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Review Your SQE 1 Practice Records

Examination Timing: 00H02M01S

James is the sole shareholder in J.J. Ltd., a company providing management consultancy services. James is also the sole director. The company employs two people: James, who provides consultancy services, and Sarah, who handles office administration. Several months after beginning operations, the company goes into liquidation. One of the company's creditors, Tech Solutions Ltd., is owed a significant amount and seeks advice on whether they can enforce the debt against James personally. James owns a large house and a new car. 

Which of the following statements best describes the legal position? 

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A creditor would not be able to enforce a debt against a shareholder unless a court lifts the veil of incorporation and makes an order against the shareholder. Courts are not obliged to lift the veil of incorporation but may do so when it appears that the company is being used to evade legal obligations. The case law on this matter leaves some uncertainty as to when courts will lift the veil, but the principle is established to prevent abuse of the corporate structure.

Key Point: The concept of lifting the corporate veil allows courts to hold individuals personally liable when they misuse the corporate form to evade their legal responsibilities, ensuring that justice is served in cases of corporate abuse.

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