Piercing the corporate veil in confiscation has a long history, but there is nothing expressly on the subject in Part 2 of the Proceeds of Crime Act 2002 (which deals with confiscation in England and Wales). Instead the approach to piercing the corporate veil in confiscation is based on long established English legal principles and caselaw of more general application.
It is perhaps not unreasonable to suppose that if a criminal attempts to sidestep his responsibility for his criminal actions by interposing a company through which to commit his crimes then the courts should be able to ‘look through’ the company to the underlying reality of the situation.
On the other hand there is a long established legal principle that a company is a legal entity which is distinct from its directors and shareholders.
This article attempts to trace recent developments in piercing the corporate veil in caselaw in respect of confiscation and to suggest some practical implications of the present-day legal position in England and Wales.
WARNING – THIS IS A LENGTHY BLOG POST – IN EXCESS OF 6,000 WORDS
Salomon v A Salomon and Co Ltd 1896
Consideration of the corporate veil in the law of England and Wales has to start with the 1896 decision of the House of Lords (as the UK Supreme Court was known until relatively recently) in the case of Salomon v A Salomon and Co Ltd  UKHL 1,  AC 22.
This was not a criminal case, it was a case involving the insolvency of a limited company. At that time company law (based on the Companies Act of 1862) required that a limited company must have at least seven shareholders in order to be legally constituted. A Salomon and Co Ltd was duly incorporated with seven shareholders, one of whom was Mr Aron Salomon. The remaining shareholders were Mr Salomon’s wife and five of his grown up children.
Mr Salomon had operated a successful sole trader business as leather merchant and boot and shoe manufacturer for many years. He transferred this business to the newly formed company and in exchange received the vast majority of the shares in the company in part payment and obtained a debenture creating a charge over the assets of the company in respect of other monies due to him.
The result was that Mr Salomon become both the majority shareholder and a secured creditor of the company which carried on the business which he had formerly carried on in his own name.
Shortly after the business had been transferred to the company there appears to have been a downturn in the boot and shoe trade. The company lost contracts and found itself with unsaleable stock.
When the business failed the company’s liquidator took legal action claiming that the arrangement had been, in general terms, a fraud designed to allow Mr Salomon to carry on his own business and reap the profits for himself but with protection from his creditors. The liquidator claimed monies off Mr Salomon for the benefit of those creditors. In court the business was described as a ‘one man’ company and it was suggested that the company was simply an agent of Mr Salomon, or alternatively that the relationship between Mr Salomon and the company was one of trustee and beneficiary.
The Court of Appeal considered that the objective of companies’ legislation was to facilitate the coming together of a group of people in business. That was not what had happened here. Indeed the Court of Appeal went as far as to say that “Mr Aron Salomon’s scheme is a device to defraud creditors”.
Whilst the Court of Appeal had found in favour of the liquidator the House of Lords reversed that decision, holding that A Salomon and Co Ltd was a properly constituted company and a distinct legal entity. On the incorporation of the limited company proper procedures had been followed in accordance with the letter of the law. There had been no fraud.
In consequence, the House of Lords held, Mr Salomon was entitled to the protection of limited liability and was not liable to meet the claims of the company’s creditors.
Gilford Motor Co Ltd v Horne 1933
Perhaps the first well known case in which the court pierced the corporate veil is Gilford Motor Co Ltd v Horne  Ch 935.
Mr EB Horne had been the managing director of the Gilford Motor Co. His contract of employment precluded him being engaged in any competing business in a specified geographical area for five years after the end of his employment “either solely or jointly with or as agent for any other person, firm or company”.
He left Gilford and carried on a competing business in the specified area, initially in his own name. He then formed a company, JM Horne & Co Ltd, named after his wife, in which she and a business associate were shareholders. The trial judge found that the company had been set up in this way to enable the business to be carried on under his own control but without incurring liability for breach of the covenant not to compete with his former employer.
However the reality, in the judge’s view, was that the company was being used as “the channel through which the defendant Mr Horne was carrying on his business.”
The company was restrained by the court in order to ensure that Mr Horne was deprived of the benefit which he might otherwise have derived from the separate legal personality of the company.
It does not follow that JM Horne & Co Ltd was to be identified with Mr Horne for any other purpose. Mr Horne’s personal creditors would not, for example, have been entitled simply by virtue of the facts found by the court to enforce their claims against the assets of the company.
