A business owner has provided various products to a company, but the company went bankrupt and did not pay for these products. A claim for compensation in respect of the products was filed to Court with the requirement of lifting the veil on another company claiming it was established through the shareholder's daughter, founder of the original company, in order to continue the company's operations with the aim to evade creditors.
The court held that there are exceptions for the principle of a separate legal entity which are designed to prevent a situation in which the corporate veil, who separates the Company from its shareholders, when it’s used to conceal a negative activity, defraud of creditors, evade the law or contractual charges. To lift the corporate veil one has to prove misused of the corporate’s separate legal personality, in order to deceive people, or deprive creditors, in a manner which is entirely against the company’s purpose and by taking an unreasonable risk with respect to its ability to repay its debts. Similar to lifting the veil against a shareholder, lifting the veil between two different companies is also possible, when it has been shown that one established to smuggle the assets of the other, to evade its responsibilities and to defraud the creditors, just as you and its stakeholders.
In the present case, it was proven that the new company was established as a family company, managed by the original company founder’s the daughter, while the he runs the business de facto, including conducting a working relationship with customers or suppliers and actually functioning as the live spirit behind the new company. Under these circumstances, it was held that the two companies are related, and they must be considered as one business entity that actually belong to the founder of the original company, despite the record indicating the name of different owners.