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When the courts lift corporate veil? Reference from the laws

COMPANY LAW

 

THE CORPORATE VEIL

 

WHEN CAN THE COURTS LIFT THE VEIL?

 

  1. The Court is entitled to pierce the corporate veil if the company has been used as a device or façade to conceal the true facts , thereby avoiding or concealing any liability of a specific individual.

 

a).       Trustor AB Versus Smallbone and Others No.2 [2001] 3        All E.R 987.

b).       Re H and  ( restraint Order: realisable property) [1996]2 All E.R  391.

 

  1. If a person suffers loss as a result of the negligent advice given to him by the company, where he had assumed personal responsibility for the advice and the person had relied on the assumption of responsibility.

 

William & Another versus Natural Life Health Foods Limited and Another 1998 2 All E.R 577

 

Whether a Company is unlimited or limited, and if limited, whether by shares or by guarantee, if at any time the number of its members is reduced, in the case of a private company below 2, or in the case of any other company below seven, and it carries on business for more than six months while the number is so reduced, every person who is a member of the Company during the time that it so carries on business after those six months, and is cognisant of the fact that it is doing so is severally liable for the payment of the whole of the debts of the company contracted during that time, and may be severally sued for it.

 

  1. Halsbury's Laws of England 4th Edition Vol.7 page 184
  2. 33 Companies Act. Cap 486 of the Laws of Kenya

 

  1. A past member of an unlimited liability company which registers as a limited liability Company who was a member at the time of registration is liable to contribute to the assets of the Company in respect of its debts and liabilities contracted before that time if a winding up commences within three years of such registration.

 

Halsbury's Laws of England 4th Ed. Vol 7 page 185.

 

  1. When a company with contingent liability transfers its assets to another company which continues its business under the same trade name, the Court would lift the veil in order to allow a person claiming against the first company to proceed against the second Company.

 

Creasy vs Breachwood Motors Ltd (1992) Times, 29 July (Queens Bench Division: R Southwell QC)

 

  • When a director, other officers or an employee of a company has committed or participated in, the act constituting a tort or else has directly procured the tortuous act to be done by others and therefore personally liable for the company's tort.

 

MCA Records Inc vs Charly Records Ltd [2000] EMLR 743

 

  • In case of mis-statement in the prospectus of a company, the following people shall be held liable to pay compensation to all persons who subscribed for any share or Debenture on the faith of the prospectus and incur loss or damage as a result of the mis-statement therein.

 

  1. Every person who is a director of the Company at the time of the issue of the prospectus
  2. Every person being a promoter of the Company a
  3. Every person who authorised the issue of the prospectus.

 

S.45 and 46 of the Companies Act Cap. 486 of the Laws of Kenya

 

  1. Where there is an irregular allotment of shares procured by a director of a company in contravention of SS 49 and 50 of the Companies Act. The director shall personally compensate the aggrieved party.

 

  1. 51(2) Companies Act Cap. 486.

 

  1. In determining whether two claims are so closely connected as to be , in the substance , claims in respect of the same debt, the Court may look at the legal substance of the relevant transaction and not the economic substance, if different.

 

Re Polly Peck International plc (In administration) [1996]2 All E.R 433