Lifting The Veil

There is this fictional belief that there is a veil between the company and its members. That is the company has a corporate personality which is distinct from its members. This principle was laid down in Salomon v. Salomon and Co. Ltd. (1897) A.C 22. The rational behind this principle is probably that the law will not allow the corporate form to be misused or abused. Lifting of the corporate veil means disregarding the corporate personality and looking behind the real person who are in control of the company. In other words, where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed to take shelter behind the corporate personality.
However, circumstances may arise which may compel the courts to identify a company with its members. In such situations, the court may lift the veil of incorporation or crack open the incorporation shell to identify the company with its members in order to guard against injustice. The veil of incorporation may be lifted under the following circumstances: Fraud.
If a subsidiary company hides under its parent body to evade tax. In Nathaniel Adeniji V. State (1992)4 N.W.L.R (Pt 248)1, the court held that any business which appears to have been handled recklessly or with intent to defraud, the court may declare that any person who, were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally liable for all or any of the debts or other liabilities of the company. It is submitted that the work of the court has been made easier by Section 506(1) of the companies and Allied Matters Act 2004, which provides that if in the course of winding up a company, the act has been carried on in a reckless manner or with the intent to defraud, the creditors of the company or creditors of any person for any other purpose, the receiver or liquidator or contributory of the company may declare that any person who were knowingly parties to the aforesaid to be made liable.
Also, after the membership of a company was reduced below the statutory minimum, and the company continues to carry on business for more than six months, every person who is a member (director or officer) during that time business was so carried on after six months and who knows that it is carrying on business with less than the required minimum number of members will be jointly and severally liable with the company for the debts contracted during that period. This is in line with the provisions of Section 9 of the Companies and Allied Matters Act (CAMP) 2004.

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