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Company Credit Status Must Stand Alone

You may think that if people of substance are behind a business you have a dispute with, this acts as a source of comfort that any sum you are awarded against the company is likely to be met, but that is not necessarily the case, as a recent dispute shows.

It involved a travel company in liquidation and a Turkish airline. A ruling had been made that the airline had assisted the owner of the holiday company in defrauding the company and it was ordered to pay £3.64 million in compensation. When the award went to appeal, a payment into court of that sum was requested to reduce the litigation risk because the airline had few UK assets. That application was opposed and the argument reached the Supreme Court.

In deciding the payment into court should not be required, the Court ruled that the appropriate criterion to apply was whether, on the balance of probabilities, funds would be made available to the company by its owner or by a close associate, not whether such funds could be advanced to it.

The Court's ruling was that it must be 'cautious' in respect of a suggestion that a corporate appellant can raise money from its controlling shareholder. The shareholder's distinct legal personality must remain in the forefront of its analysis. The question should always be whether the company can raise the money and never whether the shareholder can raise the money.'

The essence of the point is that a company is, in law, a different legal person from the people who own and manage it.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.