What is the corporate veil?
The “corporate veil” metaphorically symbolises the distinction between the company as a separate legal entity and the shareholders who own the shares in the company.
Why set up as a limited company?
Many businesses set up as a limited company, not only for the benefits of the tax rates and profit extraction, but also to protect themselves as an individual from any claims. The company acts as a shield for it’s owners should any claim be made.
Lifting of the veil
In the UK this veil is capable of being “lifted” to enable those running the company to become liable for it’s debts. The circumstances in which this would be done are limited. Wrongdoing must be proven in this instance.
So when could this happen? If the company is declared insolvent and unpaid creditors wish to recover their money a case could be brought against the Directors to prove wrongdoing and recover monies owed from them personally.
Bounce Back loans
When are we likely to see such claims made? There are more and more instances of companies having taken advantage of the Bounce Back Loan Scheme (BBLS) during COVID, who are now winding up never to repay the debt at the cost of the taxpayer. In many of these cases, the Directors have taken the loan via the company and withdrawn the funds for personal use, to the detriment of other creditors and ultimately the taxpayer. According to the National Audit Office, it is now believed that around 11% of the loans granted went to people who applied fraudulently. This equates to an estimated £4.9 billion.
The government has published their initial statement of intent on those that fraudulently claimed the Bounce Back Loans and they are taking action against such individuals.
On Bounce Back Loans, the government continues to work actively with the British Business Bank, lenders, and enforcement authorities to recover loans obtained fraudulently. This work has been supported by the Cabinet Office Counter Fraud Function to better identify the level and types of fraud against the scheme, helping lenders tackle fraud effectively.
The government are working with enforcement bodies including the National Investigation Service (NATIS) to investigate the most serious cases of fraud and have always been clear that anyone who defrauds the scheme is at risk of prosecution. So far, NATIS have made 49 arrests in relation to Bounce Back Loan Scheme fraud, while work by the National Crime Agency has resulted in 17 arrests either in stand-alone investigations or as support to NATIS. Enforcement agencies continue to pursue cases of serious fraud, with over £6 million already invested in NATIS to tackle fraud in the Bounce Back Loan Scheme.
In relation to Bounce Back Loans, the Insolvency Service have achieved 106 Director disqualifications, 48 bankruptcy restrictions and 13 companies have been wound up in the public interest.
The corporate veil is only there for those acting within the rules. Any individual who has deliberately acted in a manner to defraud it’s creditors will not be safe from prosecution.