In short, Mr Horne was found to have created the company in order to evade his own pre-existing legal obligation not to compete with his former employer. In those circumstances the court pierced the corporate veil to prevent Mr Horne from benefiting by abusing the separate legal personality of the new company.
Lazarus Estates Ltd v Beasley 1956
The case of Lazarus Estates Ltd v Beasley  1 QB 702 was not a case focussing on the corporate veil.
But it is an important and relevant case because of the famous dictum of Lord Denning in that case:-
“No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever…”
This illustrates a broader principle governing cases in which the benefit of some apparently absolute legal principle has been obtained by dishonesty. The authorities show that there are limited circumstances in which the law treats the use of a company as a means of evading the law as dishonest for this purpose.
HMRC v Hare 1996
The modern law of confiscation in England and Wales began with the Drug Trafficking Offences Act of 1986 and the Criminal Justice Act of 1988.
The case of HM Customs & Excise v Hare and Others  EWCA Civ 1351 was concerned with a restraint order made under Criminal Justice Act 1988 powers against a number of individual defendants and certain companies under their control.
The basis of the application to the judge and the restraint order which he made was that the individual defendants, through the companies and otherwise, had carried out excise duty fraud in relation to alcoholic liquor in a sum then estimated as being in excess of £100m. No charges had been brought against the companies themselves however.
It appears not to have been disputed that some of the companies’ trading had been legitimate although perhaps only a small part. The accounting records of the companies were wholly inadequate.
The Court of Appeal held that the evidence provided a prima facie case that the defendants had control of the companies; that the companies had been used for fraud, in particular the evasion of excise duty on a large scale; that the defendants regarded the companies as carrying on a family business, and that company cash had benefitted the defendants in substantial amounts.
The Court of Appeal considered that Customs and Excise ought not to be criticised for not charging the companies. The more complex commercial activities become, the more vital it is for prosecuting authorities to be selective in whom and what they charge, so that issues can be presented in as clear and short a form as possible.
It seemed to the Court of Appeal that no useful purpose would have been served by introducing into criminal proceedings the additional complexities as to the corporate mind and will, which charging the companies would have involved. Conversely, there could have been justified criticism had the companies been charged merely as a device for obtaining orders under the Act in relation to their assets.
In all the circumstances, it was appropriate to lift the corporate veil in this case and to treat the stock in the companies’ warehouses and the motor vehicles as property held by the individual defendants.
R v Dimsey and Allen 1999
The case of R v Dimsey and Allen  EWCA Crim 2261 was concerned with a confiscation order made under Criminal Justice Act 1988 powers against Mr Allen.
A large part of Mr Allen’s benefit for confiscation purposes was said to consist of the corporation tax liabilities of certain offshore companies, which had been evaded. Mr Allen contended on appeal that these were not liabilities of his (they were liabilities of the companies concerned) and hence not benefit of his.
It was the prosecution case that his income and assets were held by offshore companies. The properties in which he and his family lived were bought and sold in the name of offshore companies. Offshore companies were used to pay for personal expenditure, including holidays, school fees and ordinary household expenses. It was the prosecution case that Mr Allen himself managed and controlled the companies in the United Kingdom. That aspect of the prosecution case was not challenged for the purposes of his appeal.
The Court of Appeal gave short shrift to the argument that the relevant benefit was not Mr Allen’s, holding that “it is plain from authorities cited by the Crown that the corporate veil may fall to be lifted where companies are used as a vehicle for fraud. Here the companies in question were the appellant’s alter ego. On this part of the case it seems to us that the Crown’s position is simply incontestable. In those circumstances the appeal against the making of the confiscation order will be dismissed”.
CPS v Jennings 2008
On 14 May 2008 the House of Lords handed down important judgments in three confiscation cases, R v May  UKHL 28, CPS v Jennings  UKHL 29 and R v Green  UKHL 30.
On the face of it Mr Jennings’ appeal concerned a restraint order made under Criminal Justice Act 1988 powers in relation to his assets, pending his trial on a charge of conspiracy to defraud. But the issues raised in the appeal also concerned the amount of the benefit “obtained” by Mr Jennings from his offence.
The conspiracy was described by the prosecution as ‘an advance fee fraud’. It was carried on through a company, UK Finance (Europe) Ltd, which had originally been in legitimate business selling second hand cars and arranging finance for the purchasers. The company advertised itself as a lender, targeting people with poor credit ratings. Applications for loans were made over the telephone. An administration fee of £70 was required in return for arranging a loan. But in fact the company had no money to lend, and no arrangements with any other source of finance to make loans, and no loans were ever made.
