It is a fundamental principle of Cyprus Company Law that a limited liability Company has a legal personality and identity which, is separate from its shareholders, or directors, and that it is a separate legal entity, having separate rights and liabilities.
As a result of the above principle, any liability incurred by the Company, does not extend to its shareholders (beyond any money paid for the purchase of their shares), and its directors (beyond any personal liability, which they might have, for violation of their duties as directors of the Company).
Cyprus Courts, are reluctant to undermine the corporate structure by “lifting the corporate veil” and making shareholders personally liable for the debts and obligations of Companies. Cyprus case law (as English case law), demonstrates that although such cases for piercing the corporate veil, are exceptional, Cyprus Courts (as English Courts), will in certain circumstances, exercise their jurisdiction to lift the corporate veil.
In the cases, where the corporate veil is lifted, the Courts may grant remedies against the controllers of a Company, which, in principle would ordinary only be available against the Company.
Cyprus case law -(following English case law)- has established a number of relevant principles, which must be applied, when deciding whether the corporate veil may be lifted (see inter alia APOSTOLOU -v- IOANNOU (2012), HADZIGAVRIEL -v- ELLINAS FINANCE PUBLIC COMPANY LTD) which can be summarized as follows:
- Ownership and control of a company, are not sufficient to justify the lifting of the corporate veil;
- The corporate veil cannot be lifted on the basis that such lifting of the corporate veil would serve the interests of justice;
- There must be evidence of impropriety;
- Impropriety alone, has been held as insufficient cause to lift the corporate veil. It must be further proved that the impropriety is linked to the avoidance, or concealment of a liability, through the use of the corporate structure;
- The court may consider the intentions of a wrongdoer, when examining whether to lift the corporate veil. It must be proved, that the wrongdoer controlled the Company and used same as a device or façade to conceal his wrongdoing;
- The mechanism of piercing the corporate veil, shall not be used to allow contractual claims to proceed against non-contracting parties.
- If there is no statutory provision, expressly providing for identification of a company with an individual, or another person, the separate identity of a Company, can be disregarded only for the purposes of terminating concealment by a wrongdoer of his wrongdoing, or evasion by a person of his liabilities.
The following dicta of Lord Sumption at paragraph 35 of the English case VTB CAPITAL PLC -v- NUTRITEC INTERNATIONAL & OTHERS (2013) UKSC 5 (with whom the majority of the members of the English House of Lords specifically agreed) will be of guidance to Cypriot Courts in deciding, whether the circumstances of a particular case, justifies the piercing of the corporate veil:
“...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...”
To sum up, claims based on piercing the corporate veil have only succeeded before Cypriot Courts, in very limited circumstances, where the company in question, is a sham or façade and has been used by its controller for an improper purpose.