Confiscation - Piercing the Corporate Veil in Criminal Cases: R v Boyle Transport (Northern Ireland) Ltd, Patrick Boyle & Mark Boyle

Summary

This is an important case for practitioners dealing with confiscation that involves issues of piercing the corporate veil. In essence the CA says that the fundamental principle that a company has a separate legal identity is paramount and Crown Courts cannot simply adopt a “broad brush” approach to piercing the corporate veil or “do justice”; the circumstances and law need to be carefully considered.   

This article provides an overview of the background of the Boyle case, the applicable law, the CA’s decision, and the important factors that the Courts and practitioners should be aware of.

Issue on Appeal

The Crown applied for and were granted an Enforcement Receiver pursuant to the Proceeds of Crime Act 2002 in order to satisfy confiscation orders made against Patrick Boyle (“PB”) and Mark Boyle (“MB”). At an application for an Enforcement Receivership the Court pierced the corporate veil, treating assets of a company as the realisable property of PB and MB. The issue on the appeal was whether that finding and the basis for granting the Enforcement Receivership was correct.

Factual Background

PB and MB (father and son) were the sole directors of Boyle Transport Limited (“the Old Company”). It was an established, family-run road haulage business, operating heavy goods vehicles in the UK and abroad. It had a significant turnover with gross profits in excess of £1m per annum. Together, PB and MB had 50.1% of the shareholding of the Old Company. The other shareholders were other family members. There was no finding in the Crown Court that the other family members held their shares as nominees or bare trustees of PB and MB. The Court could found PB and MB were the “operating minds” of the company.

Between 2007-2008 PB and MB falsified tachograph data from the company’s vehicles. They pleaded guilty to conspiracy and were sentenced on the basis that PB had primary responsibility for the business and MB was closely involved in the management of the business.

Confiscation proceedings took place. Based on the evidence of forensic accountants that 51.78% of the company turnover (amounting to £10,016,810) related to journeys had been affected by tachograph tampering, the Defendants’ benefit was agreed.

By the time of the Confiscation hearing PB and MB had resigned as directors and new directors were appointed. Thereafter, the Old Company transferred its assets to Boyle Transport (Northern Ireland) Ltd (“the New Company”) in a transaction that the Crown Court decided was not genuine.

The Crown Court pierced the corporate veil of the New Company and found the assets transferred (worth approximately £500,000) were the realisable property of PB and MB. In total, the available amounts for PB and MB were £1,097,622 and £738,171 and Confiscation Orders were made in those sums.

PB and MB did not pay the confiscation orders and this lead to the application for the appointment of the Enforcement Receiver over the assets of the New Company in order to satisfy PB and MB’s confiscation orders. The Receivership was granted and the New Company appealed.

Law

The appointment of an Enforcement Receiver under s.50 POCA 2002 is a discretionary remedy.  Enforcement Receivers are appointed over “realisable property” (s.50(2)). Realisable property means “free property” held by the recipient or held by the recipient of a tainted gift (s.83). Property means all property in whatever form, wherever situated. A person “holds” property if he has an interest in it and an “interest” includes a right (s.84).

Thus, in order for the Enforcement Receivership to have been correctly granted, the assets of the New Company (which had derived from the Old Company) had to be the realisable property of PB and MB i.e. property that was held by them personally.

The Court of Appeal in Boyle took the opportunity to restate the fundamental principle that a Company has a separate legal status, distinct from that of its directors and shareholders. The Court reviewed previous case law leading up to and including the case of Prest v Petrodel Resources [2013] UKSC 34, in which the Supreme Court considered the doctrine of “Piercing the Corporate Veil” in the context of ancillary relief and where the Supreme Court ultimately found that properties were held by a company on trust for a husband. In that case the Supreme Court stated that there were very limited circumstances where the Corporate Veil could be lifted.

