29 May 2012
Piercing the corporate veil to recover assets from fraudsters
Piercing the corporate veil is currently a hot topic with a difference of opinion between various judges on several of the finer points, especially in a contractual context (compare Burton J in Gramsci v Stepanovs  EWCH 333 Comm with Arnold J in VTB v Nutritek  EWCH 3107 CH). In the meantime, while the decision of the Court of Appeal in VTB is eagerly awaited, the doctrine is essential to do justice in practice in many cases even though its theoretical underpinnings remain somewhat elusive.
In the recent case of Anglo German Breweries Ltd (in liquidation) v Chelsea Corporation Inc and others  EWHC 1481 (Ch) the Court was prepared to take a robust view of the real ownership of assets in order to enforce judgment against a convicted fraudster T. The case concerned a now deceased fraudster who had arranged for the purchase of a Bingo Hall while he was awaiting trial on charges of Excise Diversion fraud. He arranged for the property to be purchased in the name of Chelsea, a bearer share Corporation registered in Delaware. Following T's conviction and imprisonment the corporation was managed in T's absence by his daughters. On his release T resumed his activities in charge of the corporation and his former vocation in Excise fraud which he practiced though AGB.
In 2002 HMRC placed AGB in provisional liquidation and the liquidator sued T for fraudulent breach of duty and fraudulent trading and froze his assets, including those of various offshore companies which appeared to hold assets for him (including Chelsea). T and his family settled with the liquidator and, in settlement agreed to transfer all their assets but there was no one ostensibly able to act on behalf of Chelsea, whose corporate governance was mysterious.
AGB applied to Court to compel transfer of the Bingo Hall on the basis that the corporate veil could be pierced.
Nicholas Strauss QC, sitting as a Deputy High Court Judge, held that the corporate veil could indeed be pierced and that T should be regarded as the true owner of the Bingo Hall. The evidence established that Chelsea had clearly been owned and controlled by the deceased who, together with one of his daughters, had pulled the corporate strings. That by itself would be insufficient but evidence from T's former accountant and from a former business associate clearly demonstrated that the purpose of transferring the hall to Chelsea had been to conceal the deceased's ownership of the property from seizure by the tax authorities to pay back the liabilities he had incurred from his fraudulent activates. Thus the case fell within the exception to Saloman & Saloman as "a device or facade to conceal the true facts thereby avoiding or concealing any liability of [the] individual(s)". Accordingly the Claimant company was able to recover the Bingo Hall as an asset belonging to T.
Given the relative ease with which assets can be held by corporations, the ownership of which may not be easily identifiable, piercing the corporate veil is often necessary to justice to the parties and is an important technique in the hands of Claimants in fraud claims. This case is an important application of the doctrine on the area of ownership rather than liability, an area where there has been surprisingly little authority.
Adam Deacock acted for the Claimant and its liquidator.