Mr Jennings was an employee of company. He was neither a director nor a shareholder.
The prosecution alleged that each of the conspirators had benefited to the tune of the total amount of monies obtained from the fraud, calculated by the financial analyst employed by the police at £584,637. This sum was made up of £460,809, which had gone through the company’s books, and £123,828, which was the value of postal orders cashed at a local post office. Mr Jennings’ argument was that, over the period of the conspiracy, he and his wife could not have received more than, say, £50,000, made up of salary, a payment from the company’s loan account, and the postal orders which he had cashed “on several occasions” when the sole director, Mr Phillips, was away.
In relation to the amount of benefit Mr Jennings had “obtained” the judgment reached no conclusion, leaving that to be determined on the making of any confiscation order against him. The court noted however that “obtained” must mean “obtained by him”.
In its judgment in the case of May the House of Lords said:-
“D ordinarily obtains property if in law he owns it, whether alone or jointly, which will ordinarily connote a power of disposition or control, as where a person directs a payment or conveyance of property to someone else. He ordinarily obtains a pecuniary advantage if (among other things) he evades a liability to which he is personally subject”.
Matters relating to Mr Jennings had moved on since the restraint order had been made in that, by the time of the House of Lords’ judgment, both Mr Phillips and Mr Jennings had been found guilty of the fraud.
In relation to piercing the corporate veil the House of Lords said, “In the ordinary way acts done in the name of and on behalf of a limited company are treated in law as the acts of the company, not of the individuals who do them. That is the veil which incorporation confers. But here the acts done by Mr Jennings and his associate Mr Phillips in the name of the company have led to the conviction of one and a plea of guilty by the other. Thus the veil of incorporation has been not so much pierced as rudely torn away”.
That judgment might be regarded as the high water mark in piercing the corporate veil in confiscation proceedings.
R v Seager and Blatch 2009
The significance of the Court of Appeal decision in R v Seager and Blatch  EWCA Crim 1303 is not the actual outcome for Mr Seager and Mr Blatch. Each of them had been convicted of acting as a company director whilst disqualified from doing so. The court held in each case that the corporate veil should not be pierced as the relevant company in each case was operating a legitimate business (albeit that the defendants should not have been acting as directors of those companies).
The significance of the judgment is in the summary of the law on the subject of piercing the corporate veil which is included in the judgment of the Court of Appeal, which held:-
“There was no major disagreement between counsel on the legal principles by reference to which a court is entitled to ‘pierce’ or ‘rend’ or ‘remove’ the ‘corporate veil’. It is ‘hornbook’ law that a duly formed and registered company is a separate legal entity from those who are its shareholders and it has rights and liabilities that are separate from its shareholders.
A court can ‘pierce’ the carapace of the corporate entity and look at what lies behind it only in certain circumstances. It cannot do so simply because it considers it might be just to do so. Each of these circumstances involves impropriety and dishonesty. The court will then be entitled to look for the legal substance, not the just the form.
In the context of criminal cases the courts have identified at least three situations when the corporate veil can be pierced.
- First if an offender attempts to shelter behind a corporate façade, or veil to hide his crime and his benefits from it.
- Secondly, where an offender does acts in the name of a company which (with the necessary mens rea) constitute a criminal offence which leads to the offender’s conviction.
- Thirdly, where the transaction or business structures constitute a ‘device’, ‘cloak’ or ‘sham’, i.e. an attempt to disguise the true nature of the transaction or structure so as to deceive third parties or the courts.”
Prest v Petrodel Resources Ltd 2013
The judgment of the UK Supreme Court in the case of Prest v Petrodel Resources Ltd and Others  UKSC 34 is undoubtedly significant in relation to the doctrine of piercing the corporate veil. In view of all that had gone before it may also be regarded as surprising.
The case arose from the divorce of Michael and Yasmin Prest. In essence Yasmin Prest made a claim, following her divorce from Michael Prest, on seven properties the legal ownership of which was held in the names of various companies.
One of the issues which arose, or appeared to arise, was whether the court was entitled to pierce the corporate veil to enable the court to ensure the satisfaction of a financial order made in the matrimonial court in favour of Yasmin Prest.
Ultimately the Supreme Court held that it was unnecessary to pierce the corporate veil as in reality the seven properties, though legally held in the names of the companies, were beneficially owned by Michael Prest.
