Corporate and Business Law (Global) · Corporations and legal personality

Lifting the Corporate Veil: Prest v Petrodel and the Evasion Principle

Updated 11 October 2026 · Fact-checked

Lifting the corporate veil means a court or statute ignores a company's separate legal personality and treats the people behind it as liable. Courts do this rarely. After Prest v Petrodel, true piercing is limited to the evasion principle: deliberately evading an existing obligation through a company. Gilford and Jones v Lipman are the usual examples.

Understand Lifting the Corporate Veil

A company is a separate legal person. It owns its assets, makes its own contracts and is liable for its own debts. Its members are not liable for those debts beyond any unpaid share capital. This is the rule from Salomon v Salomon, and it is the starting point for every veil question.

The corporate veil is the legal wall between the company and its members. Lifting the veil means looking through that wall at the real people behind the company. It is an exception. Courts use it rarely and only where the separate personality is being abused.

There are two routes. Statutory lifting happens where an Act says so. Examples in the Global LW syllabus are fraudulent and wrongful trading, where directors can be made personally liable to contribute to the company's assets. Other statutory examples, such as misuse of the company name, matter only if the study text for your variant covers them. Judicial lifting happens where the court applies common law principles.

The main situations where a court is asked to look behind a company are these:

Fraud or evasion of an existing obligation. In Gilford Motor Co v Horne, an ex-employee was bound by a covenant not to solicit his former employer's customers. He set up a company to do it. The court treated the company as a device to dodge his covenant and granted an injunction against both. In Jones v Lipman, a seller of land tried to avoid a specific performance order by transferring the land to a company he controlled. The court ordered both to complete the sale.
Sham or façade companies. Older cases use these words where a company is only a cloak for the owner's own wrongdoing. After Prest, sham is not a separate head of piercing. Lord Sumption explained such cases as evasion or concealment.
Group cases. Courts generally treat each company in a group as separate, even if a parent controls a subsidiary. Lifting the veil because of group structure alone is rare.

Agency is a separate route and is not veil piercing. A company may act as agent for its owner, so the owner is bound by the company's acts under ordinary agency principles. The owner is bound because of the agency, not because the veil is lifted. This depends on the facts, not on control alone.

In Prest v Petrodel, the UK Supreme Court limited true piercing of the veil to the evasion principle. This applies where a person is under an existing legal obligation or liability, or subject to an existing restriction, which they deliberately evade or whose enforcement they frustrate by using a company under their control. The court separated this from the concealment principle, where it merely looks behind the company to reveal the facts. That is not piercing. Sham cases fit within one of these two principles. Lord Sumption treated Gilford and Jones v Lipman as examples of the evasion principle. Other judges doubted whether piercing was needed in them and saw them as explicable on other grounds. So use them as the standard authorities for evasion, but know that Prest recast them. The court also said that where other legal doctrines can solve the problem, such as a trust, the veil need not be lifted. Do not say courts lift the veil just because it would be fair.

Key formulas to remember

Default rule: Company = separate legal person; members are not liable for its debts; Salomon v Salomon. Always state this first before any exception.
Gilford Motor v Horne: Existing obligation + company deliberately used to evade it = evasion principle (veil lifted); Company was a device to avoid a restrictive covenant. Injunction against both. Prest treats it as an evasion case.
Jones v Lipman: Company used to frustrate specific performance = evasion principle (veil lifted); Seller who transferred land to his own company was ordered to complete along with the company. Prest treats it as an evasion case.
Prest v Petrodel principle: True piercing only under the evasion principle: deliberate evasion or frustration of an existing legal right; Not a general power to pierce for fairness or justice. Sham cases are explained as evasion or concealment. Concealment (revealing the facts) is not piercing. Agency is a separate route under ordinary agency law.
Statutory lifting: Veil lifted where an Act expressly imposes personal liability; Example: fraudulent and wrongful trading. Name the statute rule, not just the idea.
Group rule: Parent and subsidiary are separate persons; Control or common ownership alone does not lift the veil.

How to solve Lifting the Corporate Veil questions

Use this method for any veil scenario or case-based question. It keeps your answer short and in the order a marker expects.

1State the default rule: the company is separate from its members, and members are not liable for its debts.
2Identify who wants to reach behind the company and what they are claiming (debt, covenant, contract, tax, and so on).
3Ask whether a statute applies. If an Act imposes personal liability, say so and stop there.
4If not, ask whether there is an existing obligation or liability that someone evaded or frustrated by using the company.
5Match the facts to a route. If the company was used to evade an existing obligation (including cases described as sham or façade), apply the evasion principle and the matching case. If the company was acting for its owner as agent, apply ordinary agency law instead; that is not piercing. If it is only a group case, go to step 6.
6Check the counter-point: mere control, a group structure, or an unfair result is not enough. Salomon still applies.
7State a clear conclusion on whether the veil is lifted and who becomes liable.

Quickest way: Evasion test in three questions

When to use it: Use this for objective test questions where you must choose between 'veil lifted' and 'separate personality respected'.

Was there an existing legal duty or right before the company was used?
Was the company created or used deliberately to avoid or block that duty? A company used only to hide the facts is a concealment case, not piercing. Evasion needs an existing obligation that is deliberately avoided or frustrated.
If the answer to 1 and 2 is yes, the evasion is deliberate and tied to an existing obligation, so choose veil lifted. Words like 'evade' or 'avoid' are only a prompt. Check the facts. If the facts show only a lawful business choice, or a group structure that merely limits liability, choose separate personality.

