Sue ‘behind the corporate veil’

In February 2010 Steve Wengraf, Litigation Partner at Rutherfords Solicitors, won a trial for a client who successfully pursued the director of a limited company and obtained personal liability against the director. The case went all the way to trial but on the afternoon of the trial a compromise was reached in Plymouth County Court entitling our client to compensation against both the limited company (which is still trading and on the Company Register) and the director personally.

Whilst you may be confident in your chances of success against the proposed defendant, if the defendant has little or no prospects of being able to pay if you win then it may be a pyrrhic and ultimately expensive victory. Unfortunately it is common that if the defendant is a limited company with little or no assets then the directors may attempt to hide the liability to you ‘behind the corporate veil’. 

What can you do? Put it down to experience and move on or fight another day?  Not necessarily. You ought to consider bringing an individual director as a ‘joint tortfeasor’ to assist in the successful prosecution of your claim.

In this particular case our client had paid a substantial deposit for a second hand commercial tractor but the vehicle was not delivered nor was the deposit returned. The defendant said that the transaction was with a limited company which was ‘in the process of being wound up’. We disagreed as our client had been dealing with the director personally as well as the company.

However you can sue the director of the company personally. The approach that the Court will take in determining whether a director should be held liable is to balance two competing principles;
1)      that an incorporated company is a separate legal entity and distinct from its shareholders, directors and officers; and,

2)      everyone should be answerable for his tortious acts.
It is important to note that each case will be treated separately on its own facts.

In this particular case we were able to convince the court  that there was sufficient evidence to establish that the client was dealing with the director personally even though he was ‘holding himself out’ as merely the director and servant of the limited company. The defendant decided to settle rather than risk the Court finding against him for larger damages and costs!

This is complex law and you do require expert advice so therefore please contact our Steve Wengraf.