However the Supreme Court considered in depth the doctrine of piercing the corporate veil and found little to commend the concept. Lord Sumption said:-
“In my view, the principle that the court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused for the purpose of some relevant wrongdoing is well established in the authorities.
It is true that most of the statements of principle in the authorities are obiter, because the corporate veil was not pierced. It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. But the consensus that there are circumstances in which the court may pierce the corporate veil is impressive.
I would not for my part be willing to explain that consensus out of existence. This is because I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstances is necessary if the law is not to be disarmed in the face of abuse.
I also think that provided the limits are recognised and respected, it is consistent with the general approach of English law to the problems raised by the use of legal concepts to defeat mandatory rules of law.
The difficulty is to identify what is a relevant wrongdoing. References to a ‘facade’ or ‘sham’ beg too many questions to provide a satisfactory answer.
It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle.
The concealment principle is legally banal and does not involve piercing the corporate veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases the court is not disregarding the ‘facade’, but only looking behind it to discover the facts which the corporate structure is concealing.
The evasion principle is different. It is that the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company’s involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement”.
He went on:-
“I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.
The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.
I consider that if it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justifies that course.
For all of these reasons, the principle has been recognised far more often than it has been applied. But the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with long-standing principles of legal policy”.
Lady Hale in a brief supporting judgment referred to “examples of the principle that the individuals who operate limited companies should not be allowed to take unconscionable advantage of the people with whom they do business”.
Lord Mance added:-
“It is however often dangerous to seek to foreclose all possible future situations which may arise and I would not wish to do so. What can be said with confidence is that the strength of the principle in Salomon’s case and the number of other tools which the law has available mean that, if there are other situations in which piercing the veil may be relevant as a final fall-back, they are likely to be novel and very rare”.
In short the Supreme Court held that, in part because of other remedies available (which should then be used in preference), it will almost never be necessary to rely on the doctrine of piercing the corporate veil.
However it has to be said that the Supreme Court was not considering criminal misconduct and was not referred to cases such as Hare and Jennings.
It also should be remembered that the Supreme Court appears to have endorsed the dictum of Lord Denning in Lazarus Estates Ltd that “fraud unravels everything” (which applies not only to situations involving limited companies).
R v Sale 2013
The Court of Appeal decision in R v Sale  EWCA Crim 1306 appears to be the first confiscation appeal after the Supreme Court decision in Prest in which issues of piercing the corporate veil were considered.
Mr Sale had been convicted of corruption and fraud by false representation in connection with gifts given to an employee of Network Rail. Mr Sale was managing director of Sale Service and Maintenance Ltd which became a supplier to Network Rail. The company obtained contracts for approximately £2m worth of work in consequence of the corruption.
In relation to the confiscation order Mr Sale argued that his benefit should be limited to the financial advantages he had himself received, rather than the sums received by the company under the contracts.
The Court of Appeal held that, following the Supreme Court decision in Prest, the earlier Court of Appeal decision in Seager and Blatch was still good law but was to be understood in the light of Prest.
In particular in relation to the three circumstances in which it had previously been said that “the corporate veil can be pierced” Seager and Blatch should now to be understood to mean instead that “a benefit obtained by a company is also treated in law by PoCA as a benefit obtained by the individual criminal”.
Mr Sale was the sole controller of the company and there was a very close inter-relationship between the corrupt actions of Mr Sale and steps taken by the company in advancing those corrupt acts and intentions, the reality was that the activities of both Mr Sale and the company were so interlinked as to be indivisible. Insofar as the company was involved, what it did served to hide what Mr Sale was doing.
Accordingly in Mr Sale’s confiscation proceedings it was appropriate for the court to have regard to the transactions between Network Rail and the limited company and not to confine itself to the amounts which Mr Sale had personally received.
It may be noted that in Sale Mr Sale’s available amount was in excess of his benefit in any event and so was not a matter for consideration by the court.
McDowell and Singh v R 2015
In McDowell and Singh v R  EWCA Crim 173 the Court of Appeal adopted the approach employed in Sale.
In particular it found that the defendant was the sole controller and beneficial owner of the company, which was his alter ego. Accordingly the Crown Court was entitled to examine the receipts and profits of the company for the purpose of ascertaining the benefit obtained from the criminal conduct of the defendant personally.
