Injunctive relief pierces the corporate veil

Will Holder

In Wood and another v Baker and others, the High Court considered a without notice application by joint trustees in bankruptcy for a freezing injunction over assets of companies which were being used by the bankrupt to conceal money and avoid his obligations to disclose assets to the trustees (under section 333 of the Insolvency Act 1986).  In order to grant the injunction, the court was required to pierce the corporate veil.  This is the first time we are aware of the court doing so in a bankruptcy context.

Background

The case concerned the bankruptcy of Timothy Baker who was made the subject of a bankruptcy petition in 2005.  Several trustees have been appointed who have all tried to trace Mr Baker’s assets.  Mr Baker has made continued efforts to conceal these assets and to not cooperate with the trustees.

The trustees wished to issue an application seeking an order that assets held by the companies were being held on trust for or were owned by Mr Baker and were therefore property which could be vested in the trustees pursuant to section 307 of the Insolvency Act 1986.  However, before doing this, the trustees sought to obtain an injunction to prevent Mr Baker or the companies from dissipating the assets.

Decision

In order to grant the injunction, the court was required to pierce the corporate veil (Prest v Petrodel Resources Ltd and others [2013] UKSC 34).  The court was clear to remind practitioners that granting such injunctions on this basis would be rare given their draconian nature and that such relief should be regarded as a remedy of last resort.

However, the court was minded to grant the injunction given Mr Baker’s conduct and the fact that there was a risk that the assets would be dissipated.  The court determined (as per Prest) that it could pierce the corporate veil so as to identify the activities and assets of the corporate respondents which Mr Baker owns and controls.  Whilst such cases are rare, the court determined that where a company has been interposed so as to enable an individual to wrongfully evade or frustrate his existing legal obligations, the principle of piercing the corporate veil may be invoked.

Considerations for the court

On the evidence, the court was satisfied that:

  • there was a serious triable issue;
  • the applicants had a good arguable case for the injunctive relief;
  • the bankrupt was, effectively, the man behind the various corporate respondents;
  • there was a real risk of dissipation of further company monies and assets by the bankrupt; and
  • that risk would be further compounded if notice were given to the bankrupt of the application.

Cross-undertaking in damages

The court considered what level of cross-undertaking in damages the trustees should provide.  In trying to strike a balance between the interests of the trustees and those of the respondents, the court applied the test of fairness rather than likelihood of loss (applying JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139, covered on the blog here).  The court therefore ordered the trustees to give an undertaking in damages which was limited to the amount of the net realisable value of assets which were unpledged in the bankrupt’s estate.

Wood and another v Baker and others [2015] EWHC 2536 (Ch)

The judgment in this case is available to PLC subscribers here and is also on Lexis and Westlaw.

Post By Will Holder (4 Posts)

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