June 24, 2025
One of the most cherished principles in CORPORATE LAW is the concept of a COMPANY AS A SEPARATE LEGAL ENTITY. Once incorporated under the COMPANIES AND ALLIED MATTERS ACT (CAMA), a company becomes DISTINCT FROM ITS MEMBERS, DIRECTORS, AND SHAREHOLDERS. This legal personality gives it the capacity to own property, sue and be sued, and enter contracts independently of its human controllers.
However, this principle is NOT ABSOLUTE. Courts in Nigeria—and indeed across common law jurisdictions—will PIERCE THE CORPORATE VEIL where the company is USED AS AN INSTRUMENT OF FRAUD, INJUSTICE, OR MISCONDUCT. This doctrine ensures that incorporation is not used as a SHIELD FOR CORRUPTION, ILLEGALITY OR BAD FAITH.
The doctrine of SEPARATE LEGAL PERSONALITY was firmly established in the English case of SALOMON v. SALOMON & CO. LTD (1897) AC 22, where the House of Lords held that a duly incorporated company must be regarded as a separate person from its owners, even if they own nearly all the shares.
Nigerian courts have upheld this principle, but they also recognise that it MUST YIELD TO JUSTICE IN CERTAIN CASES.
To PIERCE THE CORPORATE VEIL is to disregard the legal separation between a company and its members in order to EXPOSE THE NATURAL PERSONS behind a company’s actions and HOLD THEM PERSONALLY LIABLE. This remedy is rarely granted and usually reserved for CLEAR CASES OF ABUSE.
It is a judicial tool used to PREVENT THE MISUSE OF CORPORATE PERSONALITY.
1. FRAUD OR IMPROPER CONDUCT
When a company is used to commit FRAUD, CHEAT CREDITORS, OR EVADE LAW, the veil can be lifted.
GILFORD MOTOR CO. LTD v. HORNE (1933) Ch. 935: A former employee set up a company to avoid a non-compete clause. The court held the company was a sham and lifted the veil.
JONES v. LIPMAN (1962) 1 WLR 832: The defendant sold land to a company he created to avoid specific performance. The court pierced the veil, calling the company a mask for fraud.
UBN v. TROPICAL FOODS LTD (1992) 3 NWLR (Pt. 228) 231: Nigerian court pierced the veil where directors used the company to defraud the bank.
2. ILLEGALITY AND PUBLIC POLICY
Companies used for ILLEGAL PURPOSES OR INJURY TO PUBLIC INTEREST cannot enjoy the protection of incorporation.
DAIMLER CO. LTD v. CONTINENTAL TYRE & RUBBER CO. (1916) 2 AC 307: The court lifted the veil to determine enemy control during wartime.
KUKU v. KURE (2010) 9 NWLR (Pt. 1200) 443 at 458: The Nigerian court emphasized that courts are not powerless to disregard corporate personality where the veil is being used to defeat the course of justice.
3. GROUP COMPANIES AND PARENTAL CONTROL
Where a parent company exercises DOMINANT CONTROL over a subsidiary, making it a MERE TOOL, courts may hold the parent liable.
DHN FOOD DISTRIBUTORS LTD v. TOWER HAMLETS (1976) 1 WLR 852: UK court treated group companies as a single economic unit and lifted the veil.
ADETONA v. IGELE GENERAL ENTERPRISES LTD (2011) 7 NWLR (Pt. 1247) 535: Nigerian Supreme Court recognised that courts may look beyond corporate form to identify the true actor in group enterprises.
4. SHAM OR DEVICE COMPANIES
Where a company is used as a SHELL ENTITY with no independent life, courts may disregard it.
RE FG FILM LTD (1953) 1 WLR 483: The company was a front for an American film producer, and the veil was pierced to expose the real operator.
IN RE DARBY (1911) 1 KB 95: The company was used to defraud investors; veil was lifted.
5. EVASION OF LEGAL DUTY OR CONTRACT
If a company is used to ESCAPE AN EXISTING OBLIGATION, the court may intervene.
CREASEY v. BREACHWOOD MOTORS LTD (1993) BCLC 480: Veil was lifted where business was transferred to a new company to avoid liabilities.
AJAO v. SONOLA (1973) 1 CCHCJ 1165: Nigerian court found that directors who hide behind company structure to avoid responsibility may be personally liable.
6. UNDERCAPITALISATION AND PHOENIX COMPANIES
Where the company is grossly undercapitalised, or where the same persons reincorporate under new names to escape debt (“phoenixing”), the veil may be pierced.
R v. SEAGER (2009) EWCA Crim 1303: The court pierced the veil in a case of fraudulent reincorporation.
7. FRAUDULENT TRADING UNDER CAMA 2020
SECTION 573 OF CAMA 2020 empowers courts to hold any person KNOWINGLY PARTY TO FRAUDULENT TRADING PERSONALLY LIABLE without limitation.
OTHER RELEVANT NIGERIAN AUTHORITIES
OYENIRAN v. EGBETOLA (1997) 5 NWLR (Pt. 504) 122 – Confirms that courts can pierce the veil where necessary to prevent abuse.
MARINE MANAGEMENT ASSOCIATES INC v. N.M.A. (2012) LPELR-206 (SC) – The Supreme Court made clear that where directors abuse their office or conceal fraud under corporate cover, they can be personally accountable.
DAGGA TOLAR v. UBA PLC (2005) 3 NWLR (Pt. 913) 665 – On the legal consequences of fraudulent representations made by company officers.
ACADEMIC COMMENTARY AND SCHOLARSHIP
Prof. Abiola Sanni notes that the veil may be pierced “when the company is used as a mask for illegality or where corporate form is abused to the prejudice of third parties.”
Orojo’s Company Law in Nigeria (5th Ed.) explains that “while incorporation offers protection, it does not immunise against wrongdoing or injustice.”
CRITICAL PRINCIPLES TO NOTE
1. INCORPORATION DOES NOT ABSOLVE LIABILITY FOR FRAUD OR MISREPRESENTATION.
2. DIRECTORS CAN BE SUED PERSONALLY WHERE THEY ACT OUTSIDE THE SCOPE OF THE COMPANY.
3. COURTS HAVE INHERENT POWER TO IGNORE THE CORPORATE FORM TO DO SUBSTANTIAL JUSTICE.
4. CORPORATE GOVERNANCE STRUCTURES MUST NOT BE USED TO CONCEAL MISCONDUCT.
5. LIMITED LIABILITY IS NOT LICENSE TO ENGAGE IN ILLEGALITY.
CONCLUSION
The concept of SEPARATE LEGAL PERSONALITY remains foundational in company law. However, the doctrine must never become a TOOL FOR CORPORATE CRIME, EVASION, OR OPPRESSION. Nigerian courts have the power—and the moral duty—to LOOK BEYOND CORPORATE FORMS and hold directors, shareholders, and controllers ACCOUNTABLE WHEN JUSTICE DEMANDS IT.
PIERCING THE CORPORATE VEIL is not about destroying limited liability; it is about PRESERVING THE INTEGRITY OF THE CORPORATE SYSTEM and ensuring that companies remain instruments of good faith, not corruption.
Business owners, directors, and investors must be aware that THE LAW WILL CATCH UP WITH THOSE WHO HIDE BEHIND THE CORPORATE MASK to do wrong. The veil is not a suit of armour; it is a privilege earned through lawful conduct.
Chukwuebuka Promise Benneth, Esq., Partner at Blueprint Attorneys LP. He specializes in Corporate Law and Governance.
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