Common mistakes in Lifting the Corporate Veil

Saying courts lift the veil whenever it is fair or just.
Students remember that the veil is lifted to stop abuse and widen it into a general fairness power.
Fix: Tie lifting to a specific route: evasion of an existing obligation, or statute. Agency is a separate route under ordinary agency law, not piercing. Prest v Petrodel rejects a general justice power.
Lifting the veil in a group case just because the parent controls the subsidiary.
Control looks like the same as being the same person.
Fix: State that group companies are separate persons. Control alone is not enough. Look for evasion of an existing obligation, or a true agency arrangement under agency law.
Mixing up Gilford and Jones v Lipman.
Both involve a person using a company to dodge a duty, so the facts blur.
Fix: Gilford is a restrictive covenant on soliciting customers. Jones v Lipman is a land sale and specific performance.
Forgetting to state Salomon first.
Students jump straight to the exception.
Fix: Open with one sentence: the company is a separate legal person. Then explain why the exception applies.
Treating statutory and judicial lifting as the same.
Both end with personal liability for the person behind the company.
Fix: Statutory lifting is triggered by an Act's words. Judicial lifting is the court's common law response to abuse. Say which route you are using.
Treating 'sham' or 'agency' as separate heads of veil piercing.
Older cases and textbooks list sham, façade and agency alongside fraud as ways to lift the veil.
Fix: After Prest, true piercing is only the evasion principle, and sham cases are explained as evasion or concealment. Agency is ordinary agency law, where the company acts as agent, and is not piercing.

Worked examples

Example 1

Rana was a manager at Delta Ltd and signed a contract promising not to deal with Delta's clients for two years after leaving. After leaving, Rana formed Rana Services Ltd, owned and run by Rana, which approached those clients. Delta seeks an injunction. Can Delta succeed against the company?

Show the solution

Default rule: Rana Services Ltd is a separate legal person from Rana.
Rana had an existing obligation under the covenant before the company existed.
The company was formed to deal with the clients and so avoid the covenant. It is a device used to evade the duty.
This matches Gilford Motor Co v Horne, which Prest v Petrodel treats as an example of the evasion principle.
Conclusion: the court is likely to treat the company as a cloak and grant an injunction against both Rana and the company.

Answer: Yes. The veil is likely lifted because the company was used to evade Rana's existing covenant, as in Gilford Motor v Horne.

Example 2

Hana owns Alpha Ltd and a subsidiary, Beta Ltd. Beta cannot pay a trade debt. The creditor argues that Alpha should pay because Alpha controls Beta and both run as one business. There is no fraud and no sham. Will the court lift the veil?

Show the solution

Default rule: Alpha and Beta are separate legal persons, even in a group.
The creditor relies only on control and a single business operation. The facts do not say Alpha guaranteed the debt, so assume Alpha gave no guarantee. A guarantee would be a separate basis for liability.
Control and common management do not by themselves lift the veil. There is no existing obligation evaded, no sham and no statutory provision applies on these facts.
Prest v Petrodel limits true piercing to the evasion principle, which needs deliberate evasion or frustration of an existing right. That is not present here.
Conclusion: assuming Alpha gave no guarantee, Beta's debt stays with Beta. The creditor cannot recover from Alpha on these facts.

Answer: No. A group structure and control alone do not lift the veil, so, assuming Alpha gave no guarantee, Alpha is not liable for Beta's debt.

Exam tips

In objective questions, words like 'evade' or 'avoid' are a prompt to check for veil lifting, not a rule. Ask whether there was an existing obligation and whether the evasion was deliberate. A plain lawful business choice, or a group structure that only limits liability, points to separate personality.
Learn the one-line facts of Gilford and Jones v Lipman. Case-matching questions are common.
In a written task, open with Salomon, apply the exception, then give a clear conclusion. Three short paragraphs score better than a list of cases.
Always say whether the route is statutory or judicial. Examiners test this difference.
If the facts show only group control, answer that the veil is not lifted unless there is evasion of an existing obligation, a statute applies, or the company is acting as an agent under agency law.

Practice questions from Corporations and legal personality

Lifting the Corporate Veil in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Lifting the Corporate Veil: frequently asked questions

What is lifting the corporate veil in simple terms?

It means a court or statute ignores the company's separate legal personality. The people behind the company are treated as liable. It is an exception to the Salomon rule.

What is the difference between statutory and judicial lifting of the veil?

Statutory lifting happens because an Act says the people behind the company are personally liable, such as for fraudulent or wrongful trading. Judicial lifting is a court's decision at common law to stop abuse, such as evasion of an existing obligation.

What happened in Gilford Motor Co v Horne?

Mr Horne was bound by a covenant not to solicit his former employer's customers. He formed a company to do it. The court held the company was a device to evade the covenant and granted an injunction against both.

What did Prest v Petrodel decide about veil piercing?

The Supreme Court limited true piercing to the evasion principle. This applies where a person deliberately evades or frustrates an existing legal obligation by using a company they control. It is separate from the concealment principle, where the court only reveals the facts. The court treated cases like Gilford and Jones v Lipman as evasion examples, though some judges thought they could be explained on other grounds. It is not a general power to do justice, and other doctrines should be used where they solve the problem.