Insolvency – Order for transfer of property – Claimant company purchasing bingo hall with money provided by deceased and transferring it to first defendant company – Deceased later executing transfer of his interest in hall to liquidator of claimant – Liquidator seeking order for transfer of hall to claimant on ground that first defendant having no genuine corporate existence but merely set up by deceased to conceal his assets – Whether permissible to pierce corporate veil – Claim allowed
In late 1996, the claimant company purchased a disused bingo hall in Walthamstow, London, E17, with money provided by the deceased and transferred it to the first defendant, a company incorporated under the laws of Delaware in the US. At the time of the purchase, the deceased was awaiting trial for his participation in an alcohol diversion fraud by which he had evaded payment of excise duty and VAT on alcoholic drinks. He was convicted of that offence in 1997, sentenced to six years in prison and fined £2m. On his release from prison, TA participated in another similar fraud, acting as a de facto director of the claimant. In May 2002, the seventh defendant, HM Revenue & Customs, raised an assessment against the claimant for excise duty and VAT in a sum in excess of £3m and then presented a winding-up petition, on which an order was duly made.
The claimant’s liquidator brought proceedings against various parties including the deceased and his daughters, contending that the first defendant held the bingo hall on trust for the deceased. Under a settlement agreement reached in September 2005, the deceased and his daughters agreed to transfer to the liquidator any interest that they might have in either the first defendant or the bingo hall. However, the deceased died before the transfer of the bingo hall could be completed and the settlement agreement was not executed on behalf of the first defendant because there was no one competent to sign on its behalf.
The liquidator applied to the court for an order for a transfer of the bingo hall to the claimant. It submitted that the first defendant’s ownership of the hall was a sham; the true owner was the deceased and the liquidator was accordingly entitled to it by the terms of the settlement agreement that the deceased had executed. The liquidator submitted that the first defendant had no genuine corporate existence but had been set up by the deceased in order to conceal his assets and prevent their likely seizure, and that, in such circumstances, the court was entitled to pierce the corporate veil.
Held: The claim was allowed.
The fact that an individual owned and controlled a company did not suffice to justify piercing the corporate veil: Hashem v Shayif [2008] EWHC 2380 (Fam) applied. Nor was it justifiable for the court to pierce the corporate veil merely because it might be necessary in the interests of justice; what was required was that the company had been used as a device or facade to conceal the true facts, thereby avoiding or concealing any liability of the individuals: Trustor AB Ltd v Smallbone (No 2) [2001] EWHC 703 (Ch); [2001] 1 WLR 1177 applied. The essential elements were therefore control of the company and its improper use as a device or facade to facilitate or conceal wrongdoing. Those conditions were satisfied in the instant case. The first defendant was clearly owned and controlled by TA who, together with one of his daughters, pulled the corporate strings. The purpose of transferring the bingo hall to the first defendant had been to conceal TA’s ownership of the property until such time as his liabilities arising out of his fraudulent activities were resolved, which they never were. That was an improper use of corporate ownership. TA was the true owner of the property and the court would grant the appropriate declaration and other relief accordingly.
Adam Deacock (instructed by Moon Beever) appeared for the claimant; Mr S Merali appeared for the third defendant; Daniel Margolin (instructed by Howes Percival LLP) appeared for the seventh defendant, HM Revenue & Customs; the other defendants did not appear and were not represented.
Sally Dobson, barrister
