The principle of separate legal personality is a cornerstone of UK company law, established in the case of Salomon v A Salomon & Co Ltd (1897). This means that a company is a legal entity distinct from its shareholders and directors. The 'veil of incorporation' separates the company's rights and liabilities from those of its members. However, the courts have shown a willingness to 'lift' or 'pierce' this veil in certain circumstances, effectively ignoring the separate legal personality to hold individuals liable. This essay will examine the circumstances in which the corporate veil may be lifted in criminal litigation in England and Wales. It will argue that while the courts are generally reluctant to disregard the corporate structure, they are more prepared to do so in the criminal sphere to prevent the law from being used as an instrument of crime, although the justification for doing so remains a topic of judicial debate. A brief Maldivian context will also be noted.
The Principle and its Exceptions
The House of Lords in Salomon v A Salomon & Co Ltd (1897) confirmed that a company, once legally incorporated, must be treated as a separate person. This protects shareholders with limited liability and encourages enterprise. Lifting the veil is therefore an exception to a fundamental rule. Historically, the courts developed various grounds for doing so, such as when the company was a 'mere façade' or a 'sham', but these terms were often used interchangeably and lacked a clear, guiding principle (Hannigan, 2018). The Supreme Court case of Prest v Petrodel Resources Ltd (2013), though a civil matter, attempted to clarify the law. Lord Sumption distinguished between the 'concealment principle' and the 'evasion principle'. He stated that concealment involves looking behind the company structure to see who the real actors are, which does not involve truly piercing the veil. In contrast, the evasion principle, which is true veil piercing, applies when a person under an existing legal obligation deliberately evades it by using a company. Lord Sumption suggested that this was the only basis upon which the veil could be pierced at common law.
Veil Lifting in the Criminal Context
In criminal law, the public interest in preventing and prosecuting crime provides a strong reason for the courts to look beyond a company's formal structure. A company cannot be imprisoned, and it can be used to hide the proceeds of crime or the individuals responsible for it. The courts have therefore been prepared to lift the veil to ensure that criminals cannot hide behind the corporate form. For example, where a company is formed for a fraudulent purpose, the courts can treat the acts of the company as the acts of the individuals controlling it. An important area where this occurs is in relation to confiscation orders under the Proceeds of Crime Act 2002 (POCA). In cases involving POCA, the courts must determine the benefit a defendant has obtained from their criminal conduct. In R v Sale (2013), the Court of Appeal held that it was permissible to pierce the corporate veil for the purpose of confiscation where a defendant was using the company to hide criminal assets. The court applied the principles from Prest and found that the defendant was using the corporate structure to evade the effect of confiscation orders. This shows that the evasion principle can be a tool in criminal law to prevent a defendant from frustrating the legal process by using a company structure.
Maldivian Context
Adding a comparative dimension, the law of the Maldives also recognises the principle of separate corporate personality. Section 9 of the Companies Act of the Maldives (Act No: 10/96) states that a company has a separate legal personality from its members. Similar to English law, this principle is not absolute, and it is understood that the courts in the Maldives can lift the veil to prevent fraud or improper conduct. However, specific case law concerning the lifting of the corporate veil in criminal litigation in the Maldives is not extensively reported or easily accessible. Therefore, while it can be assumed that Maldivian courts would not allow the corporate form to be used as a vehicle for crime, a detailed comparison with the specific tests used in English law, such as the evasion principle from Prest, is difficult to make.
Conclusion
In conclusion, the principle of separate legal personality is robust in English law, but it is not inviolable. In the context of criminal litigation, the courts have demonstrated a willingness to lift the corporate veil, particularly to prevent the legal framework of company law from being abused for criminal ends. The clarification provided by Prest v Petrodel Resources Ltd (2013) with its 'evasion principle' has given a more structured, albeit narrow, basis for this intervention. Cases concerning confiscation orders under POCA show this principle in action, where the courts prioritise substance over form to prevent offenders from retaining the proceeds of their crimes. Therefore, while lifting the veil remains an exceptional measure, it serves as a necessary power in criminal law to uphold justice and combat illegality.
References
- Hannigan, B. (2018) Company Law. 5th edn. Oxford University Press.
- Prest v Petrodel Resources Ltd [2013] UKSC 34.
- R v Sale [2013] EWCA Crim 1306.
- Salomon v A Salomon & Co Ltd [1897] AC 22.
- The Companies Act of the Maldives (Act No: 10/96).
- The Proceeds of Crime Act 2002.
