tax or disguising liability.

We have encountered numerous cases before the criminal courts where the prosecution have sought to pierce the corporate veil and attempt to expose what they allege is the true picture behind the company.

As recognised experts in massive MTIC VAT frauds involving millions of pounds, having acted for defendants in most of the major trials throughout the country in the last ten years, we have seen how innocent individuals have been duped into acting as directors of companies which, unknown to them, were set up to commit fraud.

Such company directors faced director disqualification proceedings and were assisted by our experts in the field Hamraj Kang, Dean Phillips and Timothy Thompson.

Even those who had given consideration to their position and harboured the expectancy that they were safe in any event ‘as they were only directors’ found themselves exposed to prosecution.

Seeking expert advice, they contacted us at Kangs Solicitors saying, with closing reference to The Beatles, who introduced this article, ‘I Want To Hold Your Hand’.[also 1963].

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