Boyle Transport (NI) Ltd v R 2016
The case of Boyle Transport (Northern Ireland) Ltd v R  EWCA Crim 19 was more factually complex.
Patrick Boyle and Mark Boyle had been at the relevant time the only directors of a haulage company, Boyle Transport Ltd, and had between them owned just over 50% of the shares in the company. The remaining shares were held by other members of the Boyle family.
Patrick Boyle and Mark Boyle and a number of drivers employed by the company were convicted of conspiring to make false instruments in relation to tachograph records relating to the use of the company’s haulage vehicles.
Confiscation proceedings against Patrick Boyle and Mark Boyle followed. In those confiscation proceedings the court held that each of the defendants had a criminal lifestyle and that in excess of 50% of the turnover of the company over a period of six years was to be regarded as benefit jointly obtained by them. That resulted in a finding that each of Patrick Boyle and Mark Boyle had obtained a benefit of just over £10m.
The available amount of each defendant was significantly less than the benefit. The court found the available amount of Patrick Boyle to be £1,097,622 and that of Mark Boyle to be £738,171. In each case the available amount of the defendant included assets held by the company.
An added complication was that a new company, Boyle Transport (Northern Ireland) Ltd, had been incorporated and the entire fleet of vehicles and trailers of the old company and other assets were transferred to the new company of which Patrick Boyle and Mark Boyle were not directors.
The Crown Court found that the transfer of assets to the new company was not genuine but a mere device and made an order for the appointment of an enforcement receiver. The new company appealed against that order. At the same time Patrick Boyle and Mark Boyle appealed against the original confiscation orders.
On behalf of the new company it was contended that the old company was established as a legitimate company, carrying on a legitimate business: road haulage. It had substantial assets and many employees, all deployed for that legitimate purpose. True it was that business had been carried on, in a very significant way, in breach of the relevant regulations. But that did not justify disregarding or piercing the corporate veil. The old company was not an alter ego company on any view: it was not within the concealment principle. Nor had the old company been established or operated in a way coming within the evasion principle. In the circumstances of this case it was a negation of well settled company law principles, as confirmed in Prest, and indeed a negation of realities to equate the turnover obtained by the old company with benefit obtained by Patrick Boyle and Mark Boyle and to designate assets held by the old company as assets held by them. That they were the ‘operating minds’ did not mean that they were the owners. The judge had placed too much emphasis on the wrongdoing and not enough emphasis on the actual benefit they as individuals had obtained.
In essence the Court of Appeal agreed with these contentions and held that it would not be justified to treat the turnover of the old company, or the major part of it, as benefit obtained by Patrick Boyle and Mark Boyle individually; nor would it be justified to treat the assets of the old company (and hence of the new company) as realisable property of Patrick Boyle and Mark Boyle individually.
The Court of Appeal in its judgment in Boyle went on to comment upon earlier decisions in Hare, Prest, Sale and McDowell. It considered that Sale and McDowell were decisions on their particular facts and implied that the caution expressed in the decision in Hare, many years ago, concerning the undesirability of charging the company itself with a criminal offence, may now be misplaced following the decision of the Supreme Court in Prest.
With regard to the decision in Jennings, the Court of Appeal noted that in that case the activities of the company were wholly fraudulent and it regarded Jennings as an example of the concealment principle identified in Prest.
The Court added:-
“The reality is that in the Crown Courts – as in many other courts – the phrase ‘piercing’ the corporate veil had been used broadly without focusing precisely on the two concepts of concealment and evasion as have now been identified by Lord Sumption in Prest. One must not forget the obvious point that the context of confiscation proceedings under the 2002 Act is always criminal. That, in factual terms, is a context very different from Salomon and is very different also from many of the reported decisions on lifting or piercing the corporate veil.
It is that criminal context which is capable of explaining why, in an appropriate case in confiscation proceedings, the involvement of a limited company quite frequently can, on the facts, be described as a mere facade or sham. The companies in such cases are properly treated as alter egos, or agents, of their criminal controllers.
Many of the cases of this kind thus are clear examples of Lord Sumption’s concealment principle and do not involve, in the sense explained by Lord Sumption, ‘piercing’ the corporate veil at all: and it is that latter doctrine which is the one of “limited” and “rare” application”.
The Court however also cautioned against too great a readiness to reach a finding of alter ego in relation to any company, noting that “the fact that the incorporator is sole shareholder and director of a company does not mean that the company is thereby and for that reason alone to be treated as his alter ego”.
