Legal Updates

 Litigation and Dispute ResolutionSeptember 20, 2023

Personal Liability Risk for Passive Directors

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The separate legal personality of a company is a fundamental principle of Irish company law and the High Court has consistently maintained that the corporate veil will only be pierced in exceptional cases. However, the High Court has shown itself willing to hold directors personally liable for the fraud of a company in certain circumstances and so directors need to ensure that they comply with their duties and exercise the necessary supervision and oversight required by the role.

Corporate Veil

A company is a separate legal entity to its directors and shareholders and as a general rule, only the company itself is liable in respect of its obligations to third parties. This central tenet of Irish law stems from the seminal English case of Salomon v A Salomon & Co. Ltd [1887] AC 22, which held that the company was separate and distinct from those who controlled it and it was irrelevant if the sole motive for setting up the company was to avail of limited liability protection.

However, the House of Lords, in its judgment, also recognised that the principle of a separate legal personality was applicable provided there was no “… fraud and no agency and if the company was a real one and not a fiction or myth”.

Piercing the Corporate Veil

As such, the courts do have discretion to lift the corporate veil and have done so in very limited circumstances, including when a company has been formed for fraudulent or illegal purposes (Jones v Lipman [1962] 1 WLR 832), where a company is being used to perpetrate an injustice against minority shareholders (Re Bungle Press Limited [1961] Ch270) and when two or more companies are deemed to be a single economic entity (Power Supermarkets Limited v Crumlin Investments Limited & Dunnes Stores (Crumlin) Limited [1981] 6 JIC 2201).

In a recent decision, Coen & anor v Doyle, Mark Doyle Building Contractors Limited & ors [2023] IEHC 310, (discussed here) the High Court refused an interlocutory application by a corporate defendant to dismiss proceedings against it in advance of a trial on the basis it was incorporated after the dispute, the subject of the proceedings, occurred. The court was satisfied that there were arguable grounds that a trial judge could be persuaded to make an order piercing the corporate veil, in circumstances where the plaintiffs argue that the said company and another company should be treated as a single entity.

Further, in the significant judgment of Powers v Greymountain Limited (in liquidation) & Ors [2022] IEHC 599, the Irish High Court, for the first time, pierced the corporate veil to make directors and shadow directors personally liable for the fraud of a company.

Fraud Perpetrated by Greymountain Management Limited

Greymountain Management Limited (‘Company’), an Irish incorporated company, had two Irish directors (‘Irish Directors’) and two further shadow directors (‘Shadow Directors’). The Shadow Directors were the beneficial owners of the Company and resided outside of the jurisdiction.

The Company was involved in the targeting of persons outside of Ireland by contacting individuals to secure their investment in binary options, which were then never purchased. The plaintiff claimed to have lost his life savings on account of the fraudulent dealings of the Company and a further 35 investors, not a party to the proceedings, were said to have been defrauded to a sum of $4,638,584.45. The plaintiff sought an order holding the Irish Directors and Shadow Directors personally liable for the fraud. No orders were sought against the, by then, insolvent Company.

The court held that the sole purpose of the Company was to defraud unsuspecting individuals and a key component of the fraud was the “veneer of legitimacy” which was provided by the fact the Company was regulated in Ireland and facilitated credit card payments by investors.

The court identified a number of factors as being relevant to its consideration of whether to lift the corporate veil, namely (i) fraud or misapplication of monies or misrepresentation on the part of the directors; (ii) directors syphoning off large sums of money out of the company so as to leave the company unable to fulfil its obligations; and (iii) negligence or impropriety on the part of the directors in the conduct of the affairs of the company.

The court noted that in order for the Irish courts to contemplate piercing the corporate veil and affixing directors with personal liability for the acts or omissions of a company, the relevant facts would have to be established in a plenary hearing, the parties charged must have the opportunity to know the full extent of the case against them and they must be given a proper opportunity to defend themselves. The court noted that these requirements were satisfied in this case, which involved a plenary hearing before the High Court, with the Shadow Directors and the Irish Directors given the opportunity to know the case against them and the opportunity to defend themselves.

Liability of the Shadow Directors

In considering whether the Shadow Directors should be held personally liable for the fraud perpetrated by the Company, the court found that they were the controlling minds of the Company and it saw no reason in principle to distinguish between shadow directors and directors when considering piercing the corporate veil.

The court held that the Shadow Directors were morally responsible for the loss caused to the plaintiff, they had financially benefited from the fraud and could not evade liability by hiding behind separate legal personality.

Liability of the Irish Directors

The Irish Directors sought to rely on the fact that they were directors of the Company in name only, knew nothing about the fraud and had abrogated their duties as directors to the Shadow Directors.

The court found that it could not conclude that the Irish Directors were aware of, or had directly benefited, from the fraud and their acts and/or omissions were completely different to the Shadow Directors who were the “masterminds” behind the operation.

One of the Irish Directors played a more active role in the Company, including co-signing payment instructions on the Company bank account and signing payment processing agreements. The second Irish Director had no active role and abrogated the running of the Company completely to the Shadow Directors.

The court observed that the Irish Directors had failed to observe the basic duties of a director, including: (i) informing themselves about the nature of their duties as director (or if they did, they ignored those duties); (ii) acquainting themselves with the affairs generally of the Company; and (iii) exercising appropriate supervision or oversight at a board level in respect of the execution or discharge of whatever tasks or functions that had been properly and appropriately delegated to others.

The court noted that their conduct, even if unwitting, was an essential factor in facilitating the fraud. It found them to have been in complete dereliction of their respective roles as directors, noting that “ignorance of the law is not a defence”. The court held both personally liable to the plaintiff.


This judgment provides a warning to all directors that they should be fully aware of their duties as a director and acquire sufficient knowledge of the company, failing which, they could find themselves personally liable for the activities of the company. Furthermore, this judgment provides clarity on the criteria which a court will consider when piercing the veil of a company and will be welcomed by parties who are victim of fraud perpetrated by a company.

DISCLAIMER: This document is for information purposes only and does not purport to represent legal advice. If you have any queries or would like further information relating to any of the above matters, please refer to the contacts above or your usual contact in Dillon Eustace.

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