Separate Legal Personality or Mere Façade? Asset Stripping and Personal Liability

Separate legal personality, established in Salomon v A Salomon & Co Ltd [1897] AC 22, treats a company as a legal person distinct from its shareholders and directors. The company owns its assets, owes its debts, and contracts in its own name. Shareholders have limited liability and generally cannot be sued for company debts. The veil may be lifted only in limited circumstances: (i) where the corporate form is a mere façade or sham used to evade existing legal obligations or perpetrate fraud; (ii) under statutory provisions such as fraudulent trading (s.610 Irish Companies Act 2014 / s.213 UK Companies Act 2006), wrongful trading (s.611 / s.214), or misfeasance (s.612 / s.212); (iii) where the company acts as an agent for its controller; and (iv) in some group enterprise cases, though courts are restrictive. The bar is high: mere asset stripping, undercapitalisation, or inter-group transfers are usually insufficient without evidence of fraud or a sham. The court examines substance over form, but respects incorporation unless the company is used as a vehicle for wrongdoing.

Each factor must be weighed. The transfers of €300,000 in cash and IP to NovaConsult for no consideration, leaving NovaTech insolvent, suggest asset stripping. However, asset stripping alone does not automatically lift the veil; it may instead ground claims for breach of duty, transactions at an undervalue, or fraudulent/wrongful trading. The payment of NovaTech's funds towards Priya's personal mortgage is more serious: it indicates misappropriation of company assets and a blurring of boundaries between Priya and the company. If Priya treated the company's assets as her own, a court may find the company was a mere façade or sham. The absence of board meetings and corporate formalities supports an inference that Priya disregarded the company's separate existence. Yet the court will ask whether the company was used to evade an existing legal obligation or to perpetrate fraud. If Priya transferred assets with intent to defeat the bank's judgment, that is strong evidence for lifting the veil or for statutory remedies. A court might decline to pierce the veil but still hold Priya liable for breach of fiduciary duty, misfeasance, or fraudulent trading. The veil-lifting argument is strongest if the bank can show that NovaTech was a puppet or that Priya used it as an alter ego to defraud creditors.

The bank has several alternative routes. First, it can apply to have Priya held liable for fraudulent trading under s.610 Irish Companies Act 2014 (or s.213 UK CA 2006) if NovaTech carried on business with intent to defraud creditors. Second, wrongful trading under s.611 / s.214 may apply if Priya continued to trade when insolvent without reasonable prospect of avoiding liquidation. Third, misfeasance proceedings under s.612 / s.212 can target Priya for misapplication of company assets, including the mortgage payments and gratuitous transfers. Fourth, the bank may challenge the transfers to NovaConsult as transactions at an undervalue under s.604 / s.238, or as unfair preferences, and seek recovery from NovaConsult. Fifth, if NovaConsult knowingly received company assets for no consideration, the bank may pursue a constructive trust or unjust enrichment claim. Finally, the bank may argue that NovaConsult is jointly liable as a participant in a fraudulent scheme. These statutory remedies often provide a more certain path than lifting the veil, which is reserved for exceptional cases.