In relation to the much quoted passage from Seager and Blatch the Court suggested that the opening sentence be further modified to read, “In the context of criminal cases the courts have identified at least three situations when a benefit obtained by a company may, depending on the facts, also be treated in law by POCA as a benefit obtained by the individual criminal….”.
The Court of Appeal referred to six overlapping general propositions which Crown Courts may wish to take into account when considering piercing the corporate veil in confiscation proceedings:-
- The test is not simply a test of “justice”, which would be too vague and unprincipled.
- The Crown Court needs to assess the reality of the matter, but without departing from established principles relating to the separate legal status of a limited company.
- Confiscation is not aimed at punishment.
- The principles pertaining to piercing the corporate veil in confiscation are the same as those which apply in the civil courts.
- Regard should be had to the nature and extent of the criminality involved.
- Where a company is solely owned and controlled by a convicted defendant it will not necessarily follow that the company is his alter ego.
A clear and coherent picture?
So do we, as a result of all this caselaw, have a clear and coherent picture of when in confiscation proceedings it will be justified to treat the turnover of a limited company as benefit obtained by a defendant personally and when it will be justified to treat the assets of the company as realisable property of a defendant individually?
I suggest that we do not.
Following the decision of the Supreme Court in Prest the Court of Appeal could have abandoned the obiter dicta in Seager and Blatch and proposed an entirely new formulation in relation to piercing the veil of incorporation in confiscation proceedings. It did not.
Or the Court of Appeal could have concluded that the dictum of Lord Denning that “fraud unravels everything” applies in confiscation proceedings and that the Supreme Court in Prest was not addressing such proceedings, which arise in a criminal context – reaffirming Seager and Blatch. It did not.
Instead since Prest the Court of Appeal has progressively watered down Seager and Blatch and found itself facing different ways in Sale, McDowell and Boyle, whilst controverting Hare for good measure.
Prosecutors, lawyers and courts may well find themselves in many cases unclear as to the principles to be followed in quantifying a convicted defendant’s benefit and available amount for confiscation purposes where a limited company is involved.
In Boyle the Court of Appeal found that the convicted defendants were the only two directors of the company, that they between them owned more that 50% of the shares in the company and that more than 50% of the turnover of the company was derived from criminal conduct. Yet they held that it would not be appropriate to ascribe to the convicted defendants for confiscation purposes any part of the turnover or assets of the company.
Defendants and their legal advisers will thereby be encouraged to contest in confiscation proceedings the piercing of the corporate veil in every case in which there is a sliver of legitimate trading in the operations of a company – and perhaps even in cases where there is not.
Prosecutors will be encouraged to charge not only company directors but also the companies themselves with criminal offences, with a view to avoiding in confiscation proceedings the difficulties which the Crown have encountered in Boyle.
As the outcome in Boyle demonstrates, individuals whose criminal conduct is undertaken through a limited company may fare very much better in confiscation than those whose criminality is undertaken individually or in an unincorporated partnership, unless the company itself is also charged, convicted and made subject to confiscation. That may be particularly relevant in cases of money laundering, people or arms trafficking, bribery, intellectual property or modern slavery offences, and in relation to regulatory offences.
Even where an individual and a company are both subject to confiscation it is easy to imagine circumstances in which the bulk of the benefit would be regarded as obtained by the company (rather than the individual) with the result that the individual defendant would be less likely to be obliged to realise his legitimately acquired assets to satisfy a confiscation order.
I would suggest that in preparation for a confiscation hearing both prosecution and defence will now in many cases wish to prepare two computations of benefit and available amount based on the alternative outcomes that the court does, or does not, pierce the corporate veil.
Financial investigators preparing s16 statements for the prosecution will need to be alive to the possibility that assets apparently held by a company may be beneficially owned by an individual or vice versa, as will the lawyers and forensic accountants instructed by the defendants.
Where both the company and its directors are convicted of an offence and are subject to confiscation proceedings there will be an additional difficulty in valuing the director’s shares in the company for the purpose of determining his available amount, because the value of his shares may depend upon the outcome of the confiscation proceedings against the company.
All of these factors are likely to create extra work for prosecutors, lawyers, forensic accountants and the courts in years to come.
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(Note: This article applies to confiscation proceedings under the provisions of Part 2 of the Proceeds of Crime Act 2002 in England and Wales. Appropriate professional advice should be sought in each individual case.)