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Lifting the corporate veil – a cautionary tale for directors of parent companies

By Claire Mansell - 29 Jan 2015

Generally speaking, a company is a separate legal entity in its own right and its shareholders will not generally be liable for the company's obligations. However, there are exceptions to this rule, as illustrated in the recent case Lewis Holdings Ltd v Steel & Tube Holdings Ltd.

In that case, the plaintiff leased a property to a wholly owned subsidiary of the defendant. The subsidiary was placed into liquidation and the lease was disclaimed by the liquidators, leaving the plaintiff out of pocket.

The plaintiff applied for orders under s.271(1)(a) of the Companies Act that the defendant be liable for the debt owed to it by the subsidiary. They claimed that the subsidiary was not run as a separate legal entity and it was just and equitable for the defendant to be liable for its subsidiary debts.

The court agreed. While the subsidiary was technically a separate legal entity, it was not run as a separate commercial entity. In coming to this view, the Court looked at a number of factors including:

  • the subsidiary was run as a division of the parent company
  • the directors of the subsidiary did not distinguish between the interests of the subsidiary and its parent
  • the parent had total control of the subsidiary and the subsidiary was completely reliant on the parent company to meet its obligations
  • there were no legal arrangements in place to manage the transactions between the companies. They were simply treated as one entity.

The Judge did point out that s.271 will not apply to all (or even most) group structures. However, this case is an important reminder that if you are using a group structure, you must be careful to ensure that each company is run as a separate commercial entity.


Claire Mansell


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