Wood v Baker – Bankruptcy – after-acquired property and piercing the corporate veil

10 Nov 2015


Wood v Baker [2015] EWHC 2536 (Ch) (His Honour Judge Hodge QC, 31 July 2015) 


Trustees in bankruptcy obtained an interim order restraining a bankrupt from disposing of assets which had been sheltered in various front companies. The Trustees sought to claim that the assets were after-acquired property. In granting the order, the court held that there was a good arguable case that the corporate veil could be pierced so as to identify the activities and assets of the companies as those of the bankrupt.

Topics Covered

Bankruptcy; After-Acquired Property; Bankrupt’s obligations

The Facts

B was adjudged bankrupt in 2005. His discharge was suspended indefinitely due to his failure to co-operate with his trustees in bankruptcy (T). There was a consistent and long-standing history of concealment by B of his business and assets and evasion on his part of his bankruptcy obligations. He had demonstrated a way of working which involved interposing front men, or front companies, between T and his business affairs and had also used what were ostensibly third party bank accounts.

In July 2015, following investigations by HMRC, B and a number of his associates were arrested on suspicion of money-laundering and tax fraud. Shortly thereafter, substantial sums of money were transferred between the bank accounts of various corporate entities which appeared to be front companies for B.

T applied without notice for injunctions freezing the business and assets (including bank accounts of, or in the name of the corporate entities), restraining B and his associates from dealing with or dissipating the business and assets of the corporate entities and restraining all of the respondents from dealing with or dissipating the shares in any of the corporate entities.

The injunctions were sought in aid of a proposed application under s363 IA1986 for declarations that the business and assets of the corporate entities (including their bank accounts and any sums standing to the credit thereof) were held on trust for B, or on behalf of him, or were otherwise owned and controlled by him and thus subject to the operation of s307 IA 1986, relating to after-acquired property.

T was unable to offer an unlimited cross-undertaking in damages. Instead, it was proposed that the cross-undertaking be limited to the amount of the monies and the net realisable value of the unpledged assets in B’s estate, less the costs, expenses or other disbursements of the bankruptcy. This was the form of undertaking provided to the court in RBG (Resources) Plc v Rastogi [2002] BPIR 1008.

The Decision

The court was satisfied that:

  • T had raised a serious triable issue that B was effectively the man behind the corporate entities and that they were being used to shelter money, business and assets properly belonging to, and being carried on by, B;
  • there was a good arguable case that: (i) the corporate entities were the agents of B; (ii) the corporate entities held their business and assets on express trust for B; or (iii) the court would be able to pierce the corporate veil so as to identify the activities and assets of the corporate entities as those of B, who owned and controlled them; and
  • there was a real risk of dissipation of further company monies at the instance and behest of B. 

In relation to the arguments concerning piercing the corporate veil, the court relied upon the evasion principle as set out in the decision of the SC in Prest v Petrodel Resources Ltd [2013] UKSC 34. The evasion principle is that "…the court may disregard the corporate veil if there is a legal right against the person in control of it which exists independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement". A good arguable case existed to pierce the corporate veil on the basis that: (i) the bankrupt was and remained, subject to an existing obligation to disclose after-acquired assets to his trustees; (ii) the bankrupt evaded that obligation by interposing some, or all, of the corporate entities; and (iii) the bankrupt's motivation was clear – to evade disclosing the after acquired assets to T pursuant to the obligations in s333  IA 1986.

As T had no accrued cause of action in relation to the after-acquired property prior to the service of a s307 notice, it was not possible for T to obtain a freezing injunction (see The Veracruz [1992] 1 Lloyd’s Rep 353), although the court could have indicated that it was prepared to grant freezing relief after a s307 notice had been served (Re Q’s Estate [1999] 1 All ER (Comm) 499). Instead, the court made an interim order under CPR 25.1(1)(c)(i) for the preservation of relevant property.

The court was prepared to accept a cross-undertaking limited to the value of the assets in B’s estate but, in the interests of striking the correct balance, the costs and expenses of bankruptcy were not to be deducted from the value of those assets (i.e. the cross-undertaking in damages would receive a super-priority ranking in the bankruptcy waterfall).


Despite it being recognised that, post Prest v Petrodel, cases where the corporate veil could be pierced would be rare, the court was still able to find that there was a good arguable case that the corporate veil could be pierced. This demonstrates that there will be cases where piercing the corporate veil is an appropriate remedy and available. This reinforces Lord Sumption's view expressed in Prest v Petrodel that there would be a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law could only be addressed by disregarding the legal personality of the company.

The decision also represents a further example of the court’s willingness to accept a limited cross-undertaking in damages from an officeholder where there is compelling evidence of wrongdoing on the part of the respondent and injunctive relief is essential to the recovery of assets. Nevertheless, the court remained concerned to minimise the potential injustice to the respondents by ensuring that any damages would effectively have super priority in the bankruptcy estate.

Originally published on Insolvency Lawyers Association, http://www.ilauk.org/ 



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