Corporate veil in the United Kingdom

This concept has traditionally been likened to a "veil" of separation between the legal entity of a corporation and the real people who invest their money and labor into a company's operations.

The corporate veil in the UK is, however, capable of being "lifted", so that the people who run the company are treated as being liable for its debts, or can benefit from its rights, in a very limited number of circumstances defined by the courts.

Just as it is possible for two contracting parties to stipulate in an agreement that one's liability will be limited in the event of contractual breach, the default position for companies can be switched back so that shareholders or directors do agree to pay off all debts.

A number of other cases demonstrate that in construing the meaning of a statute unrelated to company law, the purpose of the legislation should be fulfilled regardless of the existence of a corporate form.

So even though the Continental Tyre Co Ltd was a "legal person" incorporated in the UK (and therefore British) its directors and shareholders were German (and therefore enemies, while the First World War was being fought).

The present rule under English law is that only where a company was set up to commission fraud,[13] or to avoid a pre-existing obligation can its separate identity be ignored.

[14] A group of employees suffered asbestos diseases after working for the American wholly owned subsidiary of Cape Industries plc.

Under conflict of laws principles, this could only be done if Cape Industries plc was treated as "present" in America through its US subsidiary (i.e. ignoring the separate legal personality of the two companies).

Rejecting the claim, and following the reasoning in Jones v Lipman,[15] the Court of Appeal emphasised that the US subsidiary had been set up for a lawful purpose of creating a group structure overseas, and had not aimed to circumvent liability in the event of asbestos litigation.

The harsh effect on tort victims, who are unable to contract around limited liability and may be left only with a worthless claim against a bankrupt entity, has been ameliorated in cases where a duty of care in negligence may be deemed to be owed directly across the veil of incorporation.

[17] Here Lord Denning MR held that a group of companies, two subsidiaries wholly owned by a parent, constituted a single economic unit.

This allowed the parent company to claim compensation from the council for compulsory purchase of its business, which it could not have done without showing an address on the premises that its subsidiary possessed.

Similar approaches to treating corporate "groups" or a "concern" as single economic entities exist in many continental European jurisdictions.