03.10.13 Third-Party Intermediary Providers "Piercing the Corporate Veil"

In general terms, a limited company is said to have its own separate legal personality.  The question to be asked is when the corporate veil can be pierced so as to attribute liability to the ownership of the company.

The Supreme Court decision in Prest v Petrodel Resources Ltd (2013) UKSC 34, involved a matrimonial dispute and rights over property owned by a limited company.

It is not appropriate to go into the specifics of the case but the judgement includes some useful comment on when it might be appropriate to pierce the corporate veil. 

Lord Sumption’s view was that the court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused for the purpose of some relevant wrongdoing.

So, what is “wrongdoing”?

Lord Sumption stated “references to façade or sham beg too many questions to provide a satisfactory answer”.  He went on to suggest that there are two distinct principles of “concealment” and “evasion”.  The courts will often look behind the veil to identify individuals assuming that it is legally relevant to expose them.  This doesn’t involve piercing the corporate veil but merely relies on legal principles. 

Contrast this with “evasion” when the court may disregard the corporate veil in the event that there is a legal right against the person in control of the company (which exists independently of the company’s involvement) and the interposition of the company will defeat the right of enforcement.

It was recognised that piercing the corporate veil would be extremely rare but could happen if a person under an existing obligation, liability or subject to a legal restriction which he deliberately evades or whose enforcement he intentionally frustrates, interposes a company under his control.

Umbrella company owners who set up third-party intermediary structures to provide advisory services for a fee should ensure that the service being provided to the worker can be wholly justified and not considered as a means of avoiding the payment of the National Minimum Wage or some other legal obligation or restriction such as the payment of work-finding fees.

If you would like to discuss this case or any other matters relating to umbrella companies and third-party intermediaries, please contact us on enquire@aspirepartnership.co.uk