Sale [2014] EWCA Crim 1306 (decided shortly thereafter) applied Prest to criminal cases. Sale involved an appeal against a confiscation order made against a sole director and shareholder of a legitimate company which had corruptly obtained 1.9m worth in payment for contracts with Network Rail. The Court of Appeal reviewed the decision in Seager and Blatch [2009] EWCA Crim 1303 and concluded that:

In criminal cases there were at least three situations where the benefit obtained by a company may, depending on the facts also be treated in law by POCA as a benefit obtained by the individual criminal:

1. If an offender uses a company identity to hide his crime or benefit from crime.
2. Where an offender does a criminal act in the name of a company.
3. Where the transaction or business structures is used to hide the true nature of the transaction or structure to deceive others.

In the Court of Appeal decision in Boyle they expressly added the italicised underlined words above to the interpretation of Seager and Blatch.

Finally, the Court of Appeal considered McDowell [2015] EWCA Crim 173, where the appellants were the sole directors and shareholders of company in whose names criminal acts had been perpetrated and where it was considered the defendant was the “alter ego” of the company.

Arguments

The appellant New Company submitted that the Old Company was legitimate with substantial assets and employees. PB and MB might have been the controlling minds but they were not the owners. The Crown Court had not considered sufficiently what benefit accrued to the defendants personally: The Defendants’ benefit was their enhanced salary, dividends or other pecuniary advantage that had accrued as a result of the Old Company being operated in an illegal way. The benefit was not the turnover. Likewise the assets of the old company did not belong to PB and MB.

The Crown argued that the Crown Court was correct to look at the “realities” and to consider that although they had not been the alter ego of the Old Company PB and MB were the operating minds and asked rhetorically; “What was the Old Company without them?”

The Decision

The Court of Appeal found that the judge had not been justified in treating the turnover and assets of the Old Company as the realisable property of the Defendants. The Court of Appeal considered that the judge had been wrong to base his determination on the fact that MB and PB were the “controlling minds” of the Old Company and his finding that other shareholders played no active part in the business because:

• While MB and PB as directors had to operate the company, it was the shareholders who had voting powers at company meetings.
• The other shareholders did not hold their shares as nominees or on trust.
• One of the other shareholders did play an active part in the business.
• The Old Company was properly set up as a limited company and carried on a legitimate business.

• It was not a sham.
• There was positive evidence that the Old Company would continue to trade even when the illegitimate activities ceased.

Future Guidance

The Court considered that the following considerations should be applied by Crown Courts considering the piercing of the corporate veil:

1. The test when considering piercing the corporate veil is not one of “justice”, as such a loose concept would give rise to uncertainty and inconsistency.
2. While the Crown Court is required to assess the “reality of the circumstances”, that is not a licence to depart from the established principles.
3. The scheme of POCA 2002 is not to punish, but to recover the benefits of crime that the defendant has obtained.  
4. The actual principles relating to lifting or piercing the corporate veil are the same in the civil and criminal jurisdiction. Proper adherence to company law principles is required in confiscation proceedings. It follows that however tempting, invitations to adopt a “broad brush”, “robust” approach or to “avoid being distracted by the niceties” should not detract from the proper application of the principles.
5. Regard is to be had to the nature and extent of the criminality involved as to whether it merits that the corporate veil be lifted.
6. Where a company, mixed up in criminal conduct, is solely owned or controlled by the defendant, that does not, of itself necessitate a conclusion that the defendant is the alter ego of the company.
7. All decisions must be based on the factual background and circumstances of the particular case. 

Conclusion

The case is important because it reminds the Court that in considering confiscation cases involving companies, it is not acceptable to adopt a simplistic broad brush approach to issues involving the corporate veil. Adherence to company law principles is required. In particular, the fact that the defendant is the sole director or shareholder is not to be treated of itself as sufficient to pierce the corporate veil, all the surrounding facts need to be considered.

Difficulties of piercing the corporate veil, may be avoided if prosecuting authorities have an eye to POCA and consider charging companies themselves. That may not make sense where the company is insolvent, but may be appropriate in regulatory cases or where the company has obtained a benefit from the conduct.