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Corporate Veil Trumps Proceeds of Crime Act – Landmark Decision

In a resounding decision, the Court of Appeal has ruled that a judge was wrong to pierce the corporate veil in an attempt to retrieve the criminal profits of haulage company bosses who risked lives by working their drivers to the bone.

Lorry2A father and son whose company had an annual turnover of more than £3 million were said by prosecutors to have generated criminal proceeds in excess of £10 million by deliberately flouting haulage industry safety rules. They routinely sent exhausted drivers on marathon trips across Europe without enough rest breaks and tachograph records were tampered with to hide the truth. Once an inquiry into their activities began, the father did his best to destroy incriminating evidence.

They were eventually jailed and disqualified from holding company directorships for five years after they admitted conspiring to make false instruments. They were also hit with confiscation orders under the Proceeds of Crime Act 2002 totalling more than £1.7 million, only a small fraction of which had since been paid.

However, within days of sentence being passed, the company of which they were the only directors was stripped of its fleet of trucks and most of its other assets, which were transferred to a new company. A judge subsequently ruled that the transfers were not genuine and appointed an enforcement receiver in respect of the new company’s assets. In doing so, he pierced the corporate veil and found that the assets of the original company should be treated as having belonged to the father and son themselves.

In overturning that decision, the Court noted that the father and son owned only 51 per cent of the original company, with the other shares belonging to other family members whose rights could not be ignored. There was no evidence that the minority shareholders were mere nominees and the father and son had also resigned as directors before the assets were transferred.

The Court found that the judge was wrong to treat the original company’s assets as the realisable property of the father and son and that, on the facts of the case, his approach represented an unjustified departure from established principles of company law. Whether or not the father and son were the operating minds behind the original company, it could not be viewed as their alter ego.

The new company’s appeal was allowed and the appointment of the enforcement receiver quashed. The father and son also had their confiscation orders overturned. The sums payable by them would have to be recalculated but, with the original company’s assets left out of the equation, they were bound to be very